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Which Way Wednesday – Waiting on the Fed (Again)

TODAY is the day!  

I blame Econoday, which had Powell speaking yesterday on Monday's Economic Calendar but it turned out he is speaking today and tomorrow to Congress so the market just drifted along for the most part – continuing the boring trend for the month as we attempt to get over the 3,000 line on the S&P 500 (/ES).  

We did the math for the 5% Rule™ in yesterday's Live Member Chat Room and decided that 2,976 would be the inflection point and we closed a bit over the line yesterday but we're right back on the line this morning.

Powell's testimony begins at 10am and goes on for a couple of hours but his official statement being released at 8:30 so we'll see a quick reaction (not necessarily the right one) ahead of the bell.  Oil and Gasoline are up 2% off a strong API Report and the EIA Report confirms or denies those numbers at 10:30 – so that's another market-mover to watch this morning AND we have the Atlanta Fed's Business Expectations Report, also at 10 am and, just in case Powell doesn't get us over 3,000, Bullard has a speech lined up at 1:30 – just ahead of the Fed minutes.

8:30 update:  So much for waiting for Powell as his statement has popped the Dow 100 points already and here are the key points from his statement:

  • Since June, uncertainty continues to weigh on the outlook
  • Inflation pressures remain muted
  • Uncertainty over trade, global growth
  • Business investment slowed ‘notably’
  • Brexit, debt ceiling are unresolved
  • ‘Crosscurrents have reemerged’
  • Fed will ‘act as appropriate’ to sustain expansion
  • Baseline is still solid economic growth
  • Economy performing ‘reasonably well’
  • Inflation to move back over time to 2% objective

Traders are keying off "Fed will act as appropriate to sustain expansion" which indicates they are 100% behind this rally but it's a bit of cherry-picking as Powell is also saying we are on track to hit the inflation target (so easing makes no sense) and the "worries" he has for the economy are still Trade and Brexit (and their effect on Global Growth), which are the same self-inflicted wounds we had in December, when the Fed did raise rates – so what's going to happen if we resolve them?

The baseline is still "solid economic growth" and the Fed doesn't want the US economy growing at 4-5%, 2-3% is what they prefer – this is not the environment for monetary easing by any stretch.  At the moment, we're hitting Dow 26,825, S&P 2,990, Nasdaq 7,885 and Russell 1,570 – none of them are very good shorting lines but all are tempting….

With 100% of traders expecting a rate cut in three weeks (it's just a matter of how much), the chance of disappointing them far outweighs the chance of meeting their expectations and that is how we get sell-offs.  But 3 weeks is a long way away so we're not going to worry about it yet.  What's really happening this morning is Powell's comments tanked the Dollar buy 0.33% and the indexes rose 0.33% to compensate – that's not a rally – it's a math problem!

So our shorting lines will be 26,900, 3,000, 7,900 and 1,580 and if 2 cross below we look to short the laggards with very tight stops if ANY of them go over the lines again.  

Other than that, we're just watching and waiting to see what sticks after Powell testifies and we still have the Fed's Minutes at 2pm and we'll be doing our Live Trading Webinar at 1pm, EST – where we'll try to figure out which way things are heading once the dust settles. 

 


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  1. Morning, All!

    It's Wednesday, and that means webinar! Join Phil at 1pm here:

    https://attendee.gotowebinar.com/register/4590082114520236300


  2. Are we going to have one ally left once Trump is done:

    https://talkingpointsmemo.com/news/uk-foreign-secretary-jeremy-hunt-slams-trump-disrespectful

    What is so ironic is that in one tweet Trump validated everything that the ambassador mentioned in his comments. But irony is always lost with that crew…


  3. Nice chart:

    China vs. United States: A Tale of Two Economies

    Right click on it and open in a new tab for the full size version.


  4. Next time, we will need a bigger bailout…

    https://www.bloomberg.com/news/articles/2019-07-10/wall-street-unbound-old-shackles-quietly-disappear-under-trump

    Since the 2008 financial crisis, federal regulators have publicly — and often privately — tried to keep giant banks like JPMorgan, already deemed too big to fail, from getting even bigger. Operating through back channels, Washington snuffed out merger ambitions and discouraged plans to expand businesses, offer new products and open branches. The goal: to contain the industry, and its worst impulses, without the glare of public scrutiny.

    That’s over now. The Trump administration has rolled back the stealth campaign. And the implications — for the banks, their customers, investors and the economy — could be enormous.

    Trump Bump

    And for some reasons, Congress won't have any issue spending that money! But we can't afford to help the little people.


  5. ?Good Morning!





  6. Good morning!

    As noted above, we're looking for shorting lines @ 26,900, 3,000, 7,900 and 1,580.

    Great Chart, StJ. 


