Something Wicked This Way Comes!

John Robert Charlton [CC BY 2.0 (https://creativecommons.org/licenses/by/2.0)]

From the intro to my last Patron Post:

Thursday morning CPI, again, proved what has become my standing narrative for two years — that hot inflation would force the Fed to tighten faster and [thus] would kill the economy, the bond market and stocks — when all of the following headlines hit on a single morning (as collected on The Daily Doom):

  • Inflation hotter than expected!
  • Core US Inflation Rises to 40-Year High, Securing Big Fed Hike
  • Dow futures instantly cliff-dived more than 500 points after a hotter than expected inflation report
  • “Horrible”… “Brutal”…”A Disaster for Democrats”: A Shocked Wall Street Reacts to Today’s CPI Nuclear Bomb
  • US 10Yr Treasury breaks 4%, highest in fifteen years!
  • What we Are Seeing in The UK Is Decades-Long Hyper-Financialization Being Unwound on Fast-Forward at Gunpoint
  • Ugly US 10Yr Treasury Auction Stops at Highest Yield Since 2009 as Foreign Buyers Flee
  • Yellen Flip-Flops Over Adequate Liquidity in Treasuries

That string of headlines was like a grand slam for all that I’ve been saying, suddenly being reported now as facts in a single morning. In fact, Thursday’s CPI report was described on Wall St. as “indisputable evidence inflation is not coming off,” pushing several big-name analysts to raise their Fed rate-hike bets to a terminal Fed Funds Rate of 5% … but …

After falling like a stone thrown off a cliff with the Dow plunging more than 500 points due to the severe inflation news, the market rapidly reverted and soared straight back up as if the stone had caught an enormous updraft and soared more than 800 points above the top of the cliff!

The swing in the S&P was, in fact, the fifth largest one-day swing of this kind in history, and the only days that were EVER larger came during the extraordinarily volatile and rapidly destructive Covidcrash that ran from February through March, 2020:

As for the Dow, fourteen of the top seventeen intraday swings in history came during the Feb-Mar. 2020 crash. As you can see, the market during these massive crash events tends to alternate between record intraday swings that are up days (like Thursday’s) and large ones that are down days, but the down days clearly set the trend:

MarketWatch

The bounce that went bust

Thursday’s bounce didn’t hold up, however, because it was, as I had told my Patrons, made of hot air:

Zero Hedge explained that “Stocks Erase CPI Losses After ECB Headlines.” According to Reuters, the European Central Bank’s terminal interest rate was projected in a week-old report to be end up being lower than the ECB had formerly anticipated. That, supposedly, was the thread upon which the US stock market’s major 1200-point rebound from the start of the day hung. However, that’s the ECB’s interest rates, not US interest rates, which impact the US stock market far more directly, in spite of the fact that the morning’s news related to US Federal Reserve interest rates clearly indicated those rates would likely be pushed higher than formerly expected! It didn’t matter, the market lunged for what it wanted to hear and ignored reality all around it like a convulsive creature, gasping for air.

We are seeing the most extremely insane or rigged behavior in the stock market imaginable. In fact, the ECB report that investors chose to instantaneously cling to because it gave them the tiniest dose of hopium ever measured out actually stated the ECB would NOT even use this report for determining its interest rate, making the tiny dose of hallucinogens a diluted dose as well

So Friday turned into a bloodbath. That, too, is typical of major crashes. Note how, in the graph above, there is a reverse in the swing direction alternating from one day to the next, just as there was from Thursday’s through Friday. Several writers, after Thursday’s bizarre bounce and Friday’s flush, commented it was one of the craziest they had ever seen. As one stated to his readers in his newsletter that I received:

The volatility and swings in the market this week were some of the wildest that I can remember in recent memory.

QTR’s Fringe Finance

Thursday’s bounce was the kind of pure testosterone nonsense you see in big bear markets, and those kinds of nonsensical bounces that deny reality (which is scorching inflation = more Fed tightening, not less) are exactly what you expect to see during major extended crash events like this that stretch on for YEARS, not months — like 1929, 2000 and 2008 where the market’s fall happened over a protracted period of years. That’s when the bulls go insane with rage.

In fact, really big rallies like the one we had in summer are typical right before the market’s worst down period, and nonsensical extreme one-day gyrations like we just had on Thursday clearly do not indicate the waterfall’s bottom as they happen all along the ride down the chute. (And that’s all they are is gyrations. You cannot even call them rallies because they are a will o’ the wisp that lights up for a day and just as quickly goes out.)

