The Fed’s Mess

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We get yet another signal this morning that the Fed’s inflation generating activities have spun out of control. Despite the record setting pace of home price increases…

…they’re still pumping $120 billion per month into markets. Madness.

And, the algos which have made the whole operation hum are greedily eyeing a continuing spike in oil and gas prices. Yes, even more fuel for the inflationary fire.

There is a way out, but the market won’t like it.

continued for members…The big picture for equities remains the same, with ES’s breakout revealing itself as a headfake… …and SPX sporting a much cleaner looking falling channel.

VIX is back above the SMA200 and the white channel top, closing the gap from Sep 23.

While CL’s threatened new highs might help prop up stocks, they’re hardly the antidote for out of control inflation. Will TPTB really allow oil to break out of this channel?

It’s also this gargantuan channel.

This rally has gone much, much further than fundamentals would dictate. In the past, the concern over soaring interest rates has always resulted in a correction in oil/gas prices. The last significant event was in October 2018 when the 10Y was pushing 3.25% (vs CPI of 2.5%.)

Now, CPI is 5.3% and the 10Y is at only 1.5% – but only because the Fed’s heavy thumb is on the scale. If they stop throwing money at the markets, the inflationary pressures will be lower. But, the markets will convulse.

As in 2018, the only logical solution is to stop the insane spike in oil/gas prices, which should stop the spike in interest rates.

Stocks still won’t like it, but there are other ways to support them, such as a breakout in USDJPY. What a coincidence…here’s one now.