I’ve been waiting for the Powell Pivot for a long, long time. On Friday morning, it finally arrived.
Not that this long-awaited debut was an immediate joyful experience. On the contrary, I was sweating bullets (as we say here in the south………….) moving way-too-much-stuff-for-a-college-student from storage to dormitory, and all the while, glancing at the greener and greener price quotes. Not exactly a good time.
In point of fact, Durham, North Carolina has some searing memories for me. I’ll never forget the morning I walked Rolo the Wonder Dog before the opening bell of October 13, 2022 and saw the /ES plunge to 3502 (yeah, about 2,200 points ago) and figure it was going to be a fantastic day. On the contrary, that was THE BOTTOM, and we’ve been up pretty much every single day ever since then.
Since then, it’s been more of the same. Trillions, and trillions, and trillions of freshly-minted digital dollars flooding the market in order to create the false sense of prosperity, all the whole putting the U.S. on an immutable course to financial failure. What was especially galling about Powell’s self-congratulatory bluster on Friday morning was how he painted a picture of all of us weathering a tough storm and, by gum, coming through smelling like a rose in the end. What a fraud of a man.
In any case, the reason I’ve been anticipating the Powell Pivot is because it represents a “pivot” of a different kind. It marks, at long last, Chapter 1 of the kind of market I’ve been eagerly anticipating. You see, the narrative that Powell is shoving down everyone’s throats is simple to understand:
- Rates have been high long enough, and they’ve solved inflation, so we’re going to change our policy now to start dropping rates;
- Lower rates make money market funds less appealing, so all those trillions of dollars “on the sidelines” will flow right back into stocks, by gum;
- The pressure of all this buying, coupled with the trillions in corporate buybacks and constantly 401k purchases, will send the stock market into the ionosphere;
- Everyone is happy! Yay!
I suggest a different narrative.
- The Fed will start dropping rates, as they have so many times, in order to try to avoid a recession;
- A huge recession is going to come anyway, creating millions of layoffs and widespread economic suffering;
- At the same time, inflation is going to be going into overdrive, thanks to the Fed’s easy-money-for-billionaires policy, and you’re going to hear the word “stagflation” a lot;
- Actual corporate health is already deteriorating, and you’re going to see this reflected in wipeouts during earnings calls;
- Just as it has every single time in the past, the “Fed Pivot” will mark the START of a bear market, not the start of yet-another-leg of the very old, very tired bull market.
In summary, Friday sucked, and the past three weeks have sucked, but it’s all for the greater good.
