"Stocks Are About To Make Dudley, Fischer, And Yellen Extremely Nervous"

Authored by Kevin Muir via The Macro Tourist

Stocks Dare The Fed

It was only a month ago Fed President Dudley was lecturing us about the dangers of overly easy financial conditions and how inflation’s sanguine performance was “transitory.” And it wasn’t like he was alone. The Fed’s generally accepted second in command, Stanley Fischer, echoed similar comments.

Well, on Friday morning about the most awkward economic news possible was released. CPI undershot, coming in at 1.6% instead of the expected 1.7%. Retail sales were abysmal, registering -0.2% instead of the forecasted 0.1% gain. And the University of Michigan sentiment numbers reflected a public who is becoming increasingly skeptical of the Fed’s rosy outlook. The actual index was 93.1 instead of the surveyed 95.0, but more importantly, expectations plumetted to 80.2 instead of 84.4.

This puts the Fed in a terrible place. It is obvious they have whiffed badly when it comes to meeting their inflation target. This morning Fed President Evans said “low U.S. inflation is a serious policy outcome miss.” Yeah, you don’t say? Well, what did you expect? Raising rates into an obvious economic slowdown will have that effect on inflation.

But you have to think Dudley and Fischer were aware of this possiblity when they made their comments about financial conditions comments. So now the real question is how much they are prepared to follow up their words with deeds.

Make no mistake, the market will test them. Given that the market is now convinced the Fed is on the sidelines, the last remaining potential bearish catalyst has suddenly evaporated. With the weight of a heavily handed Fed lifted, stocks, and financial conditions in general, will explode higher.

And when they do, it will make Dudley, Fischer, and I also assume Yellen, extremely nervous. Stocks will almost dare the Fed to raise rates.

I can’t help but be reminded of the batter in the song Paradise by the Dashboard Light. You know the line - “Holy cow, stolen base! He’s taking a pretty big lead out there. Almost daring him to try and pick him off.”

That’s the stock market. Already on third, pushing their luck, challenging the Fed to call their bluff.

I am not smart enough to know how the Fed will react. Nor do I know how far stocks might run. This is a dangerous moment.

Yet I have a few random thoughts that I am going to stew over this weekend.

Don’t look now, but the British Pound just made a quiet Friday afternoon breakout.

And although I am loathed to sell the US dollar down here, I am becoming even more enamoured with precious metals. Gold and silver have been crushed by rising US short rates. If the Fed blinks, they might be due for a nice pop.

Finally, although most stock market bulls believe a rising market goes hand in hand with a collapsing VIX, I think there is a decent chance we could have both stocks and VIX rise from here. I might play it by buying stocks and VXX, but a better way to express that view might just be outright long positions in SPX calls.

The market is at an inflection point, and it should be interesting to see how both the Fed, and market participants, deal with this new dilemma. Hold on to your hats, “here he comes, squeeze play, it’s gonna be close… Holy cow I think he’s gonna make it!”

Comments

Cognitive Dissonance Arnold Sat, 07/15/2017 - 09:43 Permalink

Just because the people in the front office appear confused and conflicted doesn't mean those pulling the strings are.The method used for thousands of years to control is never to be the one actually seen making policy, giving direction and making the annoucements.Yellen and company are extremely useful idiots. And by 'idiots' I do not mean stupid or ignorant. Just tools.Hands down, the most effective useful idiot aka 'tool' is the one who doesn't know (or care) they are a tool. Ideology and conditioning is the method used to blind the tool.It is not the king who retains the power, but the King's court. The king is the useful idiot. Always has and always will be. When the king gets a little to big for his britches, suddenly the king finds himself preoccupied with all manner of trouble...including (attempted) assassinations and such other fun as one can imagine.Read 'official history' books from that perspective and suddenly they make a lot more sense.King Trump seems a good object lesson in this little understood, or appreciated, fact.

