Higher Highs, Higher Lows – Wider Range

The ES/NQ/YM/TF continues to power higher.

Z1 Flow of Funds for Q3 stands at a staggering 134% of GDP – $26.35 Trillion.

Resistance for the YM is now 25,080 – from a range of 25-26K we should see a pullback in the broad indices. A 3- 5% correction, although touted heavily in the weekend Financial Media – would be a gift. Will it occur – seasonally it’s an easy spike to 25K for year end.

Conversely, a sell the news type of event surrounding the Fed’s decision on a December rate hike could provide the fuel for a retracement. Core PCE will have an impact, although it appears we will see an uptick as general price levels have risen during the period. A 1.5% PCE would provide all the cover needed ahead of the the 13th.

Gold/Silver are done for now, 1192 – 1202 remains the open target prior to the potential for a full HWB to the $975 level. Silver will continue to trail Gold. The DX is on the cusp of a very large rally. BOJ interventions are no longer tracked at the St. Louis Fed, nor is the BOJ communicating them on  daily or even weekly basis.

Dark Pools continue to dominate , Algo’s are playing whipsaws daily, intra-day volatilities continue to expand while the VIX remains managed.

It’s all blue sky – January should mark an interim low or high, the December close will provide direction. We should see resolution into March where a Summer rally takes us to Dow 32,000 – 42,200.

 

Yield Curve Deflating

The 30 year is falling much quicker than the 20/10/5’s.

With the Fed widely communicating its intent to raise rates, failing to do so would create issues for the markets. Keeping sentiment stable is Job #1 now.

Yellen’s muted comments yesterday were to be expected, nothing good can come from any variance of the stated objective.

The Federal Reserve has made it clear –  its commitment to normalizing monetary policy – involves raising rates to a 3.0% level as soon as 2019.

This flies in face of proposed “Tax Cuts” and will certainly have an impact upon the broader economy were the Fed to overshoot. The added complexity of reducing a swollen and growing balance sheet places the Fed in a precarious situation – we’ll hit a tipping point in early 2018 at the latest as all cards are played by the Fed.

The Dollar will provide all the clues needed as to how this unfolds, I have a target for the USDX @ 98, we’ll see IF it gets there.

Year end rallies have been the hallmark of Wall Street’s moneyball… with low volumes and plenty of OPM, it’s going to be a wild close to 2017.

 

 

Eye of the Storm

Back to the drawing board for the Federal Reserve according to William Dudley… it’s time for the Federal Reserve to “rethink” inflation models which are failing to support further rate hike adjustments within their “Model.”

The ECB press conference last night was interesting – Mario Draghi was congratulated on his recent birthday nay one reporter… she then turned to a series poignant questions regarding Asset purchases – which were skirted.

The tough questions found rambling and often quite absurd pronouncements of stability and crisis management. Greece and Cyprus have been abandoned, their collective economies have been left for dead.

October, according to Draghi, is where it all lines up… They will begin to announce their intentions in this timeframe.

Draghi very briefly discussed the Euro’s strength and potential effects on exports and inflation targets, there was nothing specific.

Nothing aggressive, concrete or remotely indicative of future Policy – other than continued Liquidity injections with laser like focus to project control over Member Bond Markets.

I suspect the 125 level will be about it by October, it’s been an open target and one that leads the DX to 86-88 potential.

The Euro is up 14.3% this year, a very large move – the Yuan has reversed and is making new highs.

The long end of the curve had a very large imbalance yesterday – Bonds were halted. A noticeable and telling sign arrangements are being shuffled rapidly.

Gold Reintroduced – PetroGold

The United States Dollar for Energy trade is winding down.

China’s power elite has provided an alternative to the U.S. privilege of Currency Senoirage – they are “Prepared” to link Oil to Gold convertibility.

PetroDollars are not long for this world, the Dollars twilight loses another candle to the winds of change.

China sees new world order with oil benchmark backed by gold

Yuan-denominated contract will let exporters circumvent US dollar.

It should be noted – this is Not a Peg to Gold as some are suggesting, but a link to convertibility.

China’s move will allow exporters such as Russia and Iran to circumvent U.S. sanctions by trading in yuan. To further entice trade, China says the yuan will be fully convertible into gold on exchanges in Shanghai and Hong Kong.

 

 

 

September 15th

Janet Yellen will raise interest rates and confirm asset normilzation by implementing sales on the Fed’s Balance Sheet.

We could trade up and into this pivotal event – with OpeX one day behind.

I was asked via email what my thesis is for the prior post.

This is my thesis – train wreck ahead.

It is frankly the perfect setup…

***NOKO remains the vector for undoing this – this would provide the FED with cover it needs to stand pat. It would need to occur 3 to 6 days in advance.

Bonds a very real Negative

The long end continues to create issues for Inversion of the Yield Curve – the Short end remains in an extreme and perilous condition.

Since Timothy Bitsberger began moving UST Fundings down the curve – the intent has been clear for the past 20 years…

Pay attention to the Yield Curve – it will break the Government Debt and create a massive devaluation of US Treasury Debt Issuance.

The Dollar will provide ALL the clues.

 

Flawed Doctrine – A Hole Too Big To Fill

A worsening crisis – Chairwoman Janet Yellen failed to mention the World’s Central Banks continue pushing on a string as worsening financial conditions consume the Global Financial System…

…With rates @ 1.25% and a $4.5 Trillion balance sheet, count me a non-believer, but then I’ve never believed the Federal Reserve to be anything but a creature on a string.

Chairwoman Janet Yellen: “Our more resilient financial system is better prepared to absorb, rather than amplify, adverse shocks, as has been illustrated during periods of market turbulence in recent years. Enhanced resilience supports the ability of banks and other financial institutions to lend, thereby supporting economic growth through good times and bad.”

A farcical thesis… would be gracious.

Disingenuous in the extreme for what was left unspoken – ZIRP, QE∞, $10.4Trillion of global debt securities trading with negative yields, all shined on.

Managed Money has been squatting within the ETF and passive strategies Complex for years – very little cash remains sidelined. A sharp downturn would require outright selling, as protection would not provide adequate capital for investment were it to be “In the money” at the proper time.

It rarely is, therefore unwinding much of anything appears to require an enormous lifting of all boats… something we should consider probable after the next correction.

ETF’s have herded capital into unprecedented positions. Years of declining volatility has become a one way trade placing greater risk of an abrupt and very sharp reversal.

I believe this dead ahead… a rapid and precipitous adjustment to the downside.

Liquidity and its attendant mis-pricing of Risk has never been so grossly distorted in my lifetime.

Passing the blame – “Increased resilience of the financial system” is now wholly dependent on the present Administration – their course of action(s) – regulatory reform long promoted is again the dire enemy of Wall Street and the Federal Reserve.

Janet Yellen has politicized the issues of regulatory reform – it is safe to assume President Trump will be walled in once again. The FED Chair may have made her last speech, but payback… she’s a cruel mistress.