Top Advisors Corner

Gene Inger: The Inget Letter August 26, 2016

Gene Inger

Gene Inger


When the Fed has 'viable' strategies in-place - you don't need dozens of central bankers, an equivalent number of reporters, nor the backdrop of the Grand Tetons, to contemplate the 'fine-tuning' (which is what normal policies would allow; but not this), of monetary policy. (Highlights are Thursday evening's abbreviated report annotated as referenced to update into midday Friday our advance sell-the-rally guidelines.)

This year's meet-up is some sort of abnormal discussion of 'tools' for normalization of policy; with keen interest, but not a lot of courageous contradictory tomes warning of the long-term impact of what they have done 'to' us, rather than 'for' us, as a Country.


Our free-market is not intended to flow along without the business cycle; and more in the democratic-socialist form of some European countries, where people get by, but in a sense don't have as much incentive to strive to thrive. (Expanded upon.) 

The point is simple: excessive focus on the Fed, though market sensitivity is obvious; even with the self-serving (for Wall Street and some politicians) bias to not hike rates. In the 100 years since the Fed was created by commercial banks (now within regions) we're not had so much focus or fright regarding a potential nominal Funds-rate move.

It's not about missing upside before or ahead; it's about catching moves around it. As of the moment we harvested several gains in the past two weeks of relatively narrow swings. While some pundits will poke at missing moves and minimizing what the Fed says; what they're missing is the market's historic quiescence in-trying to be a placid enduring relatively-unexciting market. That kind of sentiment is likely what you hear just before a significant move; that we actually do prefer to be first up then down.

(Editor note: we got that perfectly as outlined to members; with an initial down; then up; then optimum rebound we projected to reverse before Stan Fischer's talk; as well as projected new lows interspersed by mediocre bounces thereafter in Friday's trade.)

Why? Because if we could get a rush-up after relief Yellen is behind for the moment, it would be a lower risk short

Daily action- adhered similarly to all these pre-Yellen markets; dip early; rallies that don't hold, further fading; then a modicum of intraday squaring taking S&P back-up somewhat late in the session. (Ed: the idea is detailed via video of knee-jerk reaction, should it be down, ideally followed by a rebound, but then eager selling of that.)

Everyone has debated 'will she or won't she' about the Fed Chair's speech; with lots of pressure to define what the heck the Fed 'really' sees, probably skirted by falling of course back on 'data-dependency' if she wants to. There were hints; notably today's quoting by an oft-in-the-loop (some think) Wall Street Journal reporter, quoting a mixed view by the Boston Fed head; suggesting economic indicators 'slipped back' a bit. Actually they haven't changed much; but saying so would give cover for a Fed not to move. (Having very little skin-in-the-game we really want to see a rally to 'fade'.)

And keep in mind that unlike the Boston Fed; Bill Dudley of the New York Fed; voted 'for' maintaining policy at the FOMC, but then last Friday suggested we were closer to a time of normalization. (Balance reserved.)

Then there's the underfunded Pension Funds; noted that earlier in the week. A quarter-point move in rates isn't (redacted). Also managers are underestimating lots of risks; and overestimating potential; at least most major fund guys.

Overall... markets haven't reflected risks out there for some time. Our approach has been bearishly-tilted; and scalped a good many downside gains by fading spikes (never washouts) and then taking some gain and retaining the balance.

In the wake of Yellen; we'll be a bit relieved actually; because then we can short another spike with a greater prospect of it reversing from up-to-down. I actually would prefer that, because so many are nervous; a 'sigh of relief' rally would just be ideal. (Editor note Friday: that worked; holding short for now at 2183.)  

An absence of many bids - increasingly limited intraday rebound efforts; from fairly wild swings (suggesting low liquidity, and incidentally inline with the pattern calls) on Monday, to throttled behavior Tuesday; then faltering upside with a more aggressive afternoon sell-off (which we caught in both directions). It reflects the noted anxiety.

But the point is not revelations of an obvious holding-actions expected ahead of Janet Yellen's Jackson Hole Friday speech (which everyone will closely focus upon); but the growing chorus that agrees the market isn't really set-up for a September rate hike by the Fed. That prompts some to believe that even a 'hint' of hawkishness from Yellen is going to take the market down.

Well which way? The problem with the future is that its history isn't known yet. Or is it in this case? After all we DO know that two-thirds of the FOMC voting members were FOR a rate hike in the July FOMC meeting vote. And we know that resisting were the Chicago Fed, Minneapolis Fed, and New York; as well as Yellen herself. We also now hear (as noted before) NY Fed's Dudley change his tune a bit last Friday. That can be a clue about the future, and suggest 'at least' reasonable reference to a hike Friday.

One more thing; some are trying to panic investors about U.S. Reserve status, with a new idea; as digital technology will drive it away; allowing banks to avoid transacting through the U.S. banking system. What they're talking about is 'Ripple'  (more). 
 
In recent days I simply asked if (reserved) was a sign of 'maximum frustration' by the bears and maximum complacency by those who would rather worry about beaches; than in any way encourage investors to worry more 'about the return OF their money; than of course the return ON their money'.             

Battlegrounds continue 'fluid', with multiple dynamics unfolding.

Enjoy the evening;

Gene
Gene Inger
www.ingerletter.com