The real problem with most tropes is they contain their future warnings without changing a single word. The problem lies within where most never consider the flip-side, as in: what made you believe in the magic of “it’s different this time” rationale – the exact opposite is what will tear that once coveted narrative apart for explaining the former irrational.
In other words: once the magic of “it’s different this time” is no longer believed? That’s precisely what you’ll hear used to explain why the former is no longer relevant. And on Friday of last week the “markets” seemed to make very clear that it now is using the trope in it’s flipped position.
And that has the potential for some very troubling manifestations.
The Federal Reserve’s complete and utter capitulation of not only ending the balance sheet run-off (QT) as soon as September, along with signalling no further rate hikes in 2019 and the possibility for only one in all of 2020, was more than just absolutely stunning. It also proved to be a complete, self-inflicted repudiation of their entire credibility for both gauging the economy, as well as their adulteration of it.
To be clear: The Fed admitted via dint of their policy actions that – they are trapped – and can not get out. And now everyone, repeat, everyone now knows it.
I have been stating ad nauseam that once the process of QT came to light and the “markets” had to deal with the reality of less and less “free money” that they would falter. And: they have done precisely that with near Swiss-watch precision, as well as the size and scope of the accompanying sell-offs.
The term “autopilot” has now been jettisoned for a new, different reality, which is: hard brake, full stop and mothball. I’ll just add that belief in the Fed’s credibility has now joined a similar sequence. Talk about, “it’s different this time.”
As stunning as the reversal for both the Fed’s prior stance and reading of the economy was. What was different was the reaction to it. i.e., the “markets” propensity seems to be sell rather, than buy.
That is very, very, very (did I say very?) different reaction than past episodes.
Sure there’s been the rally since Christmas Eve when a phone call from Cabo was needed to assure the world that the banks were “well funded and liquid” via a vacationing Treasury Secretary. But that rally has been for all intents and purposes best described as “unloved.” The reason?
The accompanying volume has been pathetic. The Fed’s new stance should have been the wind beneath the “markets” wings to soar ever higher, proving all the BTFD (buy the F’n dip) genius correct. However, that has not materialized. At least not yet, to be fair.
Although, to prove just how “unloved” the term fits: when the Fed announced it’s plans to go from “Hawks-R-U.S.” into “Super-Doves” the “markets” typical reaction was not only absent, but rather, it actually closed lower.
Yet, on the following day, the “markets” surged. But why? Easy…
The massive buy-back programs led by Apple™ and others to buy before the blackout period of earnings allowed for the HFT (high frequency trading) front-running parasites to gorge, and gorge some-more, pulling the indexes up.
But a funny thing happened the very next day: They sold off just as hard, and just as fast, as they went up. Can you say, “It’s different this time?”
Apple had a near 4% gain the prior day – to watch it give back over half the very next. In other words (conjecture, of course) as long as Apple was buying, so too were the machines, and more than likely, other central banks. Or said differently: If Apple isn’t fueling the buying opportunity? It appears others are taking that same opportunity – to sell.
Cook-and-crew had better take that signalling to heart, because if there’s even the slightest “glitch” in the upcoming earnings release? Don’t say the “market” didn’t warn you. i.e., “It’s different this time” also applies to cause-celeb CEO’s, as well as sales numbers the “markets” deem appropriate.
“But wait, there’s more!” as they say on late-night TV. For “it’s different this time” has a myriad of ancillary side-effects that now must also be taken into consideration.
Again as I warned as far back as August of 2017, Mr. Cook’s decision for involving both Apple the company, its employees, as well as its customers into supporting his own preferred political entities, both publicly and vociferously, that it would come back to bite.
I believe that “bite” has now arrived.