Remember that scene in Cool Hand Luke where Paul Newman mouths off to the Captain after a failed escape attempt? He doesn’t initially appreciate the gravity of his situation. He is soon reminded.

That’s what yesterday’s post-Fed presser felt like. Powell was trying to convey the sense that the Fed means business. It is going to get serious about escaping the inflationary mess it has stepped in.

The market (well, the algos) didn’t hear that. They heard Powell say exactly what they expected and, spurred on by the huge bets lined up on the bearish side of the ledger, decided to mouth off.

Clearly, they don’t appreciate the gravity of the situation, as we were reminded by this morning’s labor productivity report – the worst in 75 years.

We would do well to remember that we’ve had these moments of euphoria before. The carefully curated decline which began in late March…

…has seen more than a few deviations of late.

But, facts are still facts. Inflation – especially very sticky labor costs – is still a problem, and the Fed waited so long that they now have no choice but to tighten into a recession. There was a time when they could have engineered a soft landing. But, that opportunity was, dare we say, transitory.

continued for members…

Another breakout of the falling white channel means another backtest is coming. This time, the backtest will include not only the white channel top but the SMA10. All of the MAs are still bearishly aligned. The SMA50 is still well below the SMA200. And, VIX is still very bullishly aligned.

I keep hearing people talk about the coming decline of the US dollar. IMO, this is insane. There is no way the Fed is going to allow the dollar to depreciate, thus making everything we import from around the world even more expensive.  Remember, we import a lot more than we export.

Yes, the three companies which still export from the US could be hurt by a rising dollar. Mostly defense contractors which sell to countries (we often tote the note), they’ll get by. The Fed is much more worried about the price of imported oil and gas, food, raw materials, electronics, cars, etc etc etc. As long as the dollar keeps going up, these things are a little less of a problem.

While the USDJPY might reverse at our next upside target (106.724)……does anyone honestly believe the ECB would consider tightening as long as the Russian invasion is ongoing?

The biggest problem remains the bond market. The 10Y has broken out and is back above 3%. How exactly is the rise supposed to be contained without the Fed buying the majority of the new issuance?

GLTA