  7. MU – Phil you recently pointed out the strong move in MU.  Up big again today.

    Stock is up almost 30% in the past two weeks.  Covered some.


  8. Those Korean protest signs denounce Abe as a danger to north-east Asia with his economic policies. On the export restrictions in particular, it smells to me like Abe is acting in part as a US proxy (as often happens), as the US does not want the RoK evading the US sanctions on the DPRK.


  9. Big dive on the Russell… Anything that Powell said?


  10. MU/Albo – What a ride:

    Big spike to our shorting levels, /RTY best so far.

    We'll see how the Q&A session plays out.

    Abe/Snow – Japan's economy will implode one day, not much Abe can do about it now.


  11. Sen Wagner just pointing out to Powell that BOJ balance sheet is now equal to their entire GDP.

    EIA very similar to API:

    • EIA Petroleum Inventories: Crude -9.5M barrels vs. -3.1M consensus, -1.1M last week.
    • Gasoline -1.5M barrels vs. -1.3M consensus, -1.6M last week.
    • Distillates +3.7M barrels vs. +0.7M consensus, +1.4M last week.
    • Futures +2.8% to $59.45.

  12. How much of this will show in in the 2020 election?  If not then, certainly the next one

    https://www.marketwatch.com/story/watch-this-deepfake-and-you-may-never-trust-a-video-recording-ever-again-2019-07-09?mod=mw_latestnews


  13. Japan/Phil – yes, it's odd – Korea is in much better shape than either Japan or China, yet no one, including Koreans, seem to realize it.


  14. Fakes/Tangled – You can't trust what you see anymore, that's scary.

    Korea/Snow – At least you guys get to watch my cousin's new musical:

     


  15. Great read / summary above on the Mueller report.  Mindboggling that Trump is still in office.  To his credit it really does look like there was no collusion, but after the fact there was a TON of obstruction!!!


  16. Musical/Phil – very cool! Musicals are really popular in Korea. Our daughter-in-law's younger sister is a musical actress (although she doesn't seem to have a lead in this one; I think she's working on something else ATM).


  17. How much more proof do people need?

    Residents of one midwestern state can be forgiven if they have a feeling they are not in Kansas anymore. The Sunflower State finishes a respectable No. 19 overall in this year’s CNBC America’s Top States for Business rankings. That is a 16-place jump from 2018, making Kansas this year’s most improved state.

    One year ago Kansas was still nursing a hangover from a disastrous tax-cutting experiment by former Republican Gov. Sam Brownback, who slashed individual income-tax rates and eliminated taxes on “pass-through” income from certain businesses. Even though a bipartisan super-majority of the state legislature had repealed the Brownback program over his veto in 2017, the state was still dealing with a residual $351 million revenue shortfall for fiscal 2018, according to the Center on Budget and Policy Priorities. In addition to its No. 35 overall ranking last year, Kansas finished a dismal No. 45 in the Economy category.

    A budget surplus on the prairie
     

    This year the full force of the repeal has taken effect: The state is running a budget surplus. In addition to the 16-point improvement in its overall ranking, Kansas rises 16 points in the Economy category.

    “We are returning to our roots as a very progressive, thoughtful, forward-looking state,” Gov. Laura Kelly, a Democrat, told CNBC in an interview. Kelly was elected last year as part of the backlash over the Brownback plan.

    The year’s biggest decline belongs to Michigan, which falls 13 spots to No. 24. Just two years ago Michigan was the most improved state in our ranking. A cooling housing market is not helping the state’s economy. While prices rose a healthy 7.4% last year, according to the FHFA, that is down from an 8.6% increase in 2017 despite continued tight inventories.

    Michigan’s infrastructure is lacking as well. The five-year-old Flint water crisis is just the highest-profile example of the state’s utility woes, with an estimated $13 billion in repairs needed over the next 20 years to fix the state’s drinking and wastewater systems, according to the U.S. Environmental Protection Agency.

    /RTY hit 1,560 before stopping out – crazy move.

    This country has two different views of reality:

    Of course, independents much closer to Dems than Reps so kind of shows you whose got a firmer grip on reality overall.

    Powell actually said the Fed is worried that raising rates would make paying down the National Debt impossible. What an insane way to make policy we now have…


  18. Rates / Phil – So we need to keep rates low so that we can afford the idiotic tax cuts that these guys just passed. Aren't there any real economists (or courageous ones) left to point out that what the GOP is doing is so damaging to our country? These same guys are worried about immigrants and they planted an atomic bomb in our economy. Idiots…


  19. Kansas / Phil – My point exactly, but you know that they will run against that governor pointing out that she raised taxes and people will forget what mess the previous tax cuts created. Sometimes you just want cry or scream…


  20. Above chart I am amazed that this country has still more than 50% of fools running arround


  21. Powell: You will probably get your rate cut in July.

    Markets: OK, so you said three rate cuts by year end.

