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The Bells Are Ringing… Has the Fed Signaled the Market Top?

Phoenix Capital Research's picture




 

The bells are ringing for the markets, but few are noticing.

 

The primary driver of all stock prices for the last 5 years has been Fed intervention. The Fed is now actively tapering its QE programs. But more importantly, Fed officials are beginning to leak that the Fed is changing course with its policies.

 

To understand this, you first need to note that Fed officials are public officials as well as economists. What we mean by this is that when a Fed official speaks in public, their message is carefully crafted. Fed officials hedge their views and find ways of hinting at changes without ever outright saying anything too extreme.

 

In this sense, it’s important to read “between the lines” when Fed officials speak. With that in mind, we need to note that the Fed is beginning to hint at a potential exit strategy to its policies.

 

First off, Janet Yellen hints at an interest rate hike during a press conference. Now Philadelphia Fed President Charles Plosser is criticizing the Fed’s “interventionist” actions.

 

Over the past five years, the Fed and, dare I say, many other central banks have become much more interventionist. I do not think this is a particularly healthy state of affairs for central banks or our economies. The crisis in the U.S. has long passed. With a growing economy and the Fed's long-term asset purchases coming to an end, now is the time to contemplate restoring some semblance of normalcy to monetary policy.

 

            Source:  Philadelphia Fed.

 

The translation to this: the Philadelphia Fed is aware that the Fed is out of control and needs to back off.

 

Then we get Fed uber-dove Bill Dudley talking about “eventual interest rate increases.”

 

Federal Reserve Bank of New York President William Dudley said the pace of eventual interest rate increases “will probably be relatively slow,” depending on the economy’s progress and how financial markets react.

 

A “mild” response “might encourage a somewhat faster pace,” Dudley said today to the New York Association for Business Economics. “If bond yields were to move sharply higher,” on the other hand, “a more cautious approach might be warranted.”

 

Source: Businessweek.

 

This is Bill Dudley… the man who has claimed that QE is fantastic and that inflation is too low… now openly talking about when the Fed will begin hiking rates and how it will do so.

 

The writing is on the Wall. The Fed has reached Peak Intervention with its policies and is now shifting gears. This process will be gradual in nature, but the alleged “exit strategy” which the Fed has been avoiding for the last five years will begin looming on the horizon.

 

The question now is when the markets will take note of this.

 

This concludes this article. If you’re looking for the means of protecting yourself from what’s coming, you can pick up a FREE investment report titled Protect Your Portfolio at http://phoenixcapitalmarketing.com/special-reports.html.

 

This report outlines a number of strategies you can implement to prepare yourself and your loved ones from the coming market carnage.

 

Best Regards

 

Phoenix Capital Research

 

 

 

 

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Wed, 05/21/2014 - 23:37 | 4783749 kevinfub
kevinfub's picture

Thank you for sharing this article. Very useful

Friv 2 | Kizi 1 | Yepi

Wed, 05/21/2014 - 23:32 | 4783738 disabledvet
disabledvet's picture

Bwhahahahahahaha. "fed rate hike imminent" talk!

Give me a break. Since when does fed care about the dollar let alone "price stability." This is all about the "dual mandate" and pretending that "it's all about the jobs" (when it's all about creating inflation.)

Move along.
The market will still correct no matter how many billion dollar helicopters the "fighting folks" demand.

Wed, 05/21/2014 - 23:19 | 4783717 g'kar
g'kar's picture

How can there be a top when there is no bottom?

Wed, 05/21/2014 - 22:24 | 4783568 cobra1650
cobra1650's picture

just a continuation of the Kabuki Theater...all talk, jawboning, good cop, bad cop, "we should do the rational thing"...but it just keeps going on and on and on....how in the fuck does it return to NORMALCY?

Only WAR spoils solve this problem.

Wed, 05/21/2014 - 21:52 | 4783490 RMolineaux
RMolineaux's picture

Although the article does not mention it, IMO, the biggest problem for the federal government will be the budgetary effect of higher interest rates when they begin.  The federal debt is so large that, if it is required to borrow at increased market rates, the deficit will expand rapidly - perhaps beyond any remedy short of default or rapid inflation. 

