Bank of America's Forecast Of When The Fed Will Crash The Market

Earlier today we reported that Bank of America's chief strategist Michael Harnett made two stunning  (if perfectly obvious) revelations for a person, who stands to potentially lose his job if he dares to publicize the truth, which is precisely what he did when he said that i) "central banks have  exacerbated inequality via Wall St inflation & Main St deflation" and ii) it is "no longer politically acceptable to stoke Wall St bubble; two ways to cure inequality... you can make the poor richer...or you can make the rich poorer...they have failed to boost wage expectations,inflation expectation, “animal spirits” on Main St... so Fed/ECB now tightening to make Wall St poorer"

Some further observations from Harnett's note "No market for Rich Men":

Tightening by Fed, rhetorical tightening by ECB has succeeded in raising bond yields, volatility, reducing tech stocks (CCMP, QNET, SOX all at 1-month lows); flow data had indicated tech very overbought (Chart 2– flows into tech annualizing 22% AUM YTD)...

 

 

... ripe for correction; EM debt & US/EU corporate bonds other crowded areas...look at surge in inflows to EU credit funds (Chart 3).

 

In other words, having failed at its task of "making the poor richer", the Fed is now resigned to the upcoming market crash which will make the rich poorer instead.

And here is the clearest signal yet that central banks are about to pull the trapdoor: "central banks in aggregate still printing: bought $350bn in April, $300bn in May, <$100bn in June…big 5 central banks buying less but not yet selling."

He continues:

Central banks want volatility to return, know financial conditions too easy (Chart 5); yields rise as they carry through on threat (or as ECB shows this week, lose credibility by lame flip-flop on policy intentions as Euro moved toward ECB “pain threshold” - Chart 7); ECB sets interest rate floor and floor now rising.

 

 

Central banks making mistake tightening policy as there is no inflation. Disruption, Demographics, Debt (IIF just announced global debt hit all-time high of $217tn = 327% of global GDP in Q1, up $50tn past decade)...all means normal business upturn cannot create inflation...oil prices poster child for this (we cut oil price forecasts today)...all means the big inflation rotation awaits radical fiscal stimulus, trade war, major increase in geopolitical risk, Occupy Silicon Valley policies (tech taxation, living wages...).

The question then, of course, is when will the Fed crash markets? Here is Hartnett's take:

We don’t think this is “big top” in stocks;  greed harder to kill than fear; don’t think this “big top” in stocks, would be surprised if bull market which began with SPX 666 ends before 6666 on the Nasdaq... summer 2017 = significant inflection point in central bank liquidity trade…will likely lead to “Humpty-Dumpty” big fall in market in autumn, in our view.

 

But Big Top likely occurs when Peak Liquidity meets Peak Profits. We think that's an autumn not summer story.

So roughly just under 500 more points on the Nasdaq before the "big fall."

Finally, some ideas on how to trade it.

Asset allocators should nonetheless start buying vol, reducing exposure to credit, prepare for bout of higher yields...

 

Summer trade arguably optionality in tech (uber growth), long banks/energy (uber value), lighten up in credit, EM, add to volatility.

 

Investors anticipating a full reversal of the QE trade would thus position as follows...

  • Long oil, short stocks
  • Long 2-year Treasuries, short EM debt
  • Long TIPS, short HY
  • Long resources, short tech
  • Long utilities/telco, short consumer discretionary
  • Long value, short growth
  • Long Japan & European periphery, short US
  • Long inflation, short deflation

Comments

realmoney2015 Erek Fri, 06/30/2017 - 11:24 Permalink

Only a select few know when the market will be intentionally crashed. And we aren't one of them. To be on the safe side protect your wealth and buying power with gold and silver. Help educate your stubborn loved ones with candles with silver coin prizes: https://www.etsy.com/shop/ScentSaversAnd enter to win 5 free ones here: http://www.markyesenia.com/scentsaversThe market will crash and all Fiat currencies all eventually reach their true value...0

In reply to by Erek

LawsofPhysics realmoney2015 Fri, 06/30/2017 - 11:37 Permalink

Correct, this article is complete garbage.  fuck BofA, they are another dead bank walking.  Anyone else remember them transfering all their CDS to the FDIC-insured part of the balance sheet? The SOCIALIZATION OF PRIVATE LOSSES CONTINUES!!!Fuck em, such "let the majority eat cake" monetary experiments have been tried before.  Of course, never on a global scale, like today.

