Equities trade choppily after Fed meeting

Abraham George Macro View

Jun 11, 2020

The Fed met yesterday. It did not change anything from April. But they gave you further assurance that they have you covered. Powell made it clear that he will continue to protect the balance sheet of businesses and consumers. If some other problem bubbles up, they will be there for us.

He gave assurance that interest rates won’t be hiked at least until 2022 which means they want to run the economy hot. That means they will tolerate inflation.

The Fed must have succeeded in many areas but one thing they have not is to create inflation. In the last QE, they created hopes of it. The Fed and the public even believed inflation is on the horizon, but it didn’t happen. Will they succeed this time? It is an interesting topic worth a long discussion. The immediate reaction to the Fed’s comments were dollar negative and gold positive.

When Powell took charge of the Fed, he had lot of idealistic ideas and he clung on to as long as he could. He even had big issues with President Trump, where the president was publicly belittling him. President Trump doesn’t criticize him anymore not at least publicly. Looks like Powell has become a bigger Keynesian and a reckless Chairman than his predecessors. Well, the situation demanded it. What else could he have done?

Listen to what Dartmouth business professor Peter Fisher had to say “Because of the Fed’s interventions, market prices and credit spreads don’t have the information content that we think they have. The Fed is mucking up what prices mean”. This is not news to us. The Fed has been regularly “mucking up” since “maestro” Greenspan started this in 1987 and made it a policy. After their term at the office they all find religion.

Did Prof Fisher ever speak about this during his gig at the New York Fed? He was also at the Treasury Department. Now they start preaching about the need for honest price discovery. What baloney!

A sports commentator who has more than 1.5 million followers on Twitter is now busy day-trading stocks. As we all know, there’s not a lot of sports to write about these days and there’s not much you can bet on Russian ping-pong. So, it is understandable if he found day trading lucrative. He said to his followers, “Stocks only go up, this is the easiest game I’ve been part off”. He also added, “I tell people there are two rules to investing. Stocks only go up, and if you have any problems, see rule number 1” paraphrasing the famous quote from Warren Buffett. These are the sort of stuff you hear when the market is in manic mode.

According to CNBC, Hertz, JC Penny, Whiting Petroleum all of which are companies that have declared bankruptcy have seen their stocks rise by more than 70% average in a single day. Young laid off workers who have never traded stocks are using their portion of their stimulus checks to trade stocks. There has been tremendous rise in account openings at Robinhood, and in June alone TD Ameritrade had a 400% year on year increase in trades.

EQUITIES

The S&P 500 has not changed much from our last report. The NASDAQ is garnering all the headlines as it is making new highs. On the big board about 84% of the volume was to the downside vs just 16% to the upside. If we exclude Nasdaq price action was overall bearish.

Bonds continued to rally and that was expected. The entire up move from its lows of 170^30 from June 05 looks impulsive which means it can subdivide even higher before it tops out.

EURO

The Euro price structure is getting confusingly murkier. We may have something more intelligent to write in our next report.

As mentioned in the last report, there are two developing patterns in gold. One argues that the high on May 18 at 1766 should hold for further declines or alternatively a break above can see a rise to 1800 before it tops out.

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