On June 16th 22 I wrote a piece on Forbes saying, ‘Here comes the bottom.’ Fortunately for us I was talking about a bottom not out of one. June 16th was actually the bottom.
So forgive me for predicting it was coming, rather than it had arrived
I thought it had potential for another 150 points lowers, but calling the market is never going to be dead on. Im not interested in bragging and you will see if you care to take the time that my macro index calls have been almost impossibly good here over the last decade or so, but that might all be luck. They key is calling what is up next.
Here is the chart:
As I wrote some days ago this is a pretty scary chart.
A bear will see this:
However you have a simple call. Is the Federal Reserve clueless or clue-ful?
If you believe the latter then the above will happen.
I think the folks at the Fed know exactly what they are doing/trying to do and have the tools to do it. It not a 100% certainty they will pull it off, but my money is on them.
Which will mean we will get:
(Yes this is the post dotcom crash Dow and it’s a similarly managed market, so a decent guide.)
Here is a bullish worst case:
The volatility tells us the market doesn’t have much of an idea of direction and this sharp recovery is actually bearish as bullish trends are more gentle, but the idea above is that the low of this correction is in and its basically approximately a ‘line in the sand.’
The idea that the Federal Reserve won’t let the economy meltdown and that inflation is cresting and will fall back to an elevated by not run-away level remains in place. This is my long term theory. This is not about interest rate, or supply disruption or inflation, or government debt, its about rebalancing the US and global economy after a huge haircut to wealth created by the pandemic. We are in a recovery phase set to grind on for 2-3+ years. Don’t think about prices that have gone up, think about as having your wealth go down. That is what happened 2020-2022, in 2021-2024 that loss is coming through in prices rather than the numbers in your checking account and paycheck. Inflation is never an accident.
Remember high interest rates do not control inflation, countries with permanent runaway inflation have huge interest rates, liquidity operations control inflation (QE/QT) and you can see that the pressure on the money brake by the Fed is light.
Its good to remember though, if you don’t print new money, inflation stops. New money makes inflation, so the Fed stopping huge amounts of printing means the rate of inflation washes out of the system over the months and this is what you will see a cresting then dwindling of inflation, because the new money will have to keep flowing at a certain rate because of fiscal deficits and rebalancing.
So the conclusion is, the stock market is not going to moon, is not going to crash but is going to churn for perhaps for a couple of years. (Caveat a ‘mars attack’) This means it’s a hang on tight, buy the dips, kind of market for those with the nerve. That’s slim pickings and rough markets to stomach.
The game now is to see where the market gets to equilibrium. When it does the volatility will die off. That will be the post-covid norm and we should start seeing that level before the end of the year.
What should we do?
Watch it like a hawk.