    Powell: The economy is fairly healthy and it's not clear how much easing is needed.

    Markets: OK THREE rate cuts at least.

    Powell: …

    Markets: THREE RATE CUTS!!!

    “I don’t think that the project can go forward … without there being broad satisfaction with the way the company has addressed money laundering, all of those things,” Powell said in an appearance before the U.S. House of Representatives Financial Services Committee.

    Powell said the digital currency project, announced by the social media giant in June, raised “serious concerns” for regulators.

     

    “Libra raises many serious concerns regarding privacy, money laundering, consumer protection and financial stability,” he told the committee. “These are concerns that should be thoroughly and publicly addressed.”

    Powell said any regulatory review of the recently announced project should be “patient and careful.”

    He said the Fed has established a working group to follow the project and is coordinating with other central banks across the globe. He also expects the U.S. Financial Stability Oversight Council, a panel of financial regulators, will also review the idea.

    Powell noted that he supports financial innovation as long as appropriate risks are identified, but he said the massive platform enjoyed by Facebook immediately sets Libra apart from other digital currency projects.

     

    “Facebook has a couple billion plus users, so I think you have for the first time the possibility of very broad adoption,” he said.

    Any problems that could emerge through Libra “would arise to systemically important levels just because of the mere size of Facebook.”

    Small-business selling prices continue to point to higher core CPI ahead. This trend also makes it hard to justify deep rate cuts.' via

    Economists/StJ – The problem is charlatans like Laffer get funded because he tells the Top 1% what they want to hear.  Newspapers have no money anymore so they don't have staff economists or, if they do like Krugman, the Conservatives do everything they can to discredit everything he says.  

    ROFL – Congressman asking question now just quoted Laffer to make a point and Powell essentially answered: "No, that's not true at all."  

    I like that chart! 


  22. Even Merkel gets the shacks when seeing him now!!!


  23. I am thinking it is time to stop thinking/saying/discussing the idea that a country is going to pay down its debts, I don't think it will ever happen in Japan, the US or Europe


  24. So will the rest of the World catch up or are we just bat-shit crazy?

    Keep in mind that, for the rest of the World to catch up, global equities would have to gain about $300Tn…

    Debts/Mike – Not even possible.  Either Default or Hyperinflation – the only way debts will be paid off down the road. 

    Image result for hyperinflation pay down debt

    Image result for hyperinflation pay down debt

    Image result for hyperinflation pay down debt

    That's the craziest thing, they are printing money like crazy but it's not circulating but, once it begins to circulate, the amount of money moving around will swamp the systems long before the Fed can get it under control.  Most likely though, that's the intention as it's the only way we can pay off our debts without defaulting – we did it in the 70s, when Nixon took us off the gold standard and inflation was double digits for years so our GDP outgrew our debt and came under control – for a while…

    Image result for us debt to gdp history

    Image result for us inflation history


  25. Webinar time but I'm waiting for my webinar computer to finish its update.  


  26. Should be starting in just a few minutes….


  27. Hoover Institute???  What a joke they are.  

    You do understand that Stalin, Mao, Castro, Pol Pot and Chavez were not Socialists, right?  Just saying something is Socialism doesn't make it so.  Romans were Capitalists, as were ancient Greeks and the Weimar Republic as well as Herbert Hoover's America – OOOH, burn, Capitalism is a failure!  You know that's juvenile so why push it when that idiocy suits your argument?

    I still like our morning shorts if we get back to those lines as I think the Dollar will spring back a bit overnight from 96.65.


  28. BBBY reports after the close.  They've have 8 quarters in a row of lower same store sales.

    Hoping for a good report, but not really expecting it.  Prepared to average down one last time if that's the case.


  29. Juvenile? Joke? Idiocy?

    Sorry, I did not mean to upset your delicate sensibilities. 


  30. Stalin a socialist? Good grief. Where does these people's imaginations take them? It's like you can make up the most ludicrous baloney and someone will take it seriously.


  31. Delicate/Pstas – I'm upset to have my time wasted by reading propaganda from a long-discredited "think tank".  Mostly want to make sure no one here falls for that nonsense and yes, I really would think you would know better than to peddle that nonsense here, so I guess not so much upset as disappointed.

    Stalin/Pirate – The thing is people spend so much time in their conservative echo chambers that they really do forget what's real and what's not.  That's why hosts on Fox News get so surprised when they are challenged – they are used to preaching to the converted where no one questions their logic – no matter how ridiculous it is.

    I wonder what O'Reilly would say now about Trump's WH guest list?





  32. Iranian boats attempted to seize British tanker



  33. China Is Stifling Its Own Movie Business






  34. Falcon has landed: Japan’s Hayabusa2 probe touches down on asteroid