Morning After J-Pow, Second Time in a Row

Someone might think, OK, I could speculate with the J-Pow Pattern at the next Fed meeting.

By Wolf Richter for WOLF STREET.

Stocks took a brutal dive today, the day after Fed Chair Jerome Powell had explained to the world why a 75-basis-point rate hike was needed, and why another one might be needed at the July meeting, and upon hearing his words and seeing the 75-basis-point print yesterday, markets skyrocketed, and at about 30 minutes before the close, after J-Pow had stopped with his magic words, the S&P 500 was up about 2.7%, and the Nasdaq Composite was up 3.8%, before settling down some.

And today, the morning after J-Pow, starting in Europe, and then in the US, and now in Asia, it all got beaten down hard, with the S&P 500 closing down 3.2% and the Nasdaq closing down 4.1%.

In terms of points, yesterday the S&P 500 jumped 54 points, and the Nasdaq jumped 270 points. Today, the S&P 500 plunged 123 points and the Nasdaq plunged 453 points. Worse, from the peak frenzy 30 minutes before the close yesterday to the close today, the Nasdaq plunged 512 points. They’re forming really crappy charts, with lower highs, and lower lows (data via YCharts).

It was the second time in a row that this whiplash reaction of the stock market to the FOMC’s big-fat rate hike played out – and there have only been two big-fat rate hikes so far. In both cases, stocks dropped far more on day 2 than they’d jumped on day 1.

The first time was on May 4, when J-Pow at the post-meeting press conference took a 75-basis-point hike for the June meeting off the table. During the last 90 minutes of trading on May 4, the S&P 500 index spiked by 3%. And then the morning after J-Pow, the S&P 500 plunged 3.6%.

In terms of points: on May 4, the S&P 500 jumped 124 points; and the next day it plunged 153 points, on the way to a sharply lower low.

The J-Pow market spikes, as they occur during trading hours, and in the evening after they’re locked in for the night, cause all kinds of commentary, including in the illustrious WOLF STREET comments.

People jubilated when markets spiked as J-Pow spoke, saying that this was the end of the sell-off, that markets knew that the next move by the Fed would be a pause or a rate cut or whatever, because this type of rate hike would cause a recession and force the Fed to restart QE all over again, or they thought that there would be even bigger rate-hikes coming, triggering an even bigger recession, which would cause the Fed to kick off shock-and-awe QE, and the sooner and faster those rates got jacked up, the sooner the recession would hit, and the sooner QE and nirvana would start all over again, because the Fed was trapped or whatever, and that the market had figured it out.

But others called it a sucker rally, or a short-covering rally, a dead-cat bounce, panic-buying, a bear-market rally, or other technical terms.

And then the next day, all heck broke lose in the markets.

Why markets had at first such a bullish reaction to the big-fat rate-hike and darkening inflation verbiage, and then the next day, suffered from a massive hangover and plunged in a hair-raising manner, may never become clear, though everyone has their theory.

The J-Pow Pattern.

It’s now the second time in a row that this happened: Two big-fat rate hikes and two sucker rallies that people chased higher, while shorts were panicking and buying hand over fist to cover their short positions. And the next day, it all blows up.

What we’ve got here is a pattern. A pattern of two, which is a little thin, in terms of patterns, but we’ve got another big-fat rate hike and J-Pow press conference coming up on July 27, and who knows what’s going to happen until then, but then we’re there.

Someone might think, OK, I could speculate with it.

Someone could just decide to sit there and, like, endure it and maybe go do something else. Or someone might think, OK, I could, like, speculate with it and lose some money the easy way. I could go long early on day 1, and then I could sell at the peak of the frenzy when J-Pow says that the Committee might consider a 100-basis-point hike at the next meeting, or whatever, which will cause the Nasdaq to spike 5%. And someone might think, OK, I want to cash in on both legs of the pattern, and during peak frenzy, I’m going to go short. And on day 2, when regular trading starts and everything is deep red, I already made a bunch of money, essentially overnight, and then I can strategize what moment to cover the short and exit.

But now that the whole entire world knows about the J-Pow pattern, someone might think, if the whole world knows it and plans on doing the same thing, it’s going to get jinxed and blow up and rip people’s faces off. And so someone might think, OK, I’m going to go contrarian and do the opposite, so when the pattern blows up, I’ll make a bunch of money.

And now, that the whole world knows that the contrarian approach is the thing to do, everyone will do the contrarian trade and it’ll get jinxed and blow up and rip everyone’s face off, and we’re back to square one of how to trade the J-Pow pattern.

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  178 comments for “Morning After J-Pow, Second Time in a Row

  1. SnotFroth says:

    I assume it’s “forward guidance” combined with institutional respect for the Fed, so they stand with their hands over their hearts while he speaks, and return to the frenzy when Fed-day is done.

    • Raj says:

      It may be an emotional roller coaster ride. For e.g. I was initially excited that we finally had a 0.75 % increase in rates till I visited Costco next day and found that common Food items and Gas went up by double a few times over 0.75% in last 6 weeks.

      So all excitement came crashing down in 24 hours after realizing that I am still getting screwed.

      • Raj says:

        Correction: by “atleast double if not a few times” over 0.75% in last 6 weeks

      • VintageVNvet says:

        Please Raj,,, and ALL others on here:
        Do NOT get ”any” emotion tied up to/connected with the VAST and now very GROSS ”shellacking” going on due to the latest surge of control efforts by the oligarchy…
        Doing so will not only lead to tears, many many tears,,, but more importantly, will lead to less than optimum ”THINKING” about YOUR situation,,,
        OF COURSE that is exactly what the oligarchy wants,,, and exactly why they pay to make the USA ”educational” system anything but…
        Try to grasp YOUR individual opportunities, and to be sure,,, those opportunities continue to be VERY very wonderful with re YOUR ability to harvest the results of your labor…
        In USA, that is far shore,,, but still the reason that anyone who wants to ”work” and be rewarded for their work, wants to come to USA from ”most of the world.”