In reply to by Arnold

CPL Cognitive Dissonance Sat, 07/15/2017 - 12:03 Permalink

The tradition of king killing is very old.  In Irish myth and folklore, High Queen Daoine Sidhe daughter of Oberron Lord of the Darkness, aka Lady Death in more modern terms, needs a tithe for the occupation of the land the non-gentiles occupy, clean water, clean food and protection.  There are only three ways to avoid the cost the tithe:

  • Weekly tribute of Gold, Silver or Honey with 1/4 of the farm fields being left to nature and the Lady's discretion.
  • Blood of a King of the people,
  • Marriage of a Faye Knight to Daoine Sidhe, only if she loves him and he loves her or it doesn't work.  He usually acts as the collection agent in a couple of stories.

If wondering what the cost of the tithe is, according to the myth if the tithe isn't paid they steal all the children.  Pull them under the ground and eat them since they like the favour of soft meat according to myth.

In reply to by Cognitive Dissonance

CPL Scrimpy (not verified) Sat, 07/15/2017 - 12:06 Permalink

8 Trillion? Nope.  They have to double down over 4 years now to just stay floating and be an inch ahead of the inflation they've made for themselves.  8 Trillion lasted 8 years last time.  This next 4 fours they need to print another 8 trillion.  Then the four years after that, they need to print 16 Trillion.  Then 32 Trillion.  You have to understand that it's a ponzi scheme to begin with.  Somewhere between 16 Trillion and 32 Trillion the DOW hits 36000 and it's zimbabwe inflation time.  The lead up to that number will be economically catastrophic of course.  Expect a massive amount of lay offs, a complete house market collapse, probably lose 80% of the insurance industry, pensions will get raided again.  The fact is fiat currency only ends up one place...in the gutter with the dead bodies of bag holders and bankers.Remember, they are gambling, not planning.  Gambling an entire species, all 8 billion of you are being gambled with.  It's too bad they didn't have a fucking clue what they were doing or who the real players were.  Their ignorance will cost 8 billion their future as a species because it appears by their gross mismanagement they've selected extinction.  But that's okay.  When all 8 billion are gone...there are new, more flexible tenants for the space you all occupy.In the meanwhile...come recite the mantra to change that all:

Die Janet Yellen, die.Die Lael Brainard, die.Die Gary Cohen, die.Die Jamie Diamond, die.

In reply to by Scrimpy (not verified)

GUS100CORRINA Truther Sat, 07/15/2017 - 10:40 Permalink

"Stocks Are About To Make Dudley, Fischer, And Yellen Extremely Nervous"My response: So we have higher stock markets and more "PERCEIVED" wealth in peoples pockets, correct? Now lets look at the consequences of getting where we are at today:=====1.) Student Loan Debt - North of 1.3 Trillion is now causing budget problems in the Billions because of defaults2.) America's debt - UP over 100% in 8 years under OBAMA3.) America's unfunded liabilities - 150 Trillion plus and climbing rapidly4.) Corporate Debt - Up over 100% in 8 years.5.) Bank Derivative Exposure - Up over 300% in 8 years. ( https://www.occ.gov/topics/capital-markets/financial-markets/derivative… )6.) Crime and Violence - Out of Control (Billions in Lost Property, Lives)7.) Personal Debt (Credit Card Debt, Personal Loans)  in the trillions8.) State and Municiple Pension Shortfall - 6 Trillion plus (Recently we witnessed the Illinois budget disaster that raised taxes a WHOPPING 32% and that action will NOT fix the PENSION SHORTFALL CRISIS in Illinois)9.) Fed Balance Sheet - At 4.5 Trillion - Up Over 400% in 8 years10.) US Government Cannot Account for Trillions on its books.Well done America, well done. The picture of the car along the side of the building in the air trying to get back on the road does NOT really do justice to where America is today.In a word: AMERICA IS SCREWED!! On top of all of this "NOT SO GOOD NEWS", the HEALTHCARE plan is nothing more than a version of "PROGRESSIVE LIBERAL" OBAMACARE light which puts America at enmity with GOD. To quote Thomas Jefferson ...I TREMBLE FOR MY NATION WHEN I KNOW THAT GOD IS 'JUST' AND HIS 'JUSTICE" CANNOT SLEEP FOREVER.