Market analysts struggled to find explanations for this gyration, which were all over the board; but I’ll put it simply, though I know there are technical reasons behind it: With the worst events in major crashes seeming to love to wait to turn up as October surprises, and with the complete hot-air nonsense we saw the market bounce over on Thursday, only to come down hard on Friday, I’m anticipating this coming week will be horrendous. That kind of extreme bouncing is nothing but the rapids right before the lip of the waterfall.

You see, in simple term, I think that is what this is — extreme chop like the rapids you enter at the top of Niagara Falls just before going over the falls itself. Once again the ride is going to head the opposite of where optimism is taking market maniacs, and the market is about to become extremely rough in the next few months. There are likely to be more rallies that won’t be much more than huge rapids to go over in the journey, because we’re heading down a chute of waterfalls now.

You can feel the anxiety as cross currents hit [the market] from everywhere.

A slowdown in earnings, rising bond yields, an inverted yield curve, central banks hellbent on destroying inflation that they all helped create while they try to maintain some sense of financial stability, a contentious mid-term election, a war in eastern Europe, an energy crisis across Western Europe and an oil cartel that told Joey to shove it.

On top of that, CPI once again came in far exceeding estimates this week, further proving what I have suggested for months: The inflationary train is flying off the tracks and that the Fed not only has very little control, but is destined to overshoot its mark and tank both the stock market and the economy.

QTR

Fed tightening just doubled to the fastest rate of tightening in history by far. That’s why it has suddenly gotten very rough in the marketplace. This is a massive flow of money the size of the Niagara River, in financial terms, going over Niagara Falls and disappearing into its own mist.

As an investor, don’t’ fight the Fed. If you do, you’re going over the falls in a barrel. The Fed has made it abundantly clear that it’s taking things down until it gets inflation under control, and that means the market’s response to this week’s CPI report was beyond delusional. Pure greed and testosterone with investors believing they can suddenly fight the Fed and win, just as the Fed doubled down on its tightening. That isn’t optimism. That’s foolhardy hopium.

And bonds are going to be in even more cataclysmic trouble than stocks.

Sudden Death Falls

Where I live there is a mountain river that goes through some navigable rapids then passes through a couple of deep placid pools just before a sharp bend in the river canyon. Immediately, after that bend, the river plunges over a falls higher than Niagara that bounces off massive rocks on the way down so there is no way anyone, even in a barrel, could survive, because the barrel would bust into splinters on the way down. There is no warning that anything so wicked lies only a few feet from those beautiful pools — not even a rising mist or the approaching roar of the falls because the tight bend in the canyon obscures it all. The pools look appealing, like something you’d like to bathe in, until you see what is right around the bend. If you know what raging torrent lies immediately just four or five feet around the bend, you wouldn’t even think of entering those beguiling pools on the edge of sudden and certain death.

In my Patron Post, I explained in detail why the Fed is taking this economy down to its foundations and tanking all markets with it, making this an extreme ride for stocks and bonds, building on what I revealed in a former Patron Post, which I eventually shared with everyone.

As I said at the end of my latest post,

I expect today will punish the market for yesterday [and I wrote that at the start of Friday], and I would be surprised if the October surprise doesn’t materialize next week as a relentless tumble into market hell because the thing about rising out of the canyon on an updraft is, if you don’t have wings to fly beyond the gust of hot air, gravity always wins. Ask Wile E. Coyote what happens when you look down.

(Note: Patron posts are only available to those who pledge support to this blog at a level of $5/mo. or above, but even the $1 monthly tips are appreciated because they, at least, say a person is not just a taker but also a giver, while I give as much away here as I can, that is made possible by those who do support the blog because the goal is always to help as many as possible while ATTEMPTING to sustain myself at this — attempting being the operative word in that sentence. Don’t think of the Patron Posts as a paid newsletter, but as a thank-you bonus to those who help support this blog with their patronage because that is what you are really doing. You’re not subscribing to a newsletter; you’re keeping everything I do on this subject going.

The goal is also to shine a constant light on the Fed’s follies on this blog or wherever else these articles appear, as no site pays me to republish them, or we will NEVER be free of the Fed’s disasters if that message doesn’t get through. So, thank you to all who help, especially those who have remained with me through thick and thin. I also encourage you to subscribe to The Daily Doom (which is free for the time being and simple to unsubscribe from if you so choose if and when it does become subscription based) as it is still borderline as to whether that will continue much longer, sign-ups being pretty slow still. I’m doing what I can to find a path to make all of this work, including more interviews, too.)

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