        • notdeadyet says:

          Good advice, VintageVNvet! Park the “emotion” and pay attention to ones own opportunities… that is what matters and that is what will make the difference. And btw, Vet, thank you….

  2. Harry Houndstooth says:

    As the markets probe into new low territory, buy increasing amounts of URTY and TQQQ anticipating the inevitable bounce towards the previous lows.

    As the markets rally off the new lows move into increasing amounts of SRTY and SQQQ anticipating the inevitable return to the lows.

    • DocMo says:

      Curious…anything disadvantageous to doing the same with the index futures and their tax advantages?

  3. Ghassan says:

    I have a theory for you: No one knows what the heck is going on, not even JP knows what he is doing.
    Experts! on TV are divided on what’s going to happen and each sides pushes its own agenda even though at this pint it’s obvious most don’t have any clue.

    “Why markets had at first such a strong bullish reaction to the big-fat rate-hike and darkening inflation verbiage, and then the next day, suffered from a massive hangover and plunge in a hair-raising manner, may never become clear, though everyone has their theory.”

    • unamused says:


      An ex is a has-been. A spurt is a drip under pressure.

      • Arbe Turhan says:

        The problem – there are no investers and everything is a trade. The only one in it for over a hour is the suckers in funds.

        We now have a worldwide market that is un – investable. All the measures of value no longer apply.

        No different than the fools who think Bitcoin or any coin is block chain. One will go to nothing and the other will move forward with new and better players.

    • Miller says:

      Also a classic sucker’s rally set-up, with the big boys and institutional investors encouraging ridiculous market rallies on the day Federal Reserve announces an unexpectedly high rate hike (75 bp this last time, on top of 50bp before) to sucker in clueless FOMO retail investors, then leave them as bagholders when markets collapse the next day due to worsening fundamentals. I like Wolf’s “J-Pow Pattern” naming because of the behind-the-scenes BS that must be going on to set up the ridiculous rally in the first place when interest rates rise so much, always based on some sophistry about doublespeak and “hidden layers of meaning” supposedly buried in what Jay Powell and the Fed governors are saying. Even when they’re openly hawkish, which they have to be with such nation-wrecking inflation now surging and devouring the USA. Somehow even this hawkish rhetoric is “secretly dovish” and the “Fed doesn’t have the guts go through with it” due to.. something.. combined with the ever idiotic coping phrase that Cramer and the others love to put out, “the rate hikes are already priced in” or “baked in”. As if the markets had some collective mind to precisely “price in” even an unexpected rate hike and QT. Dumb and dumber.

      • Augustus Frost says:

        “As if the markets had some collective mind to precisely “price in” even an unexpected rate hike and QT. Dumb and dumber.”

        This is BS from the Efficient Market Hypothesis, the so-called “discounting” mechanism. No such thing exists or ever did for the reason you state.

        Reminds me of a pseudo form of pantheism.

        • Miller says:

          Yep, and now that you mention it, I recall in my econ class years ago the professor making a remark related to efficient markets, and how it was (euphemism) “not well established”. Backed up by the fact that the “priced in” talk only ever seems to work on the upside–even horrible economic news and lousy fundamentals are magically “priced in” so the market rallies anyway, whereas good news is magically never “priced in” so when good economic news comes, a rally is guaranteed. Sounds like just a cover for all kinds of backroom and algo trading using insider information, but who knows.

      • doug says:

        I turned on CNBC yesterday for first time in a long while. Bored I guess. Heard ‘the rate hikes are baked in’ enough that I did not have to listen very long, and turned it off. That crap rolls off their forked tongue’s so easily and without any sense of shame.

        • Miller says:

          Yeah the “baked in” catch-phrase I find even more irritating than “priced in” for some reason. Like wrote in the comment above, somehow the bad news is always magically “baked in” so even when fundamentals are in utter disastrous free-fall, magically the market had already “baked them in” to allow for a ridiculous stupid rally even on the terrible news. But good news is never, ever baked in so when it does surprise to the upside, markets rally then too. Again the “priced in” and “baked in” talk just sounds like sophisticated sounding BS (supposedly back up by efficient markets hypothesis like Augustus Frost said) to make an excuse for backroom and algo trading the by big boys based on insider info, or for dumb nonsense rallies back when the Fed was juicing the markets with QE. No sense at all otherwise.

      • ru82 says:

        Seriously…. the jawboning and the rate hikes seem to be taking the froth out of the stock market.

        Grains (Corn, Wheat, etc) seem to have peaked.

        Oil and nat gas rolled over.

        It looks like the fed strategy is working.

        QT on deck….who would even want to get into the stock market with more rate increases and QT on deck.

        I pulled everything out of my 401ks 6 months ago. I had left some in a commodities fund but pulled that last week. It looks like everything is rolling over.

    • DR DOOM says:

      It’s a Casino. Step up to table and place your bets.

      • Wisdom Seeker says:

        “What a strange game. The only winning move (for now) is not to play.”

    • Norcalbang says:

      JPOW knows precisely what he is doing and the plan is to allow for high inflation to unfold. Pretty soon 4% will be the target versus 2%. Watch what they do not what they say..

