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A “Hawkish” Fed Gives A Comforting Inflation Prediction For Stock Market Bulls – Mike Swanson

Market futures are up in the morning in what amounts to the start of this year’s Christmas rally, thanks to a present from the Federal Reserve to stock market bulls.

Yesterday, the Federal Reserve put out an FOMC statement in which it said that it would quicken its pace of its QE bond buying reduction program. This paves the way for an interest rate hike by June and Fed projections put out by board members suggest up to three rate hikes next year are coming. It’s necessary, because inflation has exploded, with the past two months showing an annualized CPI growth of over 6% and Tuesday came with a record producer price index reading over 9%.

This all seems “hawkish” and was presented in the past few days, as such, with leaks to the media as a Federal Reserve that now recognizes that inflation is real and not simply “transitory,” which was the phrase they began this year with in order to predict a spurt of inflation in March which would then go away by the Fall. That didn’t happen and so the Fed is “hawkish.”

But, in yesterday’s Fed action, the Fed came out and gave comfort to stock market bulls by predicting that inflation would fall back down to an annualized 2.6% rate by the end of 2022. In other words, Jerome Powell and the Federal Reserve didn’t use the word transitory, but they predicted once again that inflation would fade and so stock market bulls took comfort in that and some of them no doubt did some buying thanks to the comforting feelings they got after watching Powell. You may not believe in his words, and I don’t. He was wrong when he predicted that inflation would go away so why should we think he is going to be right now when he just predicts it again? The only thing that really will stop inflation is when interest rates are HIGHER than the inflation rate and they clearly aren’t right now and three rate hikes won’t get them there either.

The stock market rallied by the close with the DOW up 383 points, but I would not take comfort myself in one day of stock market gains, or even a week more of them, in a market in which the internals peaked months ago and went into a sharp decline last month. I still think that this short-term rally that began at the start of the month when the VIX jumped above 30 is the last rally of the market. Hopefully, it can keep the market afloat for the rest of the year, but don’t be shocked if after a few days we don’t start to see the weak stocks start to fade again.

The internal weakness of the market is the most important factor now and is why I did a post on it Tuesday. There are a lot of possible candlestick reversals in lots of stocks and ETF’s after Wednesday’s action, which suggest that yesterday’s move can continue, but we’ll see. Take a look at the IWM ETF, which tracks the Russell 2000, for instance.

The IWM had a false breakout in November, then dumped below its 150 and 200-day moving average. Yesterday, it tested its low of the month and finished the day up. Can it bounce back up to its resistance in the 222.50 – 227 area?

We’ll see, but such moves are so small that they aren’t worth betting on – and that’s where stock traders are now in a market going through a stage three top – betting on little gyrations trying to jump in and out, as if they are trying to squeeze the last drop out of a lemon. We are at the part of the market cycle in which the trading robots win and humans not so much – but those in and on margin find things to continue to be excited about and the bull gurus of this market cycle, such as Cathie Wood, give them reasons to believe. Here she is last week predicting a top in used car prices.

I talked to a former used car dealer yesterday who told me that the idea that prices are peaking now is madness. There is no lack of demand at all, but a lack of supply and it has nothing to do with Tesla or electric vehicles. But Wood has to say car prices are peaking, because she wants to believe that inflation is going away.

You see ff it doesn’t her fund will collapse next year like the Janus fund did twenty years ago.

It’s no coincidence that she professes fascination with crypto.

I am not short her ARKK fund yet, but I think I might short it or some of the stocks in it like Square before this year is over.

She pushes Tesla on to people and talks gibberish to do it.

Elon Musk sold $10 billion worth of Tesla stock this year.

Why would anyone buy it when he is using this time to dump it?

He isn’t the only CEO selling.

Consider this story – “Worse yet is the revelation of just what happened with AMC stock among the top brass. The CEO, Adam Aron, sold all of his holdings in AMC just last week. CFO, Sean Goodman, sold off most of his not long after.”

They have sold EVERYTHING they own in their own company!

The stock market rats are jumping ship.

Elon Musk has not created a new “business paradigm.”

Nothing new is happening.

The fad stocks just went up a lot, because the Fed had and has rates at ZERO, and peaked because the Fed’s extreme dovish stance is over to what amounts to fake hawkishness.

Same thing happened in 2000.

Alan Greenspan only raised rates a few times, think it was three, and the internet bubble went bust back then.

-Mike

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