How the Fed is Impacting Trading Patterns

Today, we delve into how the fed is impacting trading patterns, how to trade news, and an exciting webinar opportunity!

Between a Rock…
dou·ble bind
/ˈˌdəbəl ˈbīnd/
noun

  1. a situation in which a person is confronted with two irreconcilable demands or a choice between two undesirable courses of action.

The Federal Reserve Bank is now facing the most intractable challenge since the Global Financial Crisis. As inflation skyrockets past the official rate of 7% — consumers know prices are going up much more than that – the Fed is in the embarrassing position of admitting that they didn’t see this coming.

Last week, Jerome Powell went before the Senate Banking Committee to face questioning as part of his re-nomination to the Fed Chair. Among other things, Powell acknowledged that the “transitory” label he’d been applying to inflation for months was no longer accurate (as if it ever was!) He also admitted That Fed forecasters failed to anticipate the supply-side challenges and continued labor shortages caused by people no longer wanting to work crappy jobs for low pay after receiving $1000s in stimmy checks.

And here’s the clincher for anyone who puts faith in the Fed’s forecasting ability:
“We can begin to see that the post-pandemic economy is likely to be different in some respects.”
Oh really? We are just beginning to see this now, almost two years into the pandemic? And these are the swamis we look to for guidance?

Here’s the unvarnished truth:
They made matters worse in 2008, kicking the can down the road, and the massive money-printing since then has create an enormous asset bubble;
The long-awaited “bleed-over” from financial assets to price inflation has finally kicked in; and,
Even just the talk of more and faster rate hikes than previously announced has markets spooked.

This chart shows the inverted 10 Year Treasury rate (a lower line means the rate is going up) and the NASDAQ, back to April of last year. In October, the market decoupled from rates, with stocks rising even through interest rates were also going up. The gap is now quite wide.

Chart courtesy of www.marketear.com

How much longer can stocks remain high in the face of rising rates? What happens if The Fed goes ahead with announced plans, and raises rates four times or more in 2022?

Are you positioned to profit from the next big market move? Do you know how to trade news events profitably, ahead of the crowd? FFR Trading specializes in helping traders and investors secure their future with advanced strategies that work under any market conditions. Call today to speak with a Strategy Team member by dialing (800) 883-0524 or contacting us here. 

…and a Hard Place
While its clear that the Fed is aiming for a gradual correction in the equities markets, it is far from evident that they will be successful.

The reality is that 2021 marked a year of what Peter Schiff calls “peak speculation.” This means that values were driven higher in every asset category by the euphoric idea that values will keep going up indefinitely (forever! To the moon!)

The problem is that once the bloom is off the tulip, so to speak, speculative manias tend to turn into a mad dash for the door.

This beautiful chart courtesy of meyersign.com. A very informative article on the 17th century Dutch tulip bulb market bubble – from the point of view of a tulip lover, not a market analyst! — can be found here.

Does this look like anything we’ve seen recently?

Chart courtesy of seekingalpha.com

All that’s missing from this Goldman Sachs chart of non-profitable tech stocks (dated early ’21) is the down leg.

From planned deleveraging to implosion
If we recognize that inflation is a potentially devastating force, and that any increase in market rates runs the risk of seriously tanking the markets, we get a sense for the difficult sport the Fed is in.

Does the Fed have the will to impose real anti-inflationary measures, and will the Democrats allow it?

Remember: the Dems can still torpedo Powell’s nomination in the full Senate if he doesn’t play ball. Politicians, and especially the “in” party (regardless of who it is at the time) want to avoid a market crash like the plague.

Let’s let Peter Schiff have the final word on this. Referring to the tentative rate hikes Powell attempted in 2019, Schiff notes:
At that point, the Fed’s commitment to interest rate normalization and balance sheet reduction, which had pushed yields on 10-year Treasury notes above 2.5% for the first time since 2011, ran smack into the reality of a bear market in stocks and a slowing economy. After less than six weeks of a market sell-off, the Fed caved completely. As it always has over the past 40 years, the bankers at the Fed, who are really just politicians in disguise, chose short-term expediency over long-term health. By January 2019, all of the Fed’s carefully telegraphed plans of monetary discipline had been totally abandoned.  

How to Trade the News
Fear and greed.
When you come right down to it, these two emotions rule the markets.
Fear makes investors nervous, leading them to sell. And greed drives investors to buy – which is also sometimes called FOMO… Fear Of Missing Out.

https://money.cnn.com/data/fear-and-greed
Billionaire investors trade on excessive fear and greed when spotting opportunities.
In fact, that fact is what helped Warren Buffett amass his fortune. To this day, he still advises that a “climate of fear is your friend when investing; a euphoric world is your enemy.”  And of course, we all remember his advice to “be fearful when others are greedy and greedy when others are fearful.”

Normally, retail traders only get to trade after news has been factored into prices. They get caught up in euphoria, buying when greed runs rampant, and sell in a panic when fear takes hold.
This is called “the sucker’s game.” When you trade the news this way, you are always late on any move. But it doesn’t have to be this way.

Professional trader Ian Cooper has developed a system for combining the billionaire strategy of fear and greed with technical analysis to quickly spot developing opportunities in any market. It’s true that crisis can breed opportunity… but only if you know how to take advantage of mass sentiment like the “big boys” do. That’s why you need to partner with professionals who understand the markets, and how the psychology of the crowd drives price action.

FFR Trading is proud to present a new trading webinar, Breaking News: How to Trade World Events, with Ian Cooper.

This webinar will take place on Wednesday, January 26, at 4:30 Eastern time, 1:30 Pacific. It’s totally free. You can register here. Learn how to trade the news like the pros, and we’ll see you on the webinar!

Breaking News: How to Trade World Events, with Ian Cooper
Date: Wednesday, January 26
4:30 pm EST, 1:30 PST
Register Now!

To keep up-to-date on managing your trading and investment portfolio and hear about exciting webinars and trading resources – follow us on Instagram, Facebook, and Twitter! Happy trading, everyone! We hope to see you Wednesday, January 26th!

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