So may I introduce to you
The act you've known for all these years
Sgt. Pepper's Lonely Hearts Club Band!
The Beatles, May 1967
Dear Reader,
Good Afternoon from Wall Street.
Last night, I walked the Financial District - a place I departed 15 years ago after the Great Financial Crisis. Nothing significant has changed.
Yes, things are far more expensive. Somehow, my favorite pizza joint on Rector Street survived. The bars and restaurants on Stone Street - a popular evening spot for Wall Street analysts - has thrived.
Every single seat on the cobble-stoned strip was full at 9 pm last night.
It's odd to sit here - writing to you. It's as if nothing has changed. I'm just older, I suppose - but the same energy remains. Just like early 2008, it feels like these kids have no idea what's coming.
Might as well drink up now.
Housing Concerns
Last week, after the Federal Reserve raised rates, I caught something buried in the conversation that really bugged me. Jerome Powell said it will be a while before he thinks about selling mortgage-backed securities again.
That made the hair on my arm stand up.
The Fed hasn't been selling these assets anyway. Remember that the Fed's $95 billion target for monthly balance sheets is just that... a target.
And they regularly miss.
The Fed cut its balance sheet by just $16 billion last week. That was the highest level since April. And the balance sheet is just down $149 billion from its peak... BUT STILL UP for the year.
Remember that the Fed was still buying MBS while inflation was "transitory" and helped propel housing prices higher - while keeping those rates nice and low for Blackrock and other firms to scoop up housing across the Sun Belt.
And we wonder why rent prices surged. And we hope that rent prices stabilize.
We're finally getting some estimates about rent prices stabilizing.
Recession!
Yesterday, the Federal Reserve announced that the U.S. is facing a mild recession later this year. It was a rather stunning admission - given that we spent the last 12 months debating the definition of a recession. It's clear that the Fed can't escape the likely result of its policy-induced crisis.
There will be blame spread elsewhere. Some people will blame Donald Trump (he's responsible for everything else apparently), others will blame the GOP or Wall Street banks.
But if you want to find the source of every major social and economic problem in the United States - keep digging backward, and you'll eventually land at the Federal Reserve.
We can throw a lot of blame onto Congress as well for dumping trillions of dollars into the economy when we didn't need it. But it's Fed policy - over and over again - that has created this mess.
And that was the same feeling I had in 2008 - sitting at the same bar - Beckett's on Stone Street - realizing that we had entered the calm before the storm.
The Federal Reserve has no recourse to address this central bank crisis and this recession. It must let the course run, it must allow capital to flush out inflation, and it must sit there and avoid the temptation to let capital flush back into the system.
It has been a decade of cheap money, low-interest rates, and overexuberance...
And what do we have to show for it?
A doubling of our national debt, a Fed balance sheet that has increased by 700%, and a global financial system that created $140 trillion out of thin air - but has only generated $42 trillion in actual economic growth.
The road forward isn't pretty. The fact that they have now said "Mild recession" is another form of economic foolishness. Our productive parts of the economy are in shambles, and we're not even done raising interest rates. I am very worried about the fourth quarter for this economy. (join me in flashpoint trader to fortify your portfolio)
I don't see - logically - how this market can justify current valuations. But I've learned the lesson on waiting to short the markets. It's not time yet. When momentum turns negative, we will take aim. But, for now, we stay patient and stalk this market.
And the Bros... Oh... The Bros
I went to Ulysses on Stone Street, as well. It'd been 11 years. And it was a fascinating reminder of a few things.
1) There's always money in vanity.
2) The culture of the jocular traders - it hasn't gone away. Loud. Screaming. Unaccountable. Rude to women. This has always bothered me.
3) There is - at all moments - enough alcohol in a Manhattan bar to take out an entire village.
4) After a miserable 45 minutes of terrible techno and club-style music, the song Sgt. Pepper's Lonely Heart's Club Band came on out of nowhere. Wow... what a wonderful diddy. I think I've listened to it 14 times this morning.
Today's Momentum Reading
WORLD'S BIGGEST INDICATORS
Broad Market: Yellow
S&P 500: Yellow
Recap: The World's Biggest Indicator (Momentum) is Yellow...
As the market grinds higher it's crucial to keep an eye on the Relative Strength Index (RSI), specifically the daily RSI of the S&P 500. As it stands, the SPY is at 62. But as you can see, when it rises above 70 we can anticipate a market reversal. So we could see the S&P run to the 4200 level prior to experiencing another downturn. Lately, remaining bullish for an extended duration has proven to be quite challenging. (Be prepared for the next hyper turn)
What You Missed
Shah Gilani and I just met to discuss Credit Suisse's scandal, and then he showed me a list of other names all investors should be paying attention to.
Everyone's covering the banking collapse right now, but this is a story that hasn't been covered yet.
It's one that proves there's still hope for savvy traders who can play the fall like a champ.
That's why I'm passing this message your way...
Shah says if you're like most people, you're pretty angry right now... AND YOU SHOULD BE.
Remember Credit Suisse's last flop?
In just 17 trading days during its decline last year, investors saw windfalls as high as 625%...
And another 300% when they tanked again in April.
It was bad... but here's why it's great news for folks following Shah:
This is how smart traders exploit bad companies like Credit Suisse for maximum upside potential.
To find out more about these "deadbeat" banks and how to capitalize on their downfall, click here.
Now... as Credit Suisse hits new lows, there's a list of other bad banks and names that you should check out ASAP.
Let's look into the full list here.
Stay Liquid,
Garrett
The post Deja Vu on Wall St (Echoes of 2008 and the Approaching Recession) appeared first on Midday Momentum.
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.