In reply to by Truther

Newbie lurker GUS100CORRINA Sat, 07/15/2017 - 10:42 Permalink

I like the Jefferson quote but I think the blood of over 60 million aborted children cries out from the grave for retribution among the millions dead worldwide because of our Zio wars. Not to mention the complete giant middle finger to the family structure, biblical marriage, and fidelity between a man and a woman.

The debt.....Don't think God has that on his top five egregious violations. Bothers him sure but I think our moral code is a bit more of a bother.

In reply to by GUS100CORRINA

OverTheHedge GUS100CORRINA Sat, 07/15/2017 - 11:44 Permalink

US and UK private wealth is based on asset inflation, mostly house prices, and debt held against overinflated assets. For there to be growth, there has to be asset inflation. However, they seem to have forgotten about wage inflation, so new house owners can't afford to start the next generation of wealth creation out of thin air. Oops.What I don't understand is why they just didn't "adjust" the reported figure; its not as if anyone actually believes the government statistics. Tyler used to give us nice examples of goal-seeked inflation reports - don't they do that any more?At what p/e ratio can we all decide that it is nonsense? Stocks up from here? Really? Sounds like a bargain. BTFD!

In reply to by GUS100CORRINA

HRClinton Truther Sat, 07/15/2017 - 11:53 Permalink

When DOD (Donald Rumpburger) could not explain to Congress on 9/10/2001, what happened to $2Trillion dolllars, 9/11 happened the very next day to save them further embarrassment and 'splaining to do.Likewise, when the Mother of all Financial woes hits, in order to once again avoid stretched necks, bullets and chippers, they will finally release the Mother of all distractions: the Aliens. TV shows and movies have been prepping us for it for years.  

In reply to by Truther

Cognitive Dissonance order66 Sat, 07/15/2017 - 09:16 Permalink

Not yet.Earnings reports are backward looking. From this point forward earnings projections will be carefully constructed reports of hope and belief. Until the towel is finally thrown in, all hope is lost and everything not bolted down is written off.The script is well known and varies little from one flush to the next. The bowel is nearly full of turds and the hand is on the handle. But there is still room enough left in the bowel for a few more turds aka greater fools.

In reply to by order66

eclectic syncretist Cognitive Dissonance Sat, 07/15/2017 - 10:36 Permalink

Lacking any public support for its parasitic existence the Fed may resort to illegal backdoor bailouts to slow deflation of their latest bubble inasmuch as possible. The volume of shares being traded by actual people is diminishing at a pace that should make the Fed ask is there is really any market left. If big holders want out all at once, the amount of liquidity may no longer be sufficient to prevent a sudden crash.When AMZNs average daily trading volume is less than 0.5% of the float we might have a liquidity problem.

In reply to by Cognitive Dissonance

sister tika Sat, 07/15/2017 - 09:03 Permalink

I received a notice from my credit union this morning on online. I had to read it (and agree to it) before I could see/review my checking/saving account info.

My "take" from the list of things that I had to agree to was that if (sometime in the future) my money disappears from my account (all of a sudden) or I can't access it because it was frozen (all of a sudden), don't fucking blame us. It ain't our fault.

That was the main message. The rest was just administrative BS that I already knew. How's that for candor?

sessinpo Lost in translation Sat, 07/15/2017 - 09:59 Permalink

Standard agreement. It won't matter if it is a credit union or not.Yes, it is true that a credit union isn't likely to be caught in some derivatives mess.But any institution that deals in US fiat is subject to problems if there is a credit freeze due to a real financial melt down. Everyone with fiat in any kind of bank could get screwed. Put it to you this way. Let's say you have a business and you aren't a bank. But you need to borrow short term periodically to cover cash flow gaps. If there were a major melt down and credit freeze, you might be locked out of borrowing no matter what kind of bank you use. Even a credit union could make limitations regarding withdrawals in such a situation.

In reply to by Lost in translation

Cognitive Dissonance sister tika Sat, 07/15/2017 - 09:21 Permalink

It's called informed consent.I suppose now you will withdraw your money and seek an alternative 'banking' relationship?Right? RIGHT?See, the bank/credit union has nothing to fear telling you that you are fucked. So they do. So you then have little to no legal recourse when the fucking actually commences.Which it already has. You just don't feel it yet because the monetary drugs are still effective.

