The Fed did what was expected and hiked 1/4%. Jay Powell’s press conference was viewed positively by the markets. It looks like maybe one more 1/4% rate hike and then to neutral. But Treasury Secretary Janet Yellen overshadowed Powell by doing a flip flop of her flip flop. And I am not referring to the rubber things I wear on my feet when it’s warm. On Wednesday she commented that the government has no intention of guaranteeing an unlimited amount of deposits. That caused a 1% rally to turn into a 1% loss very quickly as Powell spoke. And on Thursday, she reversed course again.
As longtime readers know I was never a fan of Yellen when she was the apolitical Fed chair. And I like her even less now as a partisan DC insider. She should know better. She should remember how the markets react to every morsel of news. And let’s not forget that she infamously declared that there would not be another financial crisis in her lifetime.
A few weeks ago I said that I didn’t think the low for this pullback was in place just yet. And with the S&P 500 in roughly the same area as a week ago, that probably still holds with the caveat that if we see a strong reversal in the banks, the markets should respond strongly to the upside.
Stress remains in the banking system but less so in the markets. This feels like one of those times where markets need more time to repair wounds. It’s Friday and we are seeing the usual angst ahead of the weekend. After the Credit Suisse rescue by weak sibling UBS, we are back to seeing another perennial European weakling under fire, Deutsche Bank. I do not believe there is any chance that the German government allows DB to go under. Worst case, they will quasi-nationalize it. While that would wipe out equity holders, the bank will live on.
The next three weekends are among my favorite if the whole year. This weekend is the Sweet 16 for both men and women in the NCAA tournament where each gender gets to the Final Four by Monday. LET’S GO HUSKIES! And it’s also still ski season and Mother Nature has done a 180 turn with a barrage of snow up north with more still to come this month.
On Wednesday we bought JNK, PCY and EMB. We sold FREK, DWAS, IDPIX and BMPIX. On Thursday we bought more levered NDX. We sold JNK.