      Just look at the Fed balance sheet. What’s going on is by design but rather they would have us believe they’re trying hard. No way out other than to inflate the debt away and that will not change.

  4. Tony from Aus says:

    Wolf you must be close to b/e with your 2020 short? Was S&P around 3500 at the time?

    • Putter says:

      I think it was about 3175. He can cover in the fall.

      • Wisdom Seeker says:

        No need, he’ll make 50% by this time next year!

        If you think interest rate hikes to fight inflation are bad for stocks, wait until you see what happens when the recession hits…

  5. dishonest says:

    “we’ve got another big-fat rate hike”

    Big? FAT???

    • SocalJimObjects says:

      Stop fat shaming 100 bps.

    • phleep says:

      May turn into Our Big Fat Greek Eurozone Divorce. The PIIGS are back in play.

      Japan also is catching some weird malady.

      So much randomness, ahhhh, bracing after the sure thing of the Fed put has fallen apart.

      I’m not going to play intra-day guesses with this “Powell pattern.” The casino is having a few tremors.

      It reminds me of Keynes’ “beauty contest:” traders trying to outguess average opinion on what the average opinion will be (of the prettiest woman, what an archaic unwoke phrase). The biggest fattest mirage maybe. Lots of mirages are vaporizing now.

  6. BuySome says:

    Alex, I’d like to buy a couple of extra consonants. The magic word is LOw-BOTtOM-Y!

  7. Alex says:

    Lol, Lol, lol!!!

    “….. blow up and rip everyone’s face off”

    Too funny, but so true.

  8. JJ says:

    I’m guessing there were a lot of short positions before J-Pow’s announcements, and they simply planned to cover said shorts automatically…creating a ‘mini-short squeeze’ rally both times.

    An en masse short sell the rumor, buy back the news so to speak.

    • Miller says:

      Yeah, kind-of wondering about something like that too. Forced short-covering is only other minimally rational explanation for the otherwise nonsense rallies on both days the Fed raised interest rates and moved closer to a Paul Volcker reckoning on inflation. Of course the markets can be irrational, but those rallies were so ridiculous they stretch the meaning beyond any sense.

  9. JJ says:

    Also I’m looking forward to reading Wolf’s theories concerning the February 2021 peak and what precipitated the downfall from there.

    I still think there were huge natural gas related trade fiascoes possibly taking place during that month, and things went haywire with the Texas/Oklahoma cold snap driving prices up 100x normal. Might have been some initial ripple effects from that incident which broke the very tippity-top of Feb. ’21 in equities.

    • Augustus Frost says:

      There was and is no triggering mechanism.

      Market participants collectively but independently change their minds and that’s it. That’s always the actual reason, regardless of the supposed trigger.

      This should be evident since first, these events don’t have an independent existence and never bought or sold a single share.

      Second, if you look at a price chart (long or short term), there is no consistent correlation between the supposed triggering event(s) and the market action at the time. On any given day (week, month…), there also so many potential triggers, the market action can be attributed to one of many. So, if you read the headlines, the writer will just pick one that fits the narrative. They also (possibly unknowingly) often or even usually phrase it in psychological language such as “investors are worried, anxious, optimistic….”.

      Some (supposed) events have higher correlation than others but there is still no consistency in the magnitude of the move.

      The most extreme example is the October 1987 crash. I’ve read several theories as to what supposedly “caused” it but there wasn’t one. Some claimed it was rising rates but that doesn’t explain why it happened then and it doesn’t explain the largest percentage decline in the history of the US stock market either. If this was the real reason, why did it happen then and not later or earlier?

      • Spencer Bradley Hall says:

        Black Monday was all Greenspan’s mistake. He was raising rates and dropping legal reserves at the faster rate since the Great Depression. Bank squaring day did him in. And Robert Prechter got it exactly right.

      • Brant Lee says:

        Maybe stock market algorithms have become sentient.

        • phleep says:

          They can start joking among themselves (in obscure machine languages) about blowing folks up, ripping faces off, and that other great 80s-90s trading phrase: “you just lure them into that calm place — and then f*** them.” Then they will deploy Skynet. Next they will be shaming Musk on their fancier orbital platforms.

      • Javert Chip says:

        Augustus Frost nailed it: market movements are the vector sum of 100,000,000 independent buyer/seller decisions. Other than some government intervention here and there, that’s the way it is…and always will be.

        If any so-called expert could predict & explain all this, he’d be richer than Musk & Bezos combined, and would spend zero time explaining market moves to the rest of us.

        Warren Buffett is about the best we have, and even he admits he’s not perfect.

      • Matt says:

        One definition of a bubble is when the majority of a market’s price movements are driven, consciously or not, by the prices themselves and not the underlying value they’re supposed to represent. MY definition which extends that a bit is that it’s the point where all of the market’s feedbacks flip from negative to positive in both directions.

        Normal markets are supposed to have negative feedbacks in both the high and low direction because the price is tethered to the actual value of the asset. But markets are complex systems, and one hallmark of those is that they have multiple points of equilibrium, some more stable than others. If some external event can push that price high enough away from value then it’s possible to flip that upper negative feedback to positive, and the price runs away from you. However, since the high price is no longer justified by anything but the fact that it keeps rising, the lower feedback flips negative as well, which creates an intrinsically unstable situation that continues to become more unstable the higher the price rises. The ultimate cause of the eventual collapse – that it’s in a bubble – grows, while whatever the eventual proximate cause is shrinks to almost nothing.
        That’s just my own like, theoretical take on it.

  10. OutWest says:

    I’m an old fart and have seen this before…wake me up when th Nasdaq is down 50+ percent….

