The equities market is a very strange beast, it truly is. Let's take Friday for example.
The fed has been pretty straight forward in telling you that they are going to hike rates until they get up and over 5%. Despite the howls from the market participants, Powell has also said that there would be no rate cuts in 2023.
But Wall street doesn't believe him. See, they've got all this history about the Fed, and for decades the play was always the same. Fed hikes rates to cool down an economy, overshoots, panics and then starts cutting rates.
When rates are being cut, stocks move higher. Why? Companies can borrow more money at a cheaper price. They can use that money to buy up their own shares, and thus reduce the float and therefore push the stock price higher.
Wall street LOVES low rates and the evidence is easy to see. Look at what the DOW has done since 2010. After the 08/09 financial crisis, the fed went into panic mode and printed money like madmen. Do you know where the DOW was in 2010?
No, really.... think about this for a minute. The DOW Jones has been in existence since 1896. Did you know it was that old? Yessirree it is. And from 1896 all the way to 2010 the best it could do, was end the year at 10,600. That's it. 10K in over 100 years.
From 2010 to 2022 it made it to 34,561. Now the back of the cocktail napkin tells me that this is a gain of about 24,000 points.
So, if it took 114 years to go from its humble beginning of 12 stocks, to the current 30 stocks in 2010 and only gained 10K points... why did we gain 24K points in just 12 years? What changed?
You all know the answer to this riddle. Zero interest rates and trillions of freshly minted/printed dollars, that's what. If the fed is cutting rates, and/or keeping them there, AND printing trillions at the same time, the market gets orgasmic and up it goes. We have the proof, it's there in black and white.
But the fed has changed course now, and has been aggressively hiking rates. Well that's sort of peeing in their punchbowl and they hate it. That's why in 2022 we saw the S&P down 20% and the debt heavy NASDAQ down 34%.
The equities market is a very strange beast, it truly is. Let's take Friday for example.
The fed has been pretty straight forward in telling you that they are going to hike rates until they get up and over 5%. Despite the howls from the market participants, Powell has also said that there would be no rate cuts in 2023.
But Wall street doesn't believe him. See, they've got all this history about the Fed, and for decades the play was always the same. Fed hikes rates to cool down an economy, overshoots, panics and then starts cutting rates.
When rates are being cut, stocks move higher. Why? Companies can borrow more money at a cheaper price. They can use that money to buy up their own shares, and thus reduce the float and therefore push the stock price higher.
Wall street LOVES low rates and the evidence is easy to see. Look at what the DOW has done since 2010. After the 08/09 financial crisis, the fed went into panic mode and printed money like madmen. Do you know where the DOW was in 2010?
No, really.... think about this for a minute. The DOW Jones has been in existence since 1896. Did you know it was that old? Yessirree it is. And from 1896 all the way to 2010 the best it could do, was end the year at 10,600. That's it. 10K in over 100 years.
From 2010 to 2022 it made it to 34,561. Now the back of the cocktail napkin tells me that this is a gain of about 24,000 points.
So, if it took 114 years to go from its humble beginning of 12 stocks, to the current 30 stocks in 2010 and only gained 10K points... why did we gain 24K points in just 12 years? What changed?
You all know the answer to this riddle. Zero interest rates and trillions of freshly minted/printed dollars, that's what. If the fed is cutting rates, and/or keeping them there, AND printing trillions at the same time, the market gets orgasmic and up it goes. We have the proof, it's there in black and white.
But the fed has changed course now, and has been aggressively hiking rates. Well that's sort of peeing in their punchbowl and they hate it. That's why in 2022 we saw the S&P down 20% and the debt heavy NASDAQ down 34%.
Over the past couple weeks, the intra day volatility has been enormous. Wall Street is designed and yes, rigged... to go up. But these silly feds are throwing lead on them. So, they get all manner of spastic, and any time they think there's something they can use to suggest the fed will stop hiking, they run the market. Then any data that hits that basically says "that's too hot, the feds won't stop" and they sell us down.
Friday we saw that very thing happen in real time. First the jobs report hit. The headline number was still hotter than they wanted, gaining supposedly 223K Vs estimates of 200K. But then they saw the wages component of the report. Well last month they said wages grew at 0.6%, a terribly hot pace and the market sold off on that. But this time, 0.3% was looked on with much desire, and they jammed the market higher. How high? Up 535 points by 11:30 am.
Now first of all, a word about the jobs report. It isn't real. It is never real. It' is massaged, made up, twisted, tarted up, lipsticked and all other manner of manipulated. For instance my "Email-buddy" I'll call Dr. Brown sent me this: Morning Robert! Well once again the BLS makes a mess out of their numbers. Query: how does the number employed increase by 717,000 but the BLS claims we added only 223,000 jobs? The number of unemployed decreased by 278,000 not in the labor force decreased by 303,000 but still, the BLS claims we only added 223,000 jobs. Where did all those other jobs go? New math I guess? HAHAHA
Oh it's new math, fuzzy math, and witches math, conjured up by cone headed Academics, with special powers. In other words, they simply fudge them and make "adjustments" as necessary, etc. So, with the annual year end revisions, coupled with their "oops" moment when the Philly fed had to announce that in the second quarter we didn't gain 1.1 million jobs, but just 10,000... then sprinkle in the realization that full time jobs actually FELL a thousand, while part time jobs gained 679 thousand. In the big picture, the reality is that over the past year, we've lost almost 300K full time jobs, but added something north of 850K part timers.
Okay, back to the story....
So the market didn't give a squat about the jobs NUMBERS, they focused on the wage growth slowing from that outlier 0.6% of last month ( revised to 0.4) and this new one at 0.3% got them cheering. We started the day pretty strong, but there was some whip involved as I saw the DOW from up 213 to just + 96 in the first minutes. But then "IT" happened.
The ISM non manufacturing PMI came out. Was it going to be as "hot" as feared at 56.5? Well, no, it came in at just 49.6 and they went ballistic. Within a half hour we were up over 400. By 11:30 over 500 points. 600 by noon.
But my point is simple. Only on Wall Street, is good news about jobs, or the economy shunned and bad news where wages aren't keeping up, or unemployment is going higher is heralded as wonderful. It's so upside down. It's really criminal, but that is exactly where we're at.
Now, as far as the fed "coming around" and pausing hikes and then pivoting towards cutting them, I just don't see it. This fed is built different. Well, let me rephrase that. The fed is a banking cartel and that cartel is global. From the IMF, the BIS, through the bank of England, the bank of Japan, etc, the bankers are ALL connected. And, they are all run from the very top, from the old money, old family bosses that sit at the top. If they're instructed to cut rates and keep the middle class alive, they will. If they've been instructed to damage the US economy, they will. Don't for a minute think that Powell acts on his own. He's got to get the nod from his handlers at BlackRock and all their henchmen to do anything.
I'm simply asking a silly question here. Is it possible that he's been instructed to induce recessionary pain to the US? I think it's very possible. But in the meantime, the market is going to take any economic weakness and turn it into shouts of joy, as they hope against hope that Powell pivots.
Such is the world we live in. They want 2010 - 2022 back and to get it they know they need low rates and money printing. So far, he's said no. This will make volatility continue, so be ready for more 800 point intra day swings, and seemingly strange moves.
My guess is that they get a bit of mileage out of Friday's romp, and the S&P might get up to the 3950 level or higher. But I don't think it will last. They've got to get past earnings season which starts in a couple weeks and there could be gobs of ugly in that. Stay tuned.