Ferris Wheel is Sinking
Rotation has been the guiding word for the stock market for the last ten months, ever since February 24, 2021. But, things are changing, the funny money base for the Ferris Wheel is sinking, with the possibility that most of the wheel will be under water at some point in 2022.
At the moment, market players seem to be resting on a plateau. There is little or no change in the market’s macro view, it still is looking for the market to follow the funny money, ie Federal Balance Sheet, with the idea that that the Balance sheet will never be forced to reduce by embedded inflation, just grow slower. They could be very wrong.
Maybe the FED will have Learned Something…
1, Maybe six months of stimulus is all that is needed in a crisis. Witness the comments below..
2. Maybe March 2009 to August 2009 was the period where help was needed..
3. Maybe March 2020 to August 2020 was the period where help was needed..
4. Continual FED stimulus that we have seen over the past ten plus years may be the problem by taking away fundamental free market supply/demand growth signals.
Current FED dilemma may have started when the market signals pointed to “all is well” in August of 2020, yet the FED continued to buy 120 Billion in Bonds and Debt instruments each month. Over sixteen months since we have seen over two trillion dollars added to FED Balance Sheet.
What we may see next is that this 2.2 Trillion in Surplus Bond Buys may need to be sold off in order to get inflation under control. The would see the current flat yield curve be fixed with vengeance.