In reply to by sister tika

WillyGroper Cognitive Dissonance Sat, 07/15/2017 - 12:05 Permalink

been guilty ovit myself on other applications.got a software update on my scanner.  in reading thru it, i had to agree to 3 third party spyware apps.  since i refused, i now have to enter my software key everytime i use the scanner...then there's the arb clause.they think of everything, hidden with opacity exactly like the roaches they are.i shudder to think of the chaos in store with talpiot grid kill switches.  no doubt in my mind it will coincide with the financial collapse for maximum effect.we will revert to the laws of nature in spite of their reptillian constructs.

In reply to by Cognitive Dissonance

Cognitive Dissonance cherry picker Sat, 07/15/2017 - 09:48 Permalink

Since your 'money' is created via the issuance of credit, I'm not sure how safe your 'cash' will be tucked under the mattress.Then again, 'safe' is a relative term.Maybe the proper term to use is 'safer'....for now.With 100 bodies between me and the onrushing 40 ton truck I suppose I am 'safer' than the ones up front. It depends on if the throttle is fully open or not and the total mass of the human flesh in front of me.

In reply to by cherry picker

Cognitive Dissonance cherry picker Sat, 07/15/2017 - 09:36 Permalink

Since the 70's governments far and wide have been manipulating 'inflation' measures to under count 'inflation'.So when the USA says inflation is at 2%, what they are really saying is 8%. And on the exponential curve to hell, they presently need 14% just to keep their heads above water.I have full faith and belief the printing press will soon be turned up to 20 on a scale of 1 to 10

In reply to by cherry picker

WrongNumber cherry picker Sat, 07/15/2017 - 10:06 Permalink

Nope. You need to keep digging. The gov spending is a symptom. Its not the disease itself.To help you...Your world is nothing more than a casino. The game we are playing is called "Wealth Extraction". The people in charge of the dollar are always at the head of the table, they always deal the cards. The rules are simple. Dont let anyone know they are a player in the game and lie. Always lie. Lie so much it becomes truth! Make the lie so big that the players wont recognize truth when they see it. As any casino...the house has the advantage. The odds are forever stacked in its favor as long as inflation is the hand being drawn.You have played this game your entire life. Its all you know.Now keep your eyes on the table...

In reply to by cherry picker

NDXTrader Sat, 07/15/2017 - 09:05 Permalink

I have a guess: they will disappoint later in the month by keeping the same statement and setting up balance sheet wind-down. That will cause a 10-15% correction. As soon as their buddies have bought up all of those shares they will then announce that financial conditions don't warrant moving ahead in September and the market will skyrocket. Same as it ever was

b-sugar Sat, 07/15/2017 - 09:08 Permalink

although I am loathed to sell the US dollar down here, I am becoming even more enamoured with precious metals. Gold and silver have been crushed by rising US short rates. If the Fed blinks, they might be due for a nice pop.Finally, although most stock market bulls believe a rising market goes hand in hand with a collapsing VIX, I think there is a decent chance we could have both stocks and VIX rise from here. I might play it by buying stocks and VXX"although, even more, if, might be, although, decent chance, might."That's a nice wall of protection.Are you guys loosing so much on gold and silver that you'll relay anyone who's long? Precious metals trades are not anticipated, you simply ride the wave, any bull or bear market had time for anyone to join.  

curbjob Sat, 07/15/2017 - 09:09 Permalink

 " This puts the Fed in a terrible place. It is obvious they have whiffed badly when it comes to meeting their inflation target. This morning Fed President Evans said “low U.S. inflation is a serious policy outcome miss.” Yeah, you don’t say? Well, what did you expect? Raising rates into an obvious economic slowdown will have that effect on inflation." I stopped reading here ^^^It's is precisely because interest rates have been kept artificially low, that inflation is benign . Cheap money has led to over capacity in almost everything from oil to wine without the corresponding demand.Alibaba is filled with products that cost more to produce than the selling price because cheap money has destroyed price discovery .