Blog

Please be aware that this is an update by a guy trying to figure things out when there are so many options and moving parts. Let’s define some of what is in play this week.

The continuing warning is that precious metals, precious metals stocks and certain critical/strategic commodity stocks are overbought. The momentum has been nearly relentless and in some cases, has driven stocks vertical. If a real correction is not starting today, then a real correction certainly has been earned at some point, given all that MOMO.

But today’s cool down, taken at face value, is exactly what the doctor would order for there to be resumed rally after the goons meet and render their decision tomorrow. It’s not to say it would continue. But it is to say that I started doing my trimming this morning BECAUSE the upside pump was getting ridiculous. Then things began to reverse and we have what I’d have wanted to see leading into the great and powerful Fed Of Oz, as he pulls his levers.

Here is Jerome Powell trying to figure out just the right manipulation I mean, monetary policy for a situation where inflation signals are mixed, the stock market is booming and the economy is decelerating. Good luck to you sir.

But how important is the Fed Funds rate, anyway? I don’t think very, beyond its headline value. Some charts below give conflicting views of the monetary situation. Some imply that it is loose and others, tight. But I think that the tight view from the Treasury market is more prominent. Let’s quickly run through some of those charts.

Currency sloshing around in circulation? Loose… REALLY loose and supportive of markets.

M2 money supply? Loose and getting looser.

“Real” M2 (adjusted by CPI)? Tight but starting to rise loosen as inflation’s effects ease a bit.

Fed balance sheet? Tight.

Real 10yr yields? Tight, very tight but looking to decline (start easing).

If the market sees conditions as tight and the Fed only cuts .25% as widely expected (96% of CME traders), the reaction could be quite negative. Again, if the macro conditions truly are tight, Jerome “too late” Powell could live up to his Trumpian label and the market could throw a hissy fit. That would include or even be led by those items which have gone vertical, precious metals and strategic commodity stocks.

This racket is never easy. If the Fed also sees the tight monetary condition and surprises with a .5% cut, the whole mess could ass-launch after the meeting. I know I am not helping you where “if this” or “if that”, but I am trying to define options for what could be in play.

Personally, I am going to keep an eye on risk management and be open to more profit taking. But there is another factor at work. If USD is breaking down for real (big difference between pre-FOMC and post-FOMC), today’s pullback in certain areas could end up being a healthy one prior to the next leg up.

Yet another factor is that everybody seems to be talking about the correction that is coming. That obviously includes me. Locking in great profits in hand is only good business. But today’s weakness could be pulling back on the trigger for another shot higher if USD really is going bearish, possibly with the Fed doing the unthinkable, and cutting .5%.

I need to figure out what I truly want to hold. With all that green, emotionally I want to keep holding it all. But that psychology could get reversed in a heartbeat if greed has gone too far.

We are profitable. That is the bottom line. Keeping and amplifying those profits on paper involves risk. That’s the only sure thing I know.