Wednesday, June 7, 2017

We can make the case for 3 more Fed hikes in 2017

The Fed promised us 3 more hikes in 2017, so why would they not deliver them?  Here's a 40-handle VIX for you, President Trump!


And now, looking at the chart of ^IRX, the 13-week Treasury bill, we can see that this looks very likely.  Why?  The yield is in the midst of a W3 move north.


^IRX 13-week Treasury yield

Next Wednesday's hike is in the bag, but the market's won't dive on the news -- this hike is expected.  We will see a hard reaction from it, but it will take another week to arrive -- after June opex.  For the next few days, it would actually be good for perma-bears to see a little weakness in the S&P 500, so we can achieve w1/w4 overlap on the chart at the 2398 level, for an ominous ending-diagonal.

SPX 60D

The truth is, the markets realize that China is attempting new waves of magic credit creation, when they have clearly already pushed the limits of rank insolvency.  It's time to give China the smackdown, and remind them who really runs Bartertown.  The Fed won't sit idly by while China purchases what's left of the world's real assets with fake money, and sustained hikes in the USA will end this little charade right quick.  Doom is coming to the Middle Kingdom.

Remember, historically, when things go crazy in China, they can get really fucking bad, something we in the West overlooked since our own nasty wars of the 20th Century.

If the 13-week yield keeps climbing in late August and into September, then the Fed will come under insane, intense pressure NOT to hike again at the September meeting.  But if ^IRX is sitting at 125 bps, they will hike again -- a marvelous equity short.  The larger 5 wave impulse can finish up after ^IRX finishes its larger impulse and brings the Fed to hike one last time in December.

SPX 2Y

However, the damage will be done at this point, as spec-u-vestors and riskloves scramble for safety in the 10Y Treasury.  They will drive its yield well under 1.5% -- inverting the yield curve.

SPX 4Y

An inverted yield-curve here signals the hard recession -- deflationary depression, really -- in 2018.  Stocks, real estate -- smoked.  After stocks hit their low, on the lower bound of the "Jaws of Death" mega-pattern, the trendline off the 2003 and 2009 lows, then bonds peak and join them on the bonfire.

This concludes the 20th Century postwar period.  The Fed has got 3 more hikes waiting in the wings for us -- this year.


31 comments:

Hugh Jazole said...

I agree we may see an inverted yield curve in the next couple of years. That doesn't guarantee a crash though, yield curves can be inverted for a short period of time, and not cause too much damage.

"There were only 8 years (10% of the 80 years) when the average weekly yield curve status was inverted for the year: 1927, 1928, 1929, 1966, 1969, 1980, and 1981.

There were 17 years (21% of the 80 years) when there was at least one week of inverted yield curve: 1927, 1928, 1929 1930, 1959, 1966, 1967, 1968, 1969, 1970, 1973, 1974, 1979, 1980, 1981, 2000, and 2006 (but 9 of those 17 years had a positive average for the year)."

Hugh Jazole said...

These newcomers will need a good thrashing in the short term. Up 8.5% in a week!

http://www.aaii.com/sentimentsurvey


Christian Gustafson said...

Perma-bear Phoenix Capital wants that lower trendline, too. And McHugh has been fascinated by it as support for years.

I'm just proposing how we can get there.

Bryan Franco said...

Really want to see the negative earnings study during the 80s and 90s

Hugh Jazole said...

Is there a correlation between PE and market tops? Common sense would say yes, but common sense does not apply to the stock market. The PE on Black Monday was well within the historical mean, back 96/97 we were right where we are now.

Permabear Doomster said...

A month or so ago, you were calling for a rate cut. Now you're calling for two more hikes, with that (somehow) initiating a crash.

Sept/Oct is always 'problematic', but current price action/structure offers broad upside into spring 2018.

Mid term bullish trends remain intact.

Hugh Jazole said...

THIS IS IT!!! TEOTWAWKI MUFFUGAS!!! RUN FO DA HILLLZZZ!!!

Christian Gustafson said...

Patience, pilgrim, this is just a warning of what's ahead. Late June ...

Bicycle said...

S&P 500, inflation-adjusted with historical data

Bicycle said...

Nasdaq, inflation-adjusted

A calamity of unmitigated proportions lies due ahead, closer than the time it takes to harvest a field's crop. Appreciate the moment of now that you live in.

