October 30, 2019
Creating Money Out Of Thin Air
The FOMC decision on Wednesday will be the highlight moment for this week’s trade. The market is pricing in a 98% confidence level garden variety, non-transitory, certainly not QE 25bp cut in the Fed Funds rate to a band of 1.50% to 1.75%. Mind you, dear intelligent reader, this cut comes on the heels of record low unemployment and record stock market highs. So, you can go ahead and toss out your economic fundamental monetary policy handbook. This is in its simplest terms artificial non zero sum player stimulus provided to you by the only legal counterfeiting group, or shall we say coordinated group, the participating global central banking cartel. All of which are guilty of creating money out of thin air to buy private assets. What a business right, what a way to bypass any discount or risk-taking mechanism that exits. In fact, we can just come right out and say it, all that matters is QE, plain and simple, earnings…garbage…consumer confidence…garbage…CAPE…garbage. Debt and QE two of our greatest assets, we were taught these were liabilities, right? Hell no, these are assets to be bought with freshly printed digital zeroes and sold to the highest negative rate bidder. A game of hot potato for the elite and connected. ZeroHedge had a great chart to show the veracity of the complete about face that has occurred by the FED, when at one point in time (early 2019) were expected to continue to raise rates, well as this chart shows, someone (Trump) clearly forced the issue:
For us Austrian’s out there this is utterly disgusting, gross negligence, but inside the hallowed halls of the Eccles building, nothing more than decade old status quo kick-the-can down the road policy. Here we know all too well that money, size and positioning is so greatly concentrated that the real painted target is any and all assets that investment bank, private equity and venture caps just to name a few conjure up so the central banks can swiftly take them off their hands. Well, not directly of course, just by secondary funding, or to you novices…what us professionals like to call, by adding “liquidity.”
How much liquidity is needed, well from the looks of it and strictly speaking within the FED only, around $60bln per month, although this is Goldman’s estimate, we suspect it will end up being much more:
So, what does this all mean? It means equity markets will ride the central bank wave to infinity because the large players know damn well that the central banks are in no fail mode and it’s not even an option. Funny thing is though, not even the well connected first to the spigot types like buying new all-time highs, they must at least punish complacent buyers first, so we won’t be surprised to see these new highs rejected.
Remember there’s only a limited number of seats at the final table and those weakest are always caught bluffing, wearing their hand on their faces, limping in with odds stacked way against them. As far as the equities go, we can look at the SP500 futures which have hit a very important level. A level we have been waiting quite some time for and that is 3043/45 zone. Here is the chart:
A failure at this zone in our opinion would be disastrous and may lead to deep downside probes as large accounts would undoubtedly sense weakness and punish any late to the party longs here.
When we look at the US Treasury Note Future, we can see that the complex is down 3 full handles from its prior high and moving toward clear support at 128-25 area backed up by the 61.8% Fib. Retracement:
If the FED does indeed cut once again on Wednesday, we would suspect gold and silver to respond accordingly but who knows, Anyway, here is a look at Silver who from the looks of it, $17 seems like excellent trend line support:
Now we haven’t talked about Bitcoin that much, but in our weekly updates we have noted the lower bound $7100 area as possible longer-term support. Well Bitcoin did trade down toward that zone and has quickly responded to that area by rallying smartly. We feel so many misunderstand this technology and so many will be caught off guard by the ongoing advancements within the blockchain and bitcoin ecosystem. Anyway, just think of all the fiat printing, all the debt, all the negative rates, then think of what are the alternatives, then you might begin to see bitcoin for what it truly is:
Ok that pretty much does it for our update. For those of you who continue to believe in the Trump China trade deal, well just know, that we feel that this is not going to truly be resolved for quite some time. Trump smells blood and we have not seen him back down from anything, not in business, not in politics and we certainly don’t expect him to back down on this deal. As far as we know, he has the data and its charts like this one that clearly show, China is not in the position to be dictating much of anything at this point, they have far larger concerns domestically:
Thank you all for reading and we hope that you got something out of this and that you will continue to research on your own, improve your own thought processes and contribute some of what you learn to all those around you. We live in a world full of data, full of information, but the true key is interpretation and collaboration. Cheers.
Finally, we will decidedly end our notes with our reaffirmation of the growing need for alternative strategies. We would like to think that our alternative view on markets is consistent with our preference for alternative risk and alpha driven strategies. Alternatives offer the investor a unique opportunity at non correlated returns and overall risk diversification. We believe combining traditional strategies with an alternative solution gives an investor a well-rounded approach to managing their long term portfolio. With the growing concentration of risk involved in passive index funds, with newly created artificial intelligence led investing and overall market illiquidity in times of market stress, alternatives can offset some of these risks.
It is our goal to keep you abreast of all the growing market risks as well as keep you aligned with potential alternative strategies to combat such risks. We hope you stay the course with us, ask more questions and become accustomed to looking at the markets from the same scope we do. Feel free to point out any inconsistencies, any questions that relate to the topics we talk about or even suggest certain markets that you may want more color upon.
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