***SPECIAL Fed Day Update – No Action But Lots In Stocks, Oil & Bitcoin***

Today is Fed day, also know as FOMC statement day. It is also Fed Chair Kevin Warsh’s first meeting as chairman. Spoiler alert. Rates are not changing today. The balance sheet is not changing today. And everyone with any clue knows that to be the case.

The stock market model is plus or minus 0.50% until 2pm and then a rally. That model is more robust today because of the recent weakness. Former Chair, Jay Powell, did not have a good track record on Fed days. And he mucked up the model. I guess we will have to see what my old friend Kevin Warsh does.

Let’s start with the information that’s out in the public domain and focused on by the media. Inflation. As I have written about for the past four months, our inflation model saw a warming, but not hot inflation. And now that the masses are all focused on a repeat of high inflation, the likelihood is that inflation peaks and cools.

My favorite Fed chart is below and one that I have posted for many years after my friend Tom McClellan shared it with me. Right now, the 2-Year Note is signaling that the market expects rates to be 0.50% higher to get to equilibrium. That’s fact. I speculate that we are going to see the 2-Year peak shortly if it has not peaked already and then head lower towards the Federal Funds Rate.

Why do I think inflation has or is peaking?

One reason is the chart of oil below. In early March I wrote a special piece when oil surged to $119 overnight. To me it was obvious that there was panic buying not rooted in data. It was a squeeze as oil prices were much cheaper the farther out you went on the curve. And I was starting to get a little concerned when there was that second spike a few weeks later, but it, too, failed to accelerate. While the masses were in an energy frenzy, our model and real data said not to worry. Lower prices were coming. Recall that I shared oil in the $70s was coming later this year. And here it is folks.

This is the classic example of ignoring geopolitical news and focusing on data and models. The constant barrage of “BUT BUT BUT” every time I shared our bearish forecast was so telling. As I write too often to recount, investing on geopolitics is a loser’s game. Focus on market reaction and data, not news. Pretty soon I will start writing about opportunities to own oil again.

The stock market was weak on Tuesday, but there were more stocks up than down. On Monday the stock market was strong, but there was only a few hundred more stocks up than down when it should have been 1000. If there was not a Fed meeting today with a very robust model indicating higher prices, I may have been more active in cutting risk. Nonetheless, if the Fed model fails to deliver today, the S&P 500 should head back to at least 7400 in the coming days with the NASDAQ 100 seeing a deeper pullback. Small caps have been stronger and I do not have a sense of their downside right now.

Finally, I wanted to share a chart that someone posted on Twitter. I had to verify it because I could not believe the result. Over the past five years, the S&P 500 has returned more than Bitcoin. Reread that. For all the chest-beating and chirping, greed, euphoria, all those perma-bulls in crypto lost the battle. Bitcoin didn’t protect against inflation. It didn’t protect against a weaker dollar. It certainly didn’t protect against falling stock prices. In the end it has been what I imagined; a fantastic, super high risk trading vehicle for those with a plan or model. With the amount of risk taken in owning the asset, it should deliver at least 2-3 times that of the stock market. And that’s being conservative. Trade it. Don’t own it.

On Monday we sold TGT, some DG, some XRT and some RYPMX . On Tuesday we bought IWF. We sold IVW, XRT, SHW, some MQQQ, some QLD and some QQQ.