Thu, 05/22/2014 - 00:47 | 4783859 Frilton Miedman
Frilton Miedman's picture

True that, coupled with the dual burden of household debt, now at 105% of income vs 65% in 1980.

Both government and the lower 95% of workers have the same problem.

The beneficieries - corporate earnings at an all time record, executive salaries averaging 400X median vs 50X just 3 decades ago.

Trickle down/supply side taxation, it appears, isn't working.

 

 

Wed, 05/21/2014 - 21:12 | 4783383 intric8
intric8's picture

"First off, Janet Yellen hints at an interest rate hike during a press conference. Now Philadelphia Fed President Charles Plosser is criticizing the Fed’s “interventionist” actions."

Problem is they are quick to hint in the other direction after a mere 2% drop in the indexes.

Policy reassessment in view of recent developments is what its called, i think

Wed, 05/21/2014 - 19:07 | 4783067 AdvancingTime
AdvancingTime's picture

We may soon be forced to face our economic Armageddon. The forces that have driven stock markets ever-higher and upward may be beginning to wane. Many markets became distorted years ago when QE and super low interest rates hit the economy in an effort to lessen many of the missteps of recent years.

This has been more helpful in holding up the underlying value of assets and derivatives it now appears than helping to repair a wounded economy. QE has up to now stopped an implosion of derivatives including the resulting contagion and shock that would have spread throughout the financial system. Unfortunately the economy has not fared as well as these asset prices and in many ways these policies have harmed Main Street. More on this subject in the article below.

http://brucewilds.blogspot.com/2014/05/facing-our-economic-armageddon.ht...

 

Wed, 05/21/2014 - 18:41 | 4782969 zipit
zipit's picture

Sorry, it's QEternity.  It will "never" end.

Wed, 05/21/2014 - 18:35 | 4782943 kurt
kurt's picture

We shouldn't have to "read between the lines". Who made the huge flapping assholes at the Fed the fuckin' Oracle at Delphi? Oh great Swami... say the magic incantation and set us free your wizard-of-ass spouting pile of pressurized shit! Say chairman, did you shit your pants today? No. Really? Tell me! Hold him and pull down his pants... what's that? Shit, all caked up and spackled in those cracks and fissures! I thought you said you didn't shit your pants? The chairman rejoins, "You said did I shit my pants TODAY... this is from last week!"

Wed, 05/21/2014 - 18:15 | 4782877 rocker
rocker's picture

You and Elliott Wave's Robert Prechter have been wrong for 5 years. At EWI they are waiting for P3.  LOL 

At least Prechter has his new Social Bullshit Publication that anybody who reads the news can figure out.

Wake me up when Phoenix Capital Research becomes a bull or admits they were wrong.

Until then, BTFD still works.  So Sad to be wrong for so many years.

Wed, 05/21/2014 - 17:34 | 4782739 machineh
machineh's picture

If it's obvious, it's obviously wrong. Markets don't respond to logic.

The 10-year T-note hit 3.0% yield Dec. 31st, on taper worries. Now the taper's half over, and the yield's down to 2.5%.

Treasuries say no problem ... for now.

Call me when it breaks 3 percent again. We're likely to see S&P 2K before that happens.

Wed, 05/21/2014 - 17:50 | 4782692 CHX
CHX's picture

The Fed is cornered. They'd need to reverse (that's what they communicate they intend to do a 'soft landing'), but if they do, their house of cards will crumble very fast (gravity is a bitc#; to me it seems that they are NOT tapering, and backdoor QE [cough *Belgium* cough] just makes up for whatever they claim to taper). When/if this starts in earnest, they have a choice. Quickly revert to even more QE to keep interest rates low (and not at 15++%; e.i. more of the same that did not work) or it all comes crushing down, finanical annihialation, utter collaps, hyperinflation, social unrest, et al. I think it's quite clear which the'll choose, but either way, it will fail miserably. No way out. Hedge accrodingly. 