    • Propheticus says:

      “There are old traders and there are bold traders but there are no old-bold traders.”

      • says:

        You’re right! It’s because we think we may not have the time to recover in our portfolio.

      • Anthony A. says:

        I’m an old trader and now I just look for fixed income from T Bill and CDs. Both are getting better now.I like that!

        And yesterday, I played golf all afternoon and didn’t hear any news. Did I miss anything important?

    • Ghassan says:

      Agreed. And I add wake me up when Apple and Microsoft are down 50% from the top, NASDAQ is not near a bottom until these two are down as much or close to the NASDAQ decline.

      • SocalJimObjects says:

        Muppets are still blowing money as if there’s no tomorrow. Wolf previously wrote that credit card balances have not increased significantly in the longest time, but credit card issuance actually jumped by 39% in the fourth quarter of 2021, the HIGHEST on record.

        That tells me, Muppets are just revving up for the BIG spending possibly this Thanksgiving, so it will be a while before the big names go down a lot. Muppets still have plenty in the tank.

        • SnakesInErHairDon'tCare says:

          Listen, I’m just stocking up in advance on a couple of decent fragrances to cover the stench of rotting egos and decaying pipedreams that may be wafting in from the luxury condos & Air BnB’s this Winter.
          Who knows, worst case scenario I may even be able to trade em’ for food?

      • RockHard says:

        AAPL & MSFT are definitely the holdouts here. I was looking at charts of the FAANGs and those 2 are about the only ones that haven’t been cut in half. NVDA, META, NFLX, GOOG… all of them but those 2. That’s probably a good sign when they cave in.

        This whole thing has been in slo mo, the first in Feb 21, the next stage in Nov 21, now things have been coming undone with the really big names. Maybe by the end of the summer and even then there might be another shoe to drop. We haven’t even gotten to widespread earnings misses. TGT and WMT were early warnings (I guess AMZN too). That retail stuff is going to move up the chain, maybe next quarter’s earnings.

      • Flea says:

        Apple in my opinion is in trouble ,China shut downs ,shrinking consumer,high priced products ,no real innovation = watch out below . But they do have a ton of cash

        • phleep says:

          It is a question of how persistent Apple’s customer lock-in is, in the face of inflation. Apple users I know are mostly cultists, buying every new knicknack regardless of price or season. It is a consumer identity thing. That was done masterfully.

        • VintageVNvet says:

          agree with the phleeper on this one:
          been down that road, repeatedly, with various F&F
          ( “friends and family” ) who are fixated on the products from apple in spite of those products NOT ”penciling” out for ANY reason, but specifically NOT for cost efficiencies.
          Have given up trying to bring rational thinking to those folks at this time, since, as you say, it’s a cult.

        • Anthony A. says:

          “It is a question of how persistent Apple’s customer lock-in is, in the face of inflation.”

          I just ordered my wife a new iPad directly from Apple as her 2014 version finally died. So the beat goes on!

        • COWG says:

          Except for a cheap Windows laptop for BMW specific hardware, I’m totally Apple now…

          I have iPads, iPhones, tv, and watch…

          I’ll never go back… their stuff works together right out of the box and is seamless…

          I got my sister an iPhone and she says she will never change….

          If you watch for the deals, you can buy Apple hardware for not much more than others…

        • Wisdom Seeker says:

          Re “It is a consumer identity thing.”

          No, it’s about total cost of ownership.

          Gear that just works, without endless setup and settings hassles, without trying to harvest your data to sell you ads, and without breaking within 5 (or 10!) years – is in fact worth a premium price to many people.

          Including me.

    • Old School says:

      I agree. Dividend on SP500 still only 1.8%. Not much value there til inflation is broken and dividend yield is 3%

      • Cas127 says:


        Good point.

        Div yield is a simple old school (ahem) metric that has the tremendous virtue of valuing businesses as *businesses* (how much money in, to generate how much money out) as opposed to purblind share price tracking, which relies entirely upon the mental state of an army of Muppets mono-manically focused on momentum.

        (That is why I use PE ratios as a measure of valuation insanity)

        Div yield does have the weakness of being capable of being engineered/gamed by management (in the short term) but so do most metrics, if analyzed in isolation.

        And given the valuation idiocy that had taken hold, almost *any* analytical anchor would be better than simply listening to the shoeshine boys on CNBC, etc.

        • Augustus Frost says:

          No valuation metric is optimal.

          Dividend is much better than earnings or P/E ratio because at least it’s actual money. Earnings are only an accounting number which the supposed “investor” never sees.

          It’s also much easier to “game” earnings than dividends. C-Suite can pay inflated dividends the company cannot afford but this seldom happens in practice. Especially in a mania like now where cash is mostly viewed as trash and C-Suite is incentivized to show as much “growth” as possible, even when shareholders never see a single cent of it.

          Up to this point, shareholders have mostly not cared about dividends because of rising prices. Prio to the mania period starting in the mid-90’s, my recollection is that dividends accounted for about 40% of the 10% supposed “historical” return.

          In the upcoming multi-decade bear market, “investors” will care a lot more about dividends again, assuming they own stocks at all which they mostly won’t later. Adjusted for price changes at minimum, US stocks are so inflated now most should be selling for less for as long as it will matter to anyone reading this topic.

        • The Real Tony says:

          I was the first to point that out about 2 weeks ago.

    • sunny129 says:


      in 2000, Nasdaq lost nearly 90% over a period of about 22 months!
      I am just trading mostly shorting with some hedges. Besides PUTS on TQQQ paired with a few CALLS (out of the money) for Jan 24! Same with DIA & SPY. Working fine, so far!

