I do not mind gloating because when these pages are right and I actually nail the timing then by God things are about to get a lot worse than “conventional” thinking wants to believe. Yesterday I offered up three options for the FMOC meeting and they chose Option 2:
Option 2 – The proposed 75 bps increase but status quo on Quantitative Tightening. The pace of the runoff of Fed assets would continue per the original program but the slightly higher increase in the Fed Funds rate would be a virtual nod to the banks to tighten the financial system. While this will impact risk assets the pain would be short term. The reality is that the impact on inflation in the long term is negligible at best as the pace of inflation is realistically between an accelerating 1.5% to 1.7% monthly rate of increase. It is still a stagflation outcome leading to a major recession.
Nailed the hell out of that sucker.
Indecision will kill risk assets and the sugar high that the Fed provided in markets was nothing more than a weak counter trend rally with poor breadth and institutions selling into every rally during the day. This morning, it is time to pay the grim reaper:
Now the Federal Reserve has not only crushed small to mid-sized businesses ability to obtain low interest short term financing, but the consumer is about to witness a crushing blow to household balance sheets with higher persistent inflation along with a recession which may have started a full two quarters earlier than anyone (including myself) thought it would.
The S&P 500 chart reflects the flea fart in a hurricane rally which happened yesterday and by looking at the 1 year chart my original projections of a new low riding on the second down wave for equities around 3100 looks viable:
With only one real week of serious trading to go before a lot of the super wealthy and larger houses take off for a long July 4th break, there is a risk in the next 5 to 8 trading sessions of some serious deterioration. And just like previous bear markets, once the S&P 500 reaches the 3400ish levels, the “buying opportunity” and “bottom is in” bovine scattologists will proclaim everyone had better buy here or they will miss the chance of a lifetime in equities.
In reality, the warnings this upcoming earnings seasons will dispel that myth right before the big wave 3 down move tears the heart out this nation’s economy and financial system right before the November election.
Stay tuned today as there is a ton of risk that the S&P could easily drop over 100 points again, setting the table for a mini-crash over the next week.