Dear Reader,
When future historians look back on this period in America's economic history... there will be questions.
Why did the Federal Reserve keep buying assets in the first quarter of 2022 when it was simultaneously suggesting that "inflation is transitory?" Asset buying is inflationary.
Why didn't the central bank assess the impact of rising interest rates on long-term duration bonds? Wasn't their job to actually regulate the banks holding those very same bonds?
And most important: How the hell did Janet Yellen keep her job the entire time as the Fed Chair? How did she swing an appointment to the position of Secretary of the Treasury?
These will be written about... analyzed... assessed... debated... kicked around. I expect those future historians will ultimately agree that central banking policy is pure poison for the citizenry.
That'll be the future. Unfortunately, right now, the Fed will only double down on its policies again as bureaucrats argue that more control is the only way out of this mess.
Today, we're at a critical inflection point... and I want to talk about what happens next.
The Coming Pivot Will Defy Logic
For now, the focus centers on how much higher the Fed will move to address inflation. The ADP Jobs report today showed a red-hot job market; no sign of wage growth abating.
The central bank has to make a decision very soon about which path it wants to take.
As I explained on Morning Momentum, the Fed has broken something significant every time that it aggressively raises interest rates in a short period of time. Whether it was the UK Banking Crisis of the early 1970s or the housing crisis of 2008 memory, central banking policy at the Fed is a major crisis driver.
The Fed was created in the wake of the 1907 Panic as a tool to address the relentless boom-and-bust cycles Americans endured in the late 19th century. Now, it's directly responsible for the boom and bust cycles of the 21st century. What separates today's situation from the 2002 and 2008 implosions is inflation.
Inflation is very high - the direct result of massive stimulus efforts aimed at 2020's COVID crisis - and the failure to mitigate Congress' massive stimulus programs of the last three years.
Econ 101: If you dramatically increase the money supply, you create inflation. Full stop.
It's not corporate greed. It's not supply-side issues. It's the monetary policy. There are 200 Fed employees with PhDs, and not a single one of them is forcing Powell to admit this fundamental truth on camera. Stark testimony to how stupid they think we are.
I don't even need three masters degrees in economics and policy to understand that inflation is always a monetary phenomenon - and I'm tired of being nice to people who are presenting a counter-argument that sounds like it was written in a science fiction universe.
The Fed knows all this money created the problem. But no one wants to admit it. No one is willing to be accountable. No one wants to actually take the time and say they messed up.
I'd be fine with them admitting this. They panicked - there was fear over a pandemic - and they printed enough money to cover all the gaps in the economy. Where they screwed up is that they forgot about basic human nature. Pump a bunch of money into a system, and it will find its way into risk assets. Pump enough money into a system, and it creates perverse incentives. When you demand that someone should own your debt (like they are with the banks), don't be shocked when the most conservative asset leads to a crisis.
The Fed must know that inflation is going to persist - otherwise, it would have stopped by now. They created an emerging market crisis in 2022. They helped fuel the UK gilts crisis in October. They blew up Sam Bankman-Fried's con and imploded the crypto market.
But now they're blowing up their own banks - the very entities they regulate.
And they're still raising interest rates.
Which begs the question...
What could they break that would finally get them to stop?
Money markets are getting crowded - and it took a breaking of the buck on September 16, 2008 to get action. That seems to be the type of problem we could face in the future...
It might not be the buck this time... but it might be a pension system... or a state... or something out there that has too much exposure to the "safe assets" that tend to cause calamity.
Commercial real estate? A super-regional bank?
What about a private equity fund that hasn't marked its holdings to market?
This can get a lot deeper and a lot darker - make sure you're with us.
Today's Momentum Reading
WORLD'S BIGGEST INDICATORS
Recap: The World's Biggest Indicator (Momentum) is Red...
We're still quite red, whether people believe it or not, based on the moves in the first hour of the day. Eight sectors are in the red, and energy is taking it in the teeth. I keep arguing that the pullback in energy is only going to make smart investors rich. Do not panic. Hold the line here. This will become oversold, and the funds will start to load up once again.
Hot Long Shot Trade
Buy-to-open the Proshares Short S&P 500 ETF (SH) June 16, 2023 $15 call for $0.40 or less, and sell-to-open the Proshares Short S&P 500 ETF (SH) June 16, 2023 $16 call for $0.15 or more. That will make your breakeven here $15.25, which is about a 2% move lower on the S&P 500 to make this a profitable trade. If we get back to 4,000, you'll make money fast.
What You Missed
Last week, I shared details on five tiny oil companies that are primed to go vertical within weeks - if not days.
They're front and center in an epic merger race that's sweeping across a prolific oil basin in a small corner of rural Texas...
And things are moving fast.
A few days ago, a $225 million deal was announced. Before that, a $4.3 billion deal landed.
Rumors still swirl of an epic $50 billion deal in the making involving Pioneer Resources.
And now four of the companies I've identified are set to report earnings in the coming days.
I'm expecting this to be a major catalyst.
Because when they knock it out of the park - like my analysis suggests they will...
Strap yourself in.
Any of them could be scooped up in a deal worth BILLIONS of dollars within days.
And their shareholders would make a packet.
I believe the only question is: Which one will go first?
You need to find out their names - and how to trade them - sooner rather than later.
In other words, TODAY.
Because there's a shot to make huge gains if you play this right.
So go here now - and I'll share all their key information with you.
I'll also give you the name of one company - plus its ticker symbol - just for showing up at my special event.
But like I said, don't wait around.
Because things are moving even faster than I'd anticipated.
Get up to speed on this immediately here.
Stay Liquid,
Garrett
The post Powell Speaks at 2:30 PM - Make This Move Beforehand 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.