      Mkts will go down one way or the other, of course with fierce bounces along the way.
      Those nimble traders with experience in option trading NEVER fear BEAR!
      The best risk management tool available to retail investors, amidst sharks and barracudas!

  11. Blockhead says:

    Keep in mind that an Expert is someone who can give a detailed explanation of why his prognostications were completely wrong.

    • sunny129 says:

      If one keeps on ‘prognostications’ off and on and one of those, he will right! Don’t mind the other calls.

  12. Mendocino Coast says:

    Today’s New Job:
    To Fix the “transitory inflation ” created by previous inflation inspiring agenda well now that’s J Powells She’s like a Rubber ball She came bouncing back to me.
    Up Down that’s the game

  13. Michael Engel says:

    1) Diesel crush the farmers.
    2) Higher interest rates crush Fed assets.
    3) Madam ECB will be less aggressive than JP, because ECB assets
    and large European banks assets, financing the European gov, are plunging.
    4) Europe have no treasury dept. European national banks are ECB
    share holders.
    5) European multi national banks are in frog cooking by the rising NatGas and food prices. Their bonds assets are shrinking.
    6) Madam ECB will have to beg the frog European national banks to
    reboot ECB assets. What if…
    7) Lower highs/ lower lows gave the Dow got a trigger. The Dow might rise
    because SOFER is still almost free…

  14. Michael Engel says:

    8) Madam ECB might become the first European finance minister.
    9) The European national banks might become the equivalent of the Fed
    regional banks.
    10) Europe will be saved. DXY will weaken.

  15. Michael Engel says:

    11) If Europe will have a treasury dept the ECB can issue credit
    to the treasury dept, in exchange for European bonds, building
    assets, rebooting.

  16. Michael Engel says:

    1) US debt profile: the front end is extremely negative, because of the high inflation. The long duration are about normalized. Europe national banks assets are in the long duration. They benefit with rising rates, paying less interest.
    2) US 10y minus 2Y = 0.14%, almost equal. The Fed is conservative, taking less risk for the same yield. The German 10Y minus 2Y = 0.6%
    3) The Fed assets are mostly in short term gov debt. The Fed is holding it til maturity.
    4) In case of a crisis Europe national banks might be forced to sell assets, reducing their assets value. The Fed will hold till maturity.
    5) US gov debt, in real terms, deflate at rate of : 1Y x $30T x (-) 0.06 = $(-)1.8T/y
    6) Europe national banks long duration don’t deflate.
    7) If the energy crisis will expand to the ME Europe will enter a major
    banking crisis.

    • Old School says:

      Except government will be running deficits of about 6% over the next 10 years when you include recessions, maybe more. We will probably be back at Zirp with 40T in government debt by 2025.

    • Pete in Toronto says:

      @ Michael Engel,

      Where are all the multi-billionaires from technical trading?

  17. Chris Coles says:

    So, what happens when someone decides to exercise the Taylor Rule and interest rates have to be held for some time in the region of 24%?

    • historicus says:

      Taylor Rule now, according to the Cleveland Fed calls for 8.6 Fed Funds or 6.8 based on Core.
      The Fed has 7 “rules” for this part of monetary policy, and as you might guess, they range all over…the Taylor being the highest. But the range amongst the “7 rules” makes them essentially worthless….the powers will just pick the one the want to follow.

      It is time the Fed has some guard rails and the monetary policy becomes more predictable…..formula based. This would solve so much wondering regarding the whimsical nature of these subjective decisions.
      *Make Fed Funds track inflation…..immediately.
      *Make monetary supply a function of the pull from GDP growth. IMO.
      *Keep a positive yield curve.

      Predictability leads to Stability.

      • drifterprof says:

        The major problem is that *instablity* maximizes profit for the biggest players.

        • historicus says:

          Subjectivity and loose decision making behind closed doors
          ” maximizes profit for the biggest players.”

          Ask the three Fed Governors who “resigned” ….for starters.

      • Enlightened Libertarian says:

        Wouldn’t predictability and transparency make it more difficult for the big boys to make lots and lots of money?
        Just wondering.

  18. Xaver says:

    A short term speculation like this is what I want to avoid. It’s not always easy. Our brain is always looking for patterns. Easily we see patterns when in reality it’s just coincidence.

    I am trying to think about next year and the business / market cycle and the boom / bust dynamics. The market direction in general is down and I am positioned short in cash burners and frauds. Trading around the positions a bit, but it’s not my strength.

    I did well very well in the two major busts, this one should be the third and I hope I will do fine again.

    I know a bit of luck is necessary and I had that too.

    • Old School says:

      There will be plenty of 10 baggers at the bottom if we are fortunate enough to find them.

  19. Kenny Logins says:

    So people double guessing will cause volatility as they’ll leverage their guesses?

    And there I was thinking ‘markets priced XYZ in’ meant it was absolute, rather than the net effect of all participants.

    It’s genuinely interesting to watch now because the conclusion is unknown.

  20. grifd says:

    Wolf – enjoyed this post. Had a sneakin’ suspicion that the morning after would happen the way it did. Fed has no idea what is going on now – they are waiting and nervously hoping their smarts don’t get called even further.
    To what extent do you think the bots are to blame (the ones programmed to auto-trade based on headlines and other elements in the secret sauce)?
    As long as the speculation’s price is going up (which can be sold at any nanosecond’s notice – before most even see it registered on the board) why bother reprogramming?

  21. eg says:

    I’ve been sitting on a pile of cash looking for a long-term entry opportunity since last July. I can wait longer …

  22. georgist says:

    Someone might think:

    Maybe if real work paid more than playing with numbers we might have a far stronger economy.

