What are they Smoking?

Who am I talking about? 

Try the Market Bulls. Yesterdays buyers, the players whose buys in the S&P yesterday probably averaged around 2710, a level to watch when things unravel in December.  In the meantime, China Tariff resolution hype will maybe provide a few days of sell opportunity.

An Analysis

The FED Chairman, Powell, we repeat, is not the one who is really in charge of rates, it is the economy.  The two year rate topped on November 8 at 2.984 and has been declining since. The Fed Funds rate is at 2.25.  To us that says at the most the FED could raise two more times to 2.75 but in reality the FED funds rate will not get that close to the 2 year rate, so we have at most one more FED Fund rate raise in this cycle.

Additionally:  

1) the bounce up in the yield curve, in the midst of a declining Macro yield curve, has found resistance, in the 2-30 differential, at just below the May 11, 2018 figure of 0.562,  currently is around 0.517.  This bounce up occurred in the midst of the Crude Oil Top Formation that occurred between June 27 2018 and October 29, 2018, a period when inflation scenario stories were peaking.

2) Not to be ignored in all this is the fact that the 30 year interest rate topped on November 2, 2018, right after the crude oil rollover.

Why is this occurring,

it certainly is not because Trump is harassing the FED Chair?

It is that economic factors including Tariff’s are weighing on growth and in spite of the Tax Gift in the first part of the year, Cap-X and oil are flashing signals.

What does this mean in other areas. 

For one thing the dollar run up is over.  The 97.00 area we cited early this year has proven to be a formidable resistance area.

And stock prices are very vulnerable to large declines from here, this is not the time to try and pick a bottom.

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