NFTRH+; Goldilocks, USD and the Fed

Yesterday was a reminder that Fed members can and do interfere in the markets at will. Such power to move markets should be considered disreputable at best and criminal at worst. Of course, politicians have the power to move markets at will (oh sure, they would never have agents discretely set up to capitalize; yeah right) so why not the Fed, a quasi government associate operating under the popular belief that it is a valid monetary authority?

So I guess I am still ‘off’ from COVID (not a good mood brightener, I’ll tell you that) but the above does play into our macro playbook. So let’s take a look.

USD (DXY) had been declining and when it hit the SMA 50 out came the jawbone. It’s almost like magic. Except that it is also logical. The whole point of this disinflationary phase being administered by the Fed to fix its own inflationary mistakes is to cool inflation by cooling the economy and the inflation sensitive areas of the broad markets.

USD picked up on this process well over a year ago and front ran it by a country mile. But the main points here are…

  • The Fed does not want to see the USD break down because that could intensify the inflation problem.
  • If USD holds here and breaks upward from the bull flag (by definition of its routine pullback to the uptrending SMA 50) it would be consistent with two things…
  • 1) a resumed market liquidation or
  • 2) a continued ‘Goldilocks’ phase (inflation not to hot, not too cold).

USD (daily) remains in ship shape.

While I hate to react to some big mouth with a microphone, as the Fed’s assumed agenda plays out and it either goes deflationary or pleasantly disinflationary, the implications are generally poor for commodities and related stocks and not good for gold, silver and the miners either. That is especially so if ‘Goldilocks’ remains in play. If deflationary liquidity crises result, then it would be time to look at the miners as a buyer on the ensuing drop.

Understand that I am talking theoretically here. Gold stocks were deeply oversold and can get a resumed bounce, especially if Treasury yields – pumped yesterday by the Fed jawbone – back off. But it’s still an incomplete macro fundamental backdrop.

Who does ‘Goldilocks’ benefit? As noted repeatedly of late, we are favoring Tech/Growth. In particular, take a look at the Cloud software ETF CLOU. Also the Cathie Wood genius funds. Check out the daily chart of CLOU.

Valuations aside, this stuff has been basing for months now. You cannot say that the hyped sectors of 2020 have not gotten serious punishment for those excesses. So as it stands now, Tech/Growth along with relatively defensive sectors like Healthcare and Consumer Staples seem okay thus far as we travel through the time window toward the next FOMC spectacle.