    Financialization is cancer.

  23. unamused says:

    “everyone has their theory”

    Everybody except me it seems. I’m feeling really left out here.


    All I have is a wild-ass guess. It doesn’t rise to the status of a theory because there’s no compelling evidence to support it. It seems unlikely that everybody really has a theory because they’re unlikedly to have compelling evidence either.
    Conjecture and theory are very different things.

    One consequence of the Efficient Market Hypothesis is that it’s not possible to beat the market, largely because a real advantage discovered by one player will quickly be adopted by others and the advantage will be lost. The EMF contradicts itself here because a true advantage will allow a player to beat the market at least once, so EMF cannot be entirely valid.

    One exception to EMF is trading on inside information, which is confirmed as an advantage but is an unfair one, and therefore is prohibited, but that doesn’t mean it isn’t done. Strong circumstantial evidence demonstrates that Warren Buffet and many others have succeeded by trading on inside information, but that sort of evidence is usually insufficient to bring charges.

    The Exception That Proves the Rule is a logical fallacy. No help for EMF there either.

    You can tell I’ve put a lot of thought into this. Heh heh heh.

    • drifterprof says:

      There are many levels of how people define and use the word theory, from erudite to predatory to mundane to moronic.

      People’s probabilistic theories (my research topic at university) is largely mundane or moronic for a large number of poorly educated humans. For example, many people have an intuitive “theory” that if a roulette wheel has produced red for a startling number of times in a row, then on the next spin one should put big money on black.

      In my old age, it feels like only compelling evidence I have of anything is that there is great value in the ability to kick back and enjoy life.

      • unamused says:

        “There are many levels of how people define and use the word theory”

        In other words, you’re a politician who is only pretending to be a scientist.

        The scientific definition of the word “theory” is different from the definition of the word in colloquial use. In the vernacular, “theory” can refer to guesswork, a simple conjecture, an opinion, or a speculation that does not have to be based on facts and need not be framed for making testable predictions.

        In science, however, the meaning of theory is more rigorous. A scientific theory is a well-substantiated explanation of some aspect of the natural world that can incorporate facts, laws, inferences, and tested hypotheses.

        To the public, theory can mean an opinion or conjecture (e.g., “it’s only a theory”), but among scientists it has a much stronger connotation of “well-substantiated explanation”. With this number of choices, people can often talk past each other, and meanings become the subject of linguistic analysis.

        If this is the game you want to play to can expect to be repeatedly discredited for the fallacy of Definitional Retreat until you either decide to get real or find somebody else to con.

        • drifterprof says:

          Okay. No problemo.

        • Brent says:

          Mr Popper explained what constitutes “scientific theory” 100 years ago using “falsification principle”.

          His best example is astronomy vs astrology.Both can predict stuff happening.Meanwhile astronomy is science, astrology is not.

        • phleep says:


          You are so unamusing in rant mode. Mussolini mode.

        • unamused says:

          “Mussolini mode.”

          Oh darn, there you’ve gone and hurt my feelings.
          Oh wait!
          No, you haven’t!

          If you can’t even do an ad hominem correctly, a simple smear, how do expect to master any other logical fallacy?

        • DawnsEarlyLight says:

          Oh, for you, I thought it was flattery. 🤣

  24. drifterprof says:

    My first experience with a market crash as an investor was the covid bottom in March 2020. I made some stupid mistakes out of fear, and had some bad luck (for example, PG&E). But also managed to make some okay decisions. So eventually, no painful loss.

    What recently seems to be happening with the BTFD crowd reminds me of when the market started spiking after the covid bottom in 2020. I remember various thread comments from retail investors brimming with enthusiasm, throwing in all their dry powder, totally confident that the market would skyrocket (like it did).

    I’m not sure of how much they were just risk-on mania types, or had knowledge about the Fed which I was so ignorant of at that time. If they were simply risk-on mania types, they may experience something different this time around. I’m still keeping my powder dry in case the fat lady sings.

    After selling 90% of my stocks in 2021, all I’ve done in the last year or so is put 20k in I-bonds (currently earning about 9% or something) and done some FX conversion as USD/THB spiked up this year (for long-term living expenses in Thailand). I might loosen up a little and buy short term Treasuries if they start yielding somewhere around 6%.

    • Michael Engel says:

      1) Short terms T-bills will not reach 6%, because JP isn’t harakiri.
      2) The Fed bypass Taylor rule by sucking liquidity from the banks.
      RRP reached $2.2T. Total suckers $3.5T
      3) If investors misbehave JP will suck more, limiting banks from lending,
      increasing assets and reducing their book value.
      4) The risk : bank assets shrinkage. The fat cows bankers will constrict too much, start a diet, choking the economy.

  25. Bobbleheadlincoln says:

    So “morning after J-POW” is kinda like the reaction when you wake up after a night of binge trading next to J-POW?

  26. breamrod says:

    vxx is broken it seems. Lower highs and the market keeps going lower. It just reinforces that everybody is looking for a bottom and the fed pivot. We’ve probably have a long way to go even though we could get a rip your face off rally at any time.

    • historicus says:

      The “rally” threat for shorts is an event in Ukraine or Russia…ie peace or Putin gone. That is what has made the short side a risky endeavor.
      This did happen early in the market roll over…peace talks, etc…and the up 500 Dow pts overnight…..

    • phleep says:

      I have been making money with VIXY this year, but I am a bit unsure why it is not leaping more on big sharp down days. My working conjecture was, folks would buy it to hedge or speculate on bad days, as I did. I am just sitting on it now, waiting for some wild event out of the blue sky. Apparently all this rumbling randomness isn’t enough. Yet.

