Uh, wut?
For those who are new to these pages courtesy of MacroEdge.net, way, way, way back in ancient history, February 2024 to be exact, your esteemed host published the following article about the new Lord of the Markets, Nvidia:
“Cisvidia”
Since that article, yours truly has limited his commentary on this bubbleicious stock until June when the CEO, Jensen Huang, decided to break out a sharpie and mark the absolute closest thing to a market top indicator since the year 2000:
Of Market Tops and Tatas
Thankfully, it would appear from the photo from that article and the accompanying graph, his penmanship was awesome.
After today’s earnings report and quasi-warnings about future products, the CEO had best buy more sharpies and start by signing Jay Powell’s manboobs first.
Why Jay Powell?
Simple, let’s review the charts.
That’s not a bad chart until one considers a market close below 120 on Friday exposes a lot of short term call options at 130, 140, and 145 to some major market stress. Per one report on CNBC, 150 calls were popular also!
The retail bloodbath heading into a low liquidity week and a holiday atmosphere should freak sane people out, but the markets will always go into full used car salesman mode where the media and junior traders try to convince the retail sheep that it’s the “generational” buying opportunity for the ultimate stock for A.I. or whatever.
The SOX (Philadelphia Semiconductor Index) was already looking weak with a sad excuse for a counter-trend rally to attempt to break above the 50 day moving average.
The deterioration was notable, especially before the Nvidia report today.
A retest of 4300 before the Fed meeting would be extremely bearish for the markets as a whole, and a disaster for those politicians whose future is tied to economic and market stability heading into November.
All of this however will not help Jay Powell and the Fed wizards of perpetual inflation sleep well tonight.
If the markets take a long overdue correction and run with it beyond 10% down before the September 18th meeting in addition to further degradation in economic data, the Federal Reserve might find itself in a very nasty corner.
The original idea was for a quick and dirty “reassurance” 25 basis point cut before the election to support their guy/gal/self-identified candidate. However, the markets are increasingly, with each data release and market move, starting to raise expectations for a 50 basis point cut.
The problem facing Jay Powell now is if his favorite equities start to deteriorate along with the bond market dis-inverting, which it will soon, and the employment data becoming much worse at a faster pace, the Fed might well be backed into a corner and forced to cut by 50 bps next month.
The consequences of such an action, especially at 50 bps, will create panic not only in equities but the bond market, creating further buying action, especially in the short term portions of the curve unless a policy is enunciated to provide at least a hint of Quantitative Easing (QE) to ensure long term (10/30) yields remain intact near current levels.
Theoretically, this will blow the dis-inversion out by over 25 basis points as without a QE policy even being hinted at, the belief that inflation will return will be enough to liquidate equities and buy the 2 year or less end of the curve heavily.
The great corner that everyone feared the Fed would paint themselves into appears to be on the horizon.
And there is not one politician nor market “bull” prepared for the consequences of both a slowing economy and dis-inversion of the 2s10s yield curve. The credit system nor economy is totally unprepared for such a shock, along with the political class, which will only panic and blame Jay Powell and the Fed because of decades of joint incompetent economic decisions.
Views: 177
