Picture credits

As Shakespeare Used To Say When Fed Following, 0 or 25bp That Is The Question

But (no offense) I actually have to disagree with Shakespeare on this one because I don't think 0 or 25 really matters.

I've been saying that the market's been revving to go higher and sometimes it just wants to wait for Fed day to pass. It's been showing bullish signs even in this down move with limited volatility on 'terrible news.' That's a sign of good action and an underlying bullish market that I think has the chance to breakout tomorrow (QQQ and SPY Bullish).

"Too Big To Fail' Is Out The Window

As I said above I could read into what 0 or 25bp means but I don't think it matters. Why? Because there's no banking crisis. There are no major problems. The Fed and government just have absolutely zero pain threshold and there's no such thing as 'Too Big To Fail' anymore. Rather it's 'Don't Let Anything Fail.' You don't need to be too big anymore. You don't need to be systemic. Normal economic cycles are no longer allowed by the Fed, global central banks or their governments. Notice?

This is not 2008's web of complex derivatives sprawled throughout the banking system. This is a few banks unsupervised gunning it taking on too much risk. No offense, but they deserve to fail and shame on regulators for not staying on top of them.

The Fed can't take any pain and has to now always come to the rescue on any economic toe-stub.

That last statement is so so so so so bullish. You want me to say that again, right? (Nod here)

The Risk Of Printing Too Much

It's bullish to save everything until inflation gets out of control because of the Fed printing too much money. Whenever they cross that threshold of 'too much' the value of currency would drop from too much supply making goods too expensive to buy; inflation.

That's kind of why we having inflation now after they printed too much in the Pandemic, even though they want to blame everything else.

But that 'too much' printing is a longer term problem and short term I think the next series of inflation prints will be lower in April than they were in March based on correlations we look at that the Fed does not. Remember the Fed has nearly zero high tech (AI) helping them. Lick finger, finger in air, group think, 'sounds good,' global central banks following. That's the process of the global financial infrastructure. Pretty sad but causing lots of inefficient money making market opportunities.

The coming PCE may be a little high on March 31st but that follows CPI so a little bit old news. Maybe for that alone the Fed needs 25bp.

A (Hopefully) Humbled Fed

I've pointed out that the Fed has finally been humbled to respect markets. They had challenged markets to say they weren't going to pivot and I think they lost that Fed game of chicken.

What that means is that the Fed will finally start respecting AND now follow markets. CME represents the markets call on Fed moves. I think the Fed will and has to be subservient to respect markets... finally. We all need to respect markets. This Fed is finally coming to that realization.

The Fed needs 25bp because CME is now projecting 87% chance for 25bp.

And we see a hint from Fed previews lack of guidance but instead calling out CME as the guide. I think it simply comes down to that CME. The markets want 25bp and Powell's lack of conviction flipflopflipflop means he has zero confidence. He's been correctly humbled and will simply follow markets to do 25bp. That's his, by far smartest move. I hope he just read that. (No offense Pow on the tough language. You know, we're still friends. Still on for dinner Wednesday night?)

Either way 0 or 25 I think it's bullish for markets.

The dot plot will come out and it's another so sad story that they may not have updated it after the string of events but that's such a sad-antiquated-process possibility. So be on guard if the plot is hawkish at 2:00 but Powell's press conference at 2:30 should be back bullish if 2:00 was not.

Here's Cutie, QT. Oh So Pretty...

Taken From SOMA

Notice something here?

This is the Fed's balance sheet reduction called quantitative tightening. I think it's a major major drag on markets.

Notice something?

The monthly trend slowed from $75B-80B each week to now $51B.

I don't think that's by accident.

Bloomberg Headline: "New Fed Bank Backstop Has Scope to Inject as Much as $2 Trillion"

Uh, weren't they just trying to slow things down. Now they are trying to speed things up again.

Fed meeting two weeks ago, "Uh guys we need to slow things down."

Fed meeting this week, "Uh guys we need to get things growing."

Makes absolutely no sense but that's the world. It doesn't matter if it makes sense or not, we just need to boil it down to what it means for stock market direction, which is what I think I'm trying to do each day.

QT / QE is an immense driver for the markets. Less bond selling and more bond buying supports lower yields which helps markets.

There is no bigger buyer than the Fed so they are back in there buying government-printed fixed income based on cutie QT slowing! Oh so bullish.

If they have any official changes Wednesday on their QT goals based on that balance sheet hit I posted above, that would be oh-so bullish too.

More By This Author:

Markets Win Kashkari's Game Of Chicken
Caution To The Wind Is Bullish
SPY: Inflation News Bullish Ahead Of Powell's Fed Testimony Tuesday To Congress