  27. TK says:

    Short covering taking out all those stop loss points. Shorting is a tough slog. You need a lot of capital and conviction. But margin people and gamblers get stopped out only to watch it all go lower. There are lots of “day trading” platforms that teach all sorts of stop loss strategies. ie top of the channel, 1 SD, next fib line. But Wall Street knows this and happily takes it all first.

    • Propheticus says:

      “There are lots of “day trading” platforms that teach all sorts of stop loss strategies…”

      Here’s another stop loss strategy: If you’re looking to get stopped out, put in a stop loss.

      Your broker/dealer already knows every last detail related to your account. If you don’t place stop loss orders, the counterparty to your trade has no idea how you plan to exit the trade. This is where self-discipline comes into play and very few have it.

      The beauty of shorting selling is that your broker/dealer cannot lend your shares out because you have nothing to lend.

  28. lisa2020 says:


  29. lisa2020 says:

    Great! Not repeat the obvious!

  30. lisa2020 says:

    Hmmm. With the first comment, when I touched on the submit box- I received a msg response of: you already said that- and I hadn’t, as I had only selected -submit-once. So I sent a second comment that was just a bit different- the “to” got omitted on the second msg. So, I am sending this one. The algos or is Google stepping over into certain new territories?

  31. drifterprof says:

    Looks like cat still has some undigested flubber.

  32. Spencer Bradley Hall says:

    The economic engine has been running in reverse since the Golden Age in Capitalism. The FED’s Ph.Ds. don’t know a credit from a debit.

    Under Reg. Q ceilings the banks weren’t allowed to outbid the nonbanks. Now the situation is reversed. Disintermediation is a term that only applies to the nonbanks since 1933.

    Under the remuneration of interbank demand deposits, the savings->investment process is destroyed quicker. So, velocity falls faster. Powell is going to overtighten.

    Powell eliminated legal reserves but didn’t increase capital requirements. Powell destroyed deposit classifications because he thinks money doesn’t matter. Stocks have a lot further to fall.

  33. J-Pow!!! says:

    Wolf, u short in da money now, dawg?

  34. Crush the Peasants! says:

    Zucker Sucker Pucker.

  35. Island Teal says:

    The Big Short, Margin Call, Inside Job, 99 Homes are all required watching because so much is getting ready to repeat itself. The scene from Margin Call where Jeremy Irons character first appears for the 4am meeting is so well acted. “This is It” just sticks with me.😬👍🎥

  36. Agnes says:

    The J-Pow pattern. Like a sudden right hook to the jaw. Cool. I like it. Then everything goes kerfloomp, or whatever, because the party ran out of bamboozle. I suppose it’s not polite to giggle over all this, but I can’t help myself.

  37. HollywoodDog says:

    Past Fed Chairs, although still guilty of stoking the fire, were at least careful with their pronouncements. They realized how much would be read into their every word, inflection, and pause. Not J-Pow. He seems to have no discretion.

    The Dems are likely to lose big in November. And they’re going to point fingers at the Fed, which is at least partly responsible. (Stimulooza didn’t help either.) There’s going to be immense pressure for new top banker, if even just for the placebo effect.

    • phleep says:

      Greenspan: ” I know you think you understand what you thought I said but I’m not sure you realize that what you heard is not what I meant.”

      A fed chair would be keelhauled if talking with such glib derision and evasiveness now.

      Then launched a whole new set of introspections on Fed messaging, guidance, etc., steering out of the murk of 2009. I think Powell is doing his best to be clear, in the interest of maximum predictability, hedged of course on the uncertainties. The Fed last year alongside SEC and Treasury, as I recall, warned of all the bogus assets (and upswings) that have now tanked.

      the real problem though, is not obtuse or unsubtle messaging, it is that the Fed basically only has one “answer” to everything: write rubber checks, or be temporarily coy about that.

      • Phoenix_Ikki says:

        I strongly suggest that the past 4 FED chair and the current one to host some Skillshare or Masterclass sessions in how to master gaslighting and manipulation and double speak. They have delivered on that so flawlessly…I mean even till this day, quite a number of people still believe QE is right around the corner…talk about how good they are at gaslighting..

    • unamused says:

      Ich kann gar nicht soviel fressen, wie ich kotzen möchte.

      • COWG says:

        And just what the hell does a midnight snack with a frozen mocha got to do with anything…. :)

  38. Gabby Cat says:

    The report regarding inflation being higher that anticipated, and caused the bigger hike, is that a monthly or quarterly report? I am curious if 100 bps could happen next month if a similar metric hits the news wire.

      • Depth Charge says:

        Just last month Powell said they weren’t seriously considering 75 basis points, then they just raised that much. If the inflation print is super high, I’d think 100 basis points would definitely be on the table.

        • Jdog says:

          I doubt if what the Fed does is going to impact inflation. They are so far behind at this point their actions are not really relevant.

          What is relevant is 6.2% mortgage rates, and $6 gasoline. Inflation is self correcting by creating demand destruction and eventually the destruction of massive amounts of money, as loans default. The loan defaults in turn create asset deflation which causes more loan defaults. The feedback loop continues until a bottom is reached and productivity begins to turn around.

        • Lynn says:

          I’m guessing 7%+ average mortgage rates for the fall. Possibly larger %. I need a very small loan, so my % will be higher anyway. Hopefully the prices crash enough to make it work for me. Or crash enough that I won’t need one.

