Contrary to popular belief, raising interest rates at the end of the cycle is not "reflationary". The amnesiac casino class have diligently forgotten that fact. They also seem to forget that the middle class was outsourced for special dividends, hence economic reflation under the current paradigm is totally impossible. But since it wasn't them who went under the bus, they are wholly oblivious to these salient facts...
This, and Trump's imaginary tax cut, are what has been driving the melt-up:
Following Friday's shockingly bad jobs report, which produced -33,000 jobs versus +90,000 as expected, rate hike expectations went UP. Yes, you read that right. December rate hike expectations are now at 91.7%. Why? Because wages saw a minor uptick which is not allowed per Supply-Side Ponzinomics, as that will negatively impact quarterly profits.
Now when I say that these people are fucking retards, I don't say that lightly. They are hardcore Idiocracy:
Getting back to the article above:
"Buying bank stocks two months before a December rate hike worked every time since 1990, as investors consistently bet on the industry to get a year-end profit boost from the Federal Reserve's move"
Wall Street gets a year-end profit boost, everyone goes home happy, what could go wrong?
First off, December rate hikes have only occurred four times since 1990, rendering the "banks always do this 100% of the time" claim specious at best.
By chance the last one was 2015, offering interesting comparison. Here we see short-term rates (red) with regional banks (black). Two years ago in September following the China devaluation, the Fed backtracked on December rate hikes due to "global turmoil". Wall Street was pissed since they had the (bank) reflation trade on in size. So Fed mandarins 180'd in October and put not one but two rate hikes back on the table, leading to a .50% vertical rally in short-term rates to catch up to banks. Banks had been rallying the whole time since Wall Street had the Fed on speed dial.
This time however, until September, banks had been diverging from FedTrumptopia. Why is that?
It's because banks are following long-term bonds not the Fed:
Short-term rates with long-term t-bond yields (black)
The long bond knows what Fed rate hikes are doing to auto loans, mortgages, credit cards, student loans, home equity loans etc. etc.
But the Fed knows best, right?
As we know, Fed policy calls for raising rates until something breaks. In 2015, they imploded the Chinese Yuan and Emerging Markets. So far, a repeat hasn't happened during 2017 because of the massive inflows to Emerging Market stocks.
Deja Vu of 2015 however, the Fed is beginning to take their toll on EM currencies (black):
This divergence is coming at a time when EM stocks are back at three year highs, and S&P volatility is back at all time lows:
On Friday, the highest flying financials reversed hard
Fortunately, gamblers and their serial clueless Fed are between 91.7% and 100% confident this is only temporary:
No one has informed the psycho-class that what they assiduously believe in is impossible. And they're the fucking morons who made it so...
Don't try this again at home:
Off-topic, I don't see BitCon making a new high, although I seem to be in the minority as usual:
ZH: Mark Cuban Highly Endorses BitCon
“...it's interesting because I think there are a lot of assets that have values based on just supply and demand. You know, most stocks, they don't have any intrinsic value, no true ownership rights, no voting rights, you just have the ability to buy and sell those stocks. They're like baseball cards and I think Bitcoin is the same thing...”
Any questions?
