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The Final Rotation

What follows is a summary of this week's events.

The much anticipated FOMC meeting came and went and the Fed was every bit as hawkish as should have been anticipated. The initial reaction was negative, but a funny thing happened on the way to "higher for longer", Tech stocks caught a new bid on Thursday.


First off, it's far too late for the Fed to derail the manic rally that they themselves set in motion in Q4 of last year by telegraphing rate cuts as early as March. Now they can't rein back in the animal spirits they unleashed. In addition, the renewed collapse in Regional Banks driven by the collapse of the Commercial Real Estate (CRE) sector is offsetting the Fed's hawkish rhetoric.

And then this morning we just got a monster jobs number that is almost double what economists had expected, which has further monkey hammered regional banks, driving further divergence between manic speculation and financial reality.

"Wage growth also showed strength, as average hourly earnings increased 0.6%, double the monthly estimate"

This jobs report pushes back expectations for rate cuts to at least June instead of March. For once I am more optimistic than bulls, I think the Fed will cut rates sooner than later, but now they will only come with tremendous pain. Which is why I can't jump on the bullish bandwagon to "look across the valley", since I am an actual trader. Only a pundit with no skin in the game could make that leap of faith.

In other words, what we are witnessing is the manic reach for risk in the face of incipient credit collapse which is deja vu of the endgame Tech melt-up in February 2020 even as the pandemic was spreading globally. Back then as now, investors viewed all bad news as a "monetary friendly" event, so markets melted-up into the crisis. Which is the lethal Hendryite endgame that I wrote about in my last blog post. The only problem is that in early March 2020 the Fed only cut rates when the market was already fully in crash mode. And when they did finally cut rates at an emergency meeting, that spooked the markets so the collapse accelerated. I expect the same sequence this time around.

In summary, what is viewed in today's markets as "bullish" can easily be viewed as bearish. It all comes down to one's own positioning ahead of the event:

Feb. 1st, 2024:

"If the US stock market goes down a little from here, it “could go down a lot.”

"That’s the view of Goldman Sachs Group Inc. tactical specialist Scott Rubner, who warned in a note to clients on Thursday that the “pain trade is now lower, not higher from here.”

“We have all-time high problems for the US equity market and the bar is simply too high in February,” Rubner wrote, pointing to elevated leverage levels, stretched positioning in futures and a drop in liquidity."

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