At The Gateway To A New Phase

The market, despite weakening corporate profits and several other headwinds, has decided it liked what it heard from the Inflator in Chief yesterday as it has scored the game Janet Yellen 2, Hawks in Drag 1 and US dollar 0. Is it a final score? I am not sure how our hawkish transvestites can be taken seriously now.

But with a market running on the black boxes of a million quants, large and small, who knows what will happen the next time some clown decides to eat a microphone and dispense dissonance into a situation that Yellen seems very clear on; as my late friend Jonathan Auerbach once famously said (it was famous to me anyway) as we prepared for the post-2008 inflation phase, “it’s inflation all the way baby!”

While this would be a backdrop that can be very exciting for global investors (precious metals, commodities, emerging markets, etc.) if the Fed gets what seems to be Yellen’s way, we will see increasing fears of inflation, which would drive up depressed asset prices and keep aloft the already over valued (considering corporate profit weakness) stock market. Here is the latest profits data, courtesy of FactSet.

Juxtapose this against an S&P 500 that is breaking its Dome on today’s open. If this follows through it would be a dunce cap no more. See S&P 500 Simply Following its Stimulus for more.

Of course it could also be a post-hype whipsaw as the machines decide to screw over the maximum number of traders, first sending the shorts to cover (I am still short SPY, but now more than balanced out long in sensible anti-USD areas) and then trapping bull momos. You’ve got to love this casino that Greenspan Bernanke has built and Yellen maintains to perfection.

In the article linked above, clown decides to eat a microphone, and previously in NFTRH, we have introduced a theme that sees parallels between the current phase and the 1999-2001 phase in the markets.This is a loose correlation and no matter what the quants think they see, there will always be differences. One difference is that we could potentially be further along toward a Greenspan style post recession inflation environment, with the stock market not having entered a bear market first. It is very possible that the global deflationary backdrop has done the heavy lifting this time where forcing policy makers to capitulate, Greenspan style, is concerned.