Wed, 05/21/2014 - 22:59 | 4783670 Frilton Miedman
Frilton Miedman's picture

CHX, I think there is a way out, the same way we got in.

The Fed has been the tie-breaker for decades of political gridlock for politicians too afraid to stand against campaign funders, that has resulted in lack of wage growth, increased globalization and increased disparity, record highs in household debt with record breaking corporate profits at the same time.

When Congress couldn't stand against the buying power of big money, the Fed just made money cheaper each time, voila, problem solved! (not)

We're now waiting for the 2nd coming of T Roosevelt, a self made man of wealth who had less concerns for wealthy campaign donors.

 

 

Thu, 05/22/2014 - 03:14 | 4783991 CHX
CHX's picture

Good luck in slowly reverting a 30+ year bull market in bonds (or the latest stock rally fueled by mainly cheap and newly printed money), good luck in working of the 17T debt and 100+ T in unfunded liabilities. And most of all, have fun in unwinding the 1000+T derivatives of the TBTFs. Good luck in bringing back the workforce that once made the USA #1. Their jobs are now in China, and the rest of Asia. How do you bring back a middle class that has been systematically destroyed over 4 decades? How do you bring back more equality when 1% practically own the system. I just don't see a happy ending here. Maybe the "best" way is some sort of debt jubilee and a new start. But that means a LOT of broken promises, and a new dollar that is not the world reserve fiat currency and not a petrodollar. It'll be just another currency, and the standard of living will go way down, as the purchasing power of the new dollar will be much less, and thus imports (energy) will be much more expensive, until new domestic production is ramped up to meet domestic demand. As said, either way the status quo has failed and is on life support now. For how much longer, I have no idea, but not another 10 years IMHO. 2, maybe 3 at most before some SHTF scenario comes to fruition. 2nd coming of T Roosevelt is wishful thinking. As long as the financial + political status quo remains, they'll print print print until the world rejects the dollar for good, a process which has already started. 

Wed, 05/21/2014 - 16:34 | 4782517 Charles Wilson
Charles Wilson's picture

They obviously haven't decided who will be the next PresiChump.  When they do, they will adjust accordingly.

Japan Neutered: Check!

China Currency Float?:  Check!

Russia:  Bad Putin.  Bad. BAD PUTIN.

How can we get a Dem elected in this mess?!??

Wed, 05/21/2014 - 16:06 | 4782204 Frilton Miedman
Frilton Miedman's picture

Median wages are at the same level they were in 1988, participation rate is falling, chalk this to diminishing labor demand. (thank you, NAFTA et al)

In the same time, household debt to income is up 40%, home prices are up 200%, and, only for the fact that rates are so rediculously low, the % of household income to service current debt is the same as it was in 1980.

This is why, despite insane levels of Fed intervention, inflation is relatively stagnant.

In the advent of an age of globalization crushing domestic labor demand, technology eradicating entire professions & baby-boomers retiring as fast as population growth - not good.

So, with no changes to wage growth, if you really think the Fed will exit, get short, get very, very short.

 

 

 

Wed, 05/21/2014 - 21:25 | 4783408 intric8
intric8's picture

By relatively stagnant, you view must be in the context of price inflation vs asset inflation, the latter of which the dirty fed has handed to the upper class. dont know bout you milt, but last i checked my bills food and energy costs are killing me.

Wed, 05/21/2014 - 22:47 | 4783628 Frilton Miedman
Frilton Miedman's picture

Intric8,

while I agree, Fed policy has reaped greater reward to the top, the fact remains that we'd be f^cked without mortgages being affordable right now.

I'm of the thinking that the Fed has responded to decades of ill advised fiscal, trade & tax policy, by making money cheaper and cheaper at each recession since 1980 to counteract lack of middle class wage growth / net worth.

For example - Is it really "trickle down" to assume a wealthy playboy billionaire heir is going to "create jobs" with the money saved in lower cap gains taxes on his stock income?

Reagan didn't think so, he opposed lower cap gains taxes for just that reason.

 

 

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