Powell Points, Says "Cliff... Jump!" 12/15/22

[DrStool]

And now, our daily dose of useless meanderings from an aging, plaque hardened, market addled brain. These thoughts are free, so take them for what they're worth. However, on the off chance that you are crazy enough to think there's value here, check out the really good stuff!

Now, I'm not big on analyzing Fedwords, because you know, money talks and bullshit walks. And Chairman Jaysus's pressers are peak bullshit. So I did not listen to Jaysus come to market moment yesterday. However, I did follow the reactions of various conomists, Wall Street captured PR flacks, and assorted Fed critics to get the gist of what he said, and how they spun it. 

There was no gist. And even if there was, what difference does it make? Rallies cannot be sustained on margin alone, or even massive T-bill paydowns. Yesterday, Jorma, a gentlestoolie who has stuck it out here, putting up with me for nigh on 20 years and 9 months, bless his heart, pointed out something that I had missed. 9 days ago, the Treasury started pumping money back into the market ecosystem via T-bill paydowns. This was unscheduled, and it was large. But why, and to what effect? 

I was curious about what class of buyer held the most T-bills. I thought it would be money market funds. If MFers are the biggest holders, that would do the markets little good. They'd just buy more T-bills, pushing rates down a few ticks, or they'd put the cash into the Fed's RRP slush fund, where it would mostly just sit on the John, waiting. Which is exactly what's happening. Since November 25, the Fed's overnight RRP money taken in rose by $140 billion. 

But surprise, surprise, surprise. I was wrong. 

Again. 

MFers are not the biggest holders of T-bills. 

Dealers and Borkers are! They typically buy 50-53% of total issuance. And why do you think they do that? Carry trades and collateralization. Because they can borrow Fed Funds at less than the bills yield, and then use those bills to borrow a ton more cash with which to buy shit. Or better yet, sell short and collect interest on the margin loans they put out.

Whatever. Because they are, in the aggregate, horseshit traders. Their fixed income positions are invariably wrong, and they are never hedged sufficiently in the futures when they are wrong in their cash positions. I know this because I've been tracking the weekly data on their fixed income positions for the past 20 years. 

They have been most wrong at epochal market turning points, such as the top in 2007, or the bond market price top/yield bottom in mid 2020. Massively, dead fucking wrong both times. In fact, that mispositioning is what caused the market and economic crises. The Fed and its economic PR flacks on Wall Street and in its captured media, redirected the public's attention to anything and everything else that was not the root cause. The banks' and dealers' bad, stupid, outrageous, disgusting, behavior. Not only was attention directed away from them, the Fed rewarded them for it. Since the days of Greenspan and Bernanke, those cretins, those crises have triggered massive Fed overreactions in which the Fed, instead of punishing the perpetrators of the fraud, REWARDED them.

Which has led us to where we are to day. The Fed's NO WAY OUT moment. But as always the Street now has a convenient scapegoat whipping boy, SamsonandDelilah Bankman Willget Fried, while the perpetrators of the really big crime get patted on the backside, and get paid yet again. 

But I digress. I have this compulsion to vent about this every so often. Forgive me. 

The point of the paydowns right now is to reliquify the dealers. I have been roaring for the past year about how much money they, and their big bank parent holding companies, are losing. Most of those losses are hidden in their investment accounts, which are the bulk of their assets, and which are NOT MARKED TO MARKET. No mark to market, no loss, right? Wrong, because as the Fed calls in $95 billion in cash per month, the banks have to liquidate something. So there's a gradual stream of losses that hit the balance sheet month after month. These take a toll over time. Liquidation begets more liquidation as asset prices fall in waves. 

Credit Sweese Cheese is merely the tip of the shitberg. There will be more.

With the Fed sticking to its guns on shrinking the balance sheet--which, forget rates and all the talk is the only aspect of Fed policy that actually matters--the Treasury decided to step up and ease market conditions for the time being. So they're pumping about $50 billion in cash into dealer accounts this month to smooth the market wrinkles. It's quasi QE. 

