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    Originally posted by seanD View Post
    Btw, good economic news is now bad news to the markets. Because the recent jobs report wasn't as bad as some people anticipated, the markets took a dive today. The reason that good economic news is bad news and bad economic news is good news is because traders think that bad economic news is sign of a recession and will increase the chances that the Fed will capitulate and reverse tightening. This is how upside down everything is.

    The only bad economic news I expect to rattle the markets downward is if the CPI number comes out hotter than expected. If the CPI is lower, this will (or at least seem to) bolster the experts claiming inflation has peaked and thus give more reason for the Fed to back off tightening.

    ​​


    So the market has had a rally (a peak) in the last few days. The market never goes up or down in a linear fashion so peaks and dips are certainly expected.

    The reason for the misguided optimism, as I said earlier, is that bad economic news has become good news to the markets. Because we're (technically) in a recession, stock traders think the Fed will "pivot" (The Fed Put) -- reverse course and start QE again, or at least stop tightening. Thus, a recession is actually good news to stock investors and traders.

    There are a few problems with that mindset.

    Context matters. Yes, the Fed has capitulated for various reasons in the past, especially when the market began to drop, but those reasons are sometimes political. For example, the reason I believe Powell capitulated his tightening in 2018-19 is mainly because he was berated, even threatened, by Trump to stop. And so he stopped and then reversed with more QE in the fall of 2019, which made Trump very happy.

    In this case, Powell has been directed by the WH to fight inflation. And though political peons like Elizabeth Warren have leveled some of the same indictments against Powell for tightening, she's just a blip when it comes to economic decisions on a federal level. As far as I know, the Biden admin has made no public indication they want the Fed to reverse course.

    Another thing to consider is that, as we all know, the WH (along with their Keynesian sycophant economists) is now redefining what recession is, which means they're denying recession is happening. So it really makes no sense for traders to think the Fed will pivot to fight a problem that the WH (and even Powell himself) is denying exists.

    Sure, the Fed could pivot at any time, but there is nothing readily indicating the Fed will do this anytime soon. And so that just means when the market dip comes, it will likely be worse, since the temporary peak was driven by false optimism.​​
    Last edited by seanD; 08-02-2022, 04:26 PM.
    "What am I doing here?" -- Joe Biden 2021

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