T.Berry said...

once again,the stock market at LEVELS NEVER SEEN BEFORE! if the big crash doesn't happen in june, then probably july (or aug, or fall......) : ) lol

T.Berry said...

just a mere 3% till dow jones = 22,000. remember, the fed has been ahead of curve for 9 years. no reason they won't continue. fed has created unprecedented wealth for long term stock market investors. americans have never been wealthier

Hugh Jazole said...

30 years!? LOL! How about less than 10.

http://www.reuters.com/article/us-usa-congress-debt-idUSKBN171212


Hugh Jazole said...

Still not convinced it's like the late nineties?

https://www.gurufocus.com/stock-market-valuations.php



Bryan Franco said...

HJ. As we know, this time around, utter central bank bubble chaos. The spark, Draghi's "whatever it takes". That took us over the edge. What will cause net global accomodation to reverse?

Bryan Franco said...

The move in Treasuries and PMs today makes me feel like the FED is set to panic today!

T.Berry said...

fed will do fine. no reason to question at this point especially after 9 years of perfect execution. mkts going much higher. we're now within dow 25,000 within next 24 months (just over 8%/yr) and that includes the 47 crashes and 19 final highs that will happen in between. :)

T.Berry said...
This comment has been removed by the author.
T.Berry said...

s&p up just over 40% since yellen took over.honestly don't think there could have been a better choice. she gets it.

use extreme caution if trying to short this bull market. the odds are stacked against it. way easier making $ going long

Kevin Wilde said...

What the FED giveth the FED take-away-eth. Can the bubble tolerate higher rates, higher inflation, and/or a reduction in the FED balance sheet. Word is they want to start the latter by year end. Not sure the markets are going to like word of any of that. Tis a question of whether the bulls can survive the late summer, early fall crash attempt? (and thus 1998 versus 1987.) Right now continues to look like an EW 4 in progress, that likely leads to one last gasp push to new highs going into August to end the bull - AKA 1987. Financials, though appear to be in an EW 2, which is about to head into EW 3 now, which of course is the crash phase. Can have some sideways churn for all indexes to line up, though CG might have his day in the sun in the non-too-distant future, versus my call of another up leg still to come to complete a EW 5th.

Hugh Jazole said...

https://www.investing.com/news/economy-news/u.s.-fed-buys-$4.7-billion-of-mortgage-bonds,-sells-none-495969

john said...

Have you tried Sierra Nevada Torpedo anyone? It's " shockingly good!"

Christian Gustafson said...

Torpedo is tasty. Had a Fremont Interurban IPA with dinner tonight, goof stuff.

Bale Breaker is out in Yakima, literally in the hop fields. My fave beers at the moment.

Deschutes is great, too.. And Elysian.

And there is so much more. We have an embarrassment of beer riches here in the PNW.

Bradley turn on Tuesday, ladies. Watching August SPY puts for a capitulation low.

Christian Gustafson said...

Here's a triple IPA. Fierce!

Hugh Jazole said...

The best/craziest IPA I've had is Knee Deep Simtra.

https://www.ratebeer.com/beer/knee-deep-simtra-triple-ipa/166154/


T.Berry said...

hugh the fed probably has a tidy profit from the mortgages it started buying back in 2011. averaging up now. real estate prices are at all time record highs. another data point the fed got right this time. it may take another 80 yrs before we see a dip in re

T.Berry said...

"Can the bubble tolerate higher rates"
kevin, the fed has raised 3 times already and stocks are at record levels. i dare second guess the fed as their track record speaks for itself. i believe they will continue doing the right

Hugh Jazole said...

"it may take another 80 yrs before we see a dip in re" I wouldn't make too big a bet on that. I don't think it will be as severe as the previous downturn, but we will get one.

Bicycle said...

have a look at boring old Monsanto... about to get very not boring

T.Berry said...

hugh, the dip we had in 09' i believe was a once in a lifetime move just like what the stock market did. it could dip bad again but just not in our lifetime.

dow jone hit another record high again today. honestly lost track of the times the dow has set a new record this year : )

Bryan Franco said...

Happy Father's Day Weekend to all the Dadas out there. I love my daughters. They will be looking at charts soon enough.