Looks Like We're Back To The 'Dirty Harry' Market Once Again

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by: Mark St. Cyr
Summary

It's been an amazing turn of events when one looks over the past few weeks in regards to the "markets."

On Christmas Eve, the entirety of Wall Street had suddenly come to the conclusion that, "All was lost!"

Now, only weeks later, all that doom and gloom has been replaced with, "Happy days are here again!"

It's been a case study for mass psychosis if ever I've seen one.

It's been an amazing turn of events when one looks over the past few weeks in regards to the "markets." On Christmas Eve, the entirety of Wall Street had suddenly come to the conclusion that, "All was lost!" Now, only weeks later, all that doom and gloom has been replaced with, "Happy days are here again!" It's been a case study for mass psychosis if ever I've seen one.

The reason for the title above is that I've used it more than once (and it's been shown to be correct just as many times) to describe where we might be in relation to what is being told-and-sold across most of the mainstream business/financial media. In other words, riverboat gambling and its consequences have now become the modus operandi for financial commentary and investing prowess.

If you are one of the few that has remained doubtful that the capital markets have become nothing more than a "casino," you now know why that expression was used to express such. i.e., 2018 "in the black" was supposed to be a "sure thing." Hint: it wasn't.

To the bewilderment of patrons, along with their croupier of choice, they watched in horror as their winning "ball" rolled out of the "black" only to land in the "Red."

The only thing adding more insult to the injury was this happened just when it appeared the spin was all but over and the celebratory rounds of libations (aka bonuses) ordered - only to then stand and watch as all their "chips" were suddenly swept off the table. i.e., and out of one's 401(k) balance.

So now it's the same cohort of casino "Market wizards" shouting out to anyone left that will listen (and that still has any remaining funds) that it's time to get back in there and BTFD (buy the f'n dip)!

Well, then, there's only one remaining question one needs to ask, "Do you feel lucky?"

If you were one that answered that question last time I asked it back in July of 2018 with a resounding "Yes!" Then you did quite well, until - October. (on a side note, I thought it was going to be a Yuan induced roiling, but the Chinese politburo seems to have thrown anything-and-everything at making sure that is the one area that doesn't show weakness. And the reasoning behind that conclusion I've stated many times prior. Hint: SDR, IMF's "Special Drawing Rights" and all it implies geopolitically)

But after that? Then, not only did you lose your winnings back to July, but you lost all of 2018 all the way back to March of 2017. e.g., 3 months of wins wiped clean followed with an additional 16+months of prior winnings, again, wiped clean as in - wiped from one's account balance. All in less than 60 trading days.

Again, for this point cannot be made too many times: all after it was assured by the croupiers across "bubble-vision" that 2018 in-the-black was a "sure thing."

Still think the term "casino" isn't fitting?

So now here we are just three week into the new year from what was deemed by many as a "near-death experience," this same group is now touting that 2018 was a "one-off," and that the "Powell Put" is now known and will be respected. i.e., The Fed's got your back - again. BTFD - again!

Well, maybe they do, and then again, maybe they don't. For the answer to that question is still confusing at best and downright alchemic at worst. i.e., everyone is saying it's now possible - but yet there is still no proof, only words of fancy incantations. Hint: "we could or would 'pause'" is something very different than "we paused."

Said differently: "Looks and feels like gold" doesn't make it such, hence the alchemic reference.

But that's not the way this most recent "market" upswing is being portrayed. It's now being marketed as "Everyone's a winner - just pick your lottery ticket ETF of choice, sit back, and watch the winnings roll in in 2019." i.e., "buy, Buy, BUY!"

Again, maybe, and maybe not. So in the immortal words of Harry Callahan you now, once again, need to ask, "Do I feel lucky?" Because that's what you're asking in reality. For if you still think the so-called "smart crowd" has any idea? Hint: they, along with the Fed itself stated ad nauseam that both interest rate hikes, along with the balance sheet normalization process, was all "known knowns" beginning in January 2018. And the "balance sheet" process would be basically unnoticeable. i.e., running in the background.

Then all those "known knowns" suddenly blindsided them - all of them - in October as they were all busy tabulating their winnings for end of year. Need I say more?

As we sit here today there are a few other "known knowns" that have the potential to unleash a myriad of unknowns across all sectors of business and politics that very few can imagine, never mind contemplate their severity.

The Federal Reserve meets for its January conclave. At this moment, no interest rate adjustment (such as hike) is seen forthcoming. However, that is not what the "markets" are truly concerned about.

The only thing (and by that I mean, just that) the "markets" want confirmation of is that the Balance Sheet Normalization Process (QT) has either been already paused or, is being paused via an actual date or amount. Period.

The Fed (and all its various players) have been out, one after another, touting a rake hike pause is basically "in the cards." When it comes to the question surrounding QT they have all been superficially sympathetic, with most responses revolving around one form of "of course we could, possibly, might, maybe, _______ (fill in the blank)"

But there has been no, "We shall, we have or, we did" as of yet. I am of the opinion that's the only form of verbiage the "market" is going to accept as proof they actually did something. All other forms of word counting will be inconsequential.

The other of the "known knowns" into unknown territory is that of the political, both here in the U.S., as well as abroad in places such as France, Italy, U.K., China and more.

Here in the U.S. the President made what by many was seen as, at the least, a reasonable start for further negotiations. The opposing party sent their refusal or no before the proposal had even been fully heard.

No matter what side of the political aisle one sits, one thing is unquestionable: One side has made it abundantly clear they have no intention of negotiating, regardless of what is being reported. The act of sending a reply of no - before the address was even finished - tells you all one needs to know. It's not called political skullduggery for nothing.

So now we await the fallout. What happens now that the "markets" have to accept that a shutdown in the U.S. may indeed be closer to the beginning rather, than the end? Add to that what happens as European countries squabble over not only throwing away the idea of an E.U., but rather the idea of their entire home political members as well?

Then, of course, there's China. What happens to their entire politburo model should the effects of the current stalemate in tariffs not end soon?

So far, Hong Kong home prices are floundering, factories are announcing major layoffs. The PBoC has had to inject massive amounts of liquidity into its financial system just to stabilize already growing nervousness.

Then, suddenly, the Chinese politburo announced the other day that it would actively inject money (e.g., buy) into its own stock market and purchase shares of companies as a way to both stabilize and boost investor confidence. A once absolute "never would" assertion. (Makes one wonder why now if everything is/was so great, hmmm? But I digress.)

In the U.S. the "markets" are closed for an observed holiday (e.g., MLK Day) Yet, Asia along with European markets will be open and we may get a quick look at what everyone thinks of all this recent U.S. news and how it may, or may not, affect their markets.

We also could basically see no movement except for what I call a "screaming sideways" rendition of bouncing, or pinging higher and lower in-and-around this area, until the Fed renders its verdict of deliberations at the end of month.

Regardless, until then, anyone contemplating if this is another "great opportunity" to once again "BTFD," there's really one way to answer. Again…

"Do I feel lucky?"

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.