In reply to by realmoney2015

Ghost of PartysOver Ahmeexnal Fri, 06/30/2017 - 11:21 Permalink

Not like I used too that's for sure.  At some point this thing will implode.  The Fed has created a monster with QE from which there is no escape.  They are boxed in.  What the outcome of this cluster f%^& is I do not pretend to know.  ,I no longer throw caution to the wind and throw the Full Monty at BTFD.   Monty does not want to be butchered.

In reply to by Ahmeexnal

Yen Cross Fri, 06/30/2017 - 11:25 Permalink

 Ask that shape shifting lizard Warren Buffett. He'll be like fly on shit, buying warrants with free fed $'s. That fucking scumbag needs a serious dirt nap.

LawsofPhysics Fri, 06/30/2017 - 11:34 Permalink

Make "the rich poorer"....  What the fuck are they talking about? TARP/TALF and the ONGOING ZIRP/NIRP continue to make the rich richer!!!!The Fed has and continues to facilitate the greatest TRANSFER OF REAL ASSETS and REAL WEALTH to a SELECT FEW PEOPLE/CORPORATIONS!!!!!  Fuck BofA, THEY SHOULD HAVE GONE BELLY UP LONG AGO!!!!

smacker Fri, 06/30/2017 - 11:53 Permalink

Article: "[...] summer 2017 = significant inflection point in central bank liquidity trade…will likely lead to “Humpty-Dumpty” big fall in market in autumn, in our view."So we're back to BAU; markets crash and unprecedented heavy storms occur in autumn, usually October. I wonder what we're talking about by ((big fall))?

JBilyj Fri, 06/30/2017 - 11:59 Permalink

What I like about this article that I'd like to see more of on Zerohedge? The trade recommendations at the bottom of the article...

Lebronn Jakens (not verified) Fri, 06/30/2017 - 12:06 Permalink

This is old news   The speculation as to when it will happen is beyond ridiculous.  There is one anailylyst that I know of who is actually calling the market moves in stocks gold and oil.  The thing I can't figure is why Shepwave can get the market moves correct and the other jokers keep spewing this crap. 

Fantasy Free E… Fri, 06/30/2017 - 12:26 Permalink

Suppose I am right in that Fed policy has never been anything other than a political agenda on behalf of the deep state? If that is the case the goal may be to buy up the capital portaion of the factors of production.http://quillian.net/blog/Is that not the optimum goal? Control land with war and labor with propaganda, then use uneared money to buy control of capital. Wouldn't it make sense that central banks give up pretense and just buy stock, to save the world, of course?James QuillianFantasy Free Economics

farmboy Fri, 06/30/2017 - 13:04 Permalink

I do not understand why this briljant guy wlll tip us off on the exact number for the big crash. BOA is the lucky bagholder of Country Wide financial.They have a lot of problems on their own but please keep dancing until the crash will hit you in the face.

Batman11 Batman11 Fri, 06/30/2017 - 15:21 Permalink

If the American people ever allow private banks to control the issue of their  currency, first by inflation, then by deflation, the banks…will deprive the people of  all property until their children wake-up homeless on the continent their fathers conquered…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs. – Thomas JeffersonThe plan went global.

In reply to by Batman11

Too-Big-to-Bail (not verified) Fri, 06/30/2017 - 16:40 Permalink

I would say the market 'can' crash, but let's all just continue to kick the 'can' and buy the f*cking dip