There’s a great scene in the classic comedy Blazing Saddles where Jim, an alcoholic gunslinger known as the Waco Kid, downs half a bottle of booze. Sheriff Bart is alarmed, “a man drinks like that…he is gonna die.” Jim takes a beat and delivers the perfect deadpan response, “when?”

This market of ours is a lot like that. It has been guzzling QE for years, more than anyone would have thought possible when it started 14 years ago. I was one of many who thought it would end in a gutter on the wrong side of town after a bout of runaway inflation.

Yet every time we naysayers warned of a reckoning, the Fed looked us square in the face and replied “when?”  As the market ticked higher with each passing year, it seemed as though the Fed might have actually beaten inflation into submission.

When it became apparent they had not, they soothed investors with the assurance that it was transitory – nothing to worry about. When that was proven wrong, they placated investors with the promise: “We Have The Tools” to deal with inflation.  I always half expected Jay Powell to bring a little black tool bag when he testified and to nod and reassuringly pat it as he said these words.

Even after it became apparent that using their tools simply meant raising interest rates to a level that would usher in a recession, the market again gave the Fed the benefit of the doubt.  Surely Jay would slow the rate hikes at the first sign of economic distress. “No, I won’t,” he told us at Jackson Hole, suppressing the urge to add “and, don’t call me Shirley.”

Still, many doubted his resolve, leading to the best opening line ever for a Fed press conference ever: “I really, really mean it this time you guys. I’m serious. I will use these tools– Look at this dot plot!  Does this look like we’re fooling around!?”  (editor’s note: it’s possible that quote isn’t strictly verbatim.)

As investors ponder a future without the Fed coming to the rescue with every 1% dip, we must concern ourselves with the question posed above: “when?” It’s finally dawning on folks that shutting off an $8.8 trillion spigot might not be terribly bullish.

We’re already seeing the effect on stocks, bonds, real estate, crypto, pretty much anything (i.e. “everything”) that ballooned in value over the past decade. Cash flows will be worth less, while some investments with no cash flow will be worthless. Many with heavy debt burdens will be wiped out. As former Dallas Fed president Richard Fisher said earlier today, this will be a risk off environment.

But, when?

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The ramp is in full bloom this morning in advance of the FOMC’s next rate hike.

Yet, futures remain well below the H&S neckline and moving averages are all aligned bearishly.  As we’ve noted all month, the algos are hanging in there for one reason: VIX suppression.  Stay frosty.

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Futures are off again this morning in the lead up to the FOMC meeting.

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