There's no guarantee that it will work, but it has certainly made intraday trading much more interesting than watching paint dry. Whether it's tradable or not depends on how much time you are willing to spend watching your screen, and how well honed your electronic gaming reflexes are. 

What a bullshit market this is.  At least with a steady flow of QE, it was predictable. Buy the dip, buy the dip. Now? Who knows? An answer: Fed Steadfast But Treasury Throws a Bullish Curve

Despite allowing a couple of my shorts to get stopped out in Tuesday's upside early carnage, I came in heavily short yesterday, held tight, and am heavily short today. Not 100%. About 30% long, 70% short. They put the fearagad into me on Tuesday, so I've resolved to pick the best trending or best looking bottoms to hold long, along with some of the multitudinous crap that wants to break down, short. 

And now it's time for what you all have been waiting for, our daily Orderly Markets Chart of the ES, 24 hour S&P fugutures. 

First, we note that a 5 day cycle low is due tomorrow, not today. Ideally...  And with a 5 day cycle projection of 3860. Hourly cycle and momentum oscillators also suggest a bottom later rather than now. Probably tomorrow. Tomorrow, bet your bottom dollar on tomorrow.  It's only a day away. 

Let the games begin. 

For moron the markets, see:

• Fed Steadfast But Treasury Throws a Bullish Curve December 14, 2022
• Swing Trade Screen Picks – 4 More Shorts. 4 More Shorts December 12, 2022
• Limited Supplies Delivered At Bear Custard’s Last Stand December 12, 2022
• Gold Hones In On New High Projections December 9, 2022
• Federal Tax Revenues Are Slowing December 6, 2022
• Fed Policy Will Stay Bearish Until It’s Too Late November 20, 2022
• The Repeal of Rule Number One, Don’t Fight the Fed November 14, 2022
• Bond Market Rally is Technically Valid but Belies the Facts November 12, 2022

If you're serious about the underlying forces of supply and demand that drive the markets, join me! 

If you are a new visitor to the Stool, please register and join in! To post your observations and charts, and snide, but good-natured, comments, click here to register. Be sure to respond to the confirmation email which is sent instantly. If not in your inbox, check your spam filter.

[Jorma]

The back up in US rates has taken tons of pressure off other currencies. The Brit Pound rally seems especially silly.  General dollar weakness is welcomed most places. That has all preceded this little Treasury gambit so maybe this is the end of the dollar swoon for awhile.

[DrStool]

[DrStool]

Dow is down 700. Is that a lot? 

[Mkucstars]

Indexes rejected at their 200 day averages. Who could seen that coming? No golden cross for you this Christmas wall street!

[WTF]

J Powell needs to take a lesson from ECB President Lagarde.

Want to stop the markets from front running you and easing credit conditions while you're raising rates & talking tough, but nobody believes you.

Look at the market's reaction to Lagarde, are they nonbelievers?

 

[Mkucstars]

Dow... not as bad as S&P or nasdaq, so I guess it's all relative

[Mkucstars]

Then there's the small caps... is the little guy winning?

Something fishy for sure.

[Jimi]

Art Cashin on Crapvision presently reporting from the Great Beyond.

[Mkucstars]

Retail down in a whole month of black Friday deals. Hmmm.

[Jimi]

I always liked the guy.

Fears a break of 3900 & follow through for next Monday & Tuesday.

[Mkucstars]

Yes, Art Cashin was a good egg.

[DrStool]

Market bouncing from multiple sport line convergence, but 5 day cycle projection now says 3840. 

[DrStool]

9 minutes ago, Jimi said:

Art Cashin on Crapvision presently reporting from the Great Beyond.

Where is he. 

I haven't watch Seenbesee since time immemorial. Last time I watched was 2003 and Cashin was old and drunk then. 

[Jimi]

Just now, DrStool said:

Where is he. 

I haven't watch Seenbesee since time immemorial. Last time I watched was 2003 and Cashin was old and drunk then. 

He called in to the show - they had a little face-placeholder from him. The photo looked a little dated: probably taken back when he was only 105.