  39. Phoenix_Ikki says:

    Wolf, I think you got this all wrong. It’s simply down to PPT still trying to do their job while hung over, putting in bare minimum at best. Figure they can get away with showing up last min on rate hike to do their job then completely hit the sauce at the bar the entire next day..

    I think I need to report this to their sith lord Powell, at the very least, a performance improvement plan along with a AA meeting is needed.

    • Wolf Richter says:

      In order to get some clarity on this, I called my sources at the PPT, and these persons, who don’t want to be identified because they’re not authorized to speak for the PPT, said that the PPT staff were in fact NOT at their trading desks. They had put cutouts into their chairs so that Powell and Yellen, when they stuck their head in to check on them, would think they’re at work, when in fact, they’d left and were drinking in the bar again. That is what happened on both day 1 and day 2, according to these sources. The sources at the PPT aren’t really sure what caused markets to rally on day 1, while they were drinking. The sources said that there are suspicions among PPT staff that some PPT staff at the bar were buying gazillion of dollars’ worth of stocks on their iPhones, when others thought they were just chatting with their girlfriends, and these rumors of some staff trading behind their backs are now causing morale problems.

      • Phoenix_Ikki says:

        Dang it, you meant to tell me they pulled a Ferris Bueller? That’s pretty creative of them, what’s next? If they keep hitting the sauce, they might end up doing the job Weekend at Bernie’s style…I mean Powell has kind of already been doing his job that way for the last couple of years..

      • Harvey Mushman says:

        Ask your sources at the PPT if there are any openings. Sounds like a fun place to work!

      • rojogrande says:

        When the PPT hits the bar is it BYOB (bring your own bamboozle)? Their party never seems to run out of bamboozle.

    • SoCalBeachDude says:

      There is no such thing now as the PPT. It was disbanded in 1993.

      • Wolf Richter says:


        I’m shocked! Shocked to find that sarcasm is going on in here! Everyone out at once!

      • Manly says:

        Maybe the PPT has been superseded by the stock buyback trend. From propping up by the Feds to stock-stacking by neoOligarchs of the Western world.

        Coincidentally AAPL and MSFT are holding 1st and 2nd place in stock buybacks. Others like T mobile are playing this game. And— With a market cap of just $182 billion, Oracle has repurchased 45.4% of its current market cap since 2015.

        Buyback bloat could eventually become spilled blood on the trading floor. Then seep into millions of retail and institutional portfolios.

        More popcorn, plz.

  40. TimmyOToole says:

    Wolf, if Fed was letting maturing assets roll off the balance sheet at this point of QT, shouldn’t the credit numbers be going down not up?

    • Wolf Richter says:

      A balance sheet isn’t a live stock ticker. Week to week is meaningless. Read what I said about the Fed’s MBS in my prior posts. I’m not repeating it here.

      Treasuries off off mid-month and end of the month. MBS don’t operate AT ALL that way, and you will have to read what I said previously about it to find out.

      • sunny129 says:


        How does ‘ NO bids on MBSs, recently news, affect their prices and who is going to buy them, when mortgage rate is 6% and inching higher! Can Fed keep them to maturity and retire them? How does this affect the QT?

        Thank you

        • Wolf Richter says:

          MBS are in “price discovery” right now = no bids. Meaning, sellers haven’t come off their high prices, and buyers are refusing to pay them, and so now there is this freeze until sellers come down with their price. The yield is way too low, with 8.6% CPI, why would anyone other than the Fed buy 5.6% MBS? Prices have to come down, and yields have to come up, and sellers are in denial. But they’ll eventually get it. The Fed should have never ever been in this market. It got totally screwed up, and so now they have to sort it out.

  41. crazytown says:

    On deck: Deflation in trinkets and frivolous consumer goods, inflation in food and necessities? Everything seems very brittle (even transitory?) out there, I can’t come up with a solid investing thesis in these markets other than hanging on to some energy investments with low PE and some treasury bills for a trickle of income.

  42. Xavier Caveat says:

    Ooh ungowa
    J-Pow got the power

    As we head into the financial abyss, who does the public end up blaming?

    • DR DOOM says:

      Vlad the Mad is the cause of it all. He is behind the curtain and diddling with the controls.

  43. Clark Jernigan says:

    Help me, please. As I study yesterday’s Fed balance sheet release, I cannot confirm that QT has begun by looking at the total of MBS.
    I am likely making a silly error.

    • Wolf Richter says:

      Yes, very silly error. See my comment elsewhere here. QT-deniers will be ridiculed brutally in my articles in about three months when we see the full beauty of it. Just like tapering-deniers were brutally ridiculed when assets stopped rising. And just like rate-hike deniers were brutally ridiculed by Powell himself. You people are just setting yourself up for being ridiculed time and again.

      • Phoenix_Ikki says:

        Just like people busy telling us why there will no bust in housing bubble. Since they have had over a decade to be “right” when it does burst, I look forward to a decade of ridiculing them to make up for lost time.

        • sunny129 says:


          ‘Since they have had over a decade to be “right” when it does burst’
          Did you forget, if they knew ‘HOW” we wouldn’t have 2000 dot com bust or housing bust- GFC in 2008! Mind this is the same gang who brought us TWO Boom -Bust cycles already in this century!

          In order to post the ‘inevitable’ (Keep kicking the can down, and down again! they replaced the usual ‘ business cycles’ with credit cycles. Insane credit creation created this surreal BULL – aka 3rd largest ‘ everything’ bubble.
          Now it is leaking air, b/c NO MORE Fed’s put! No QEs but QT!

      • Clark Jernigan says:

        I’m trying. Is it simply that the TBA aspect means that it’ll take longer than two weeks into June for it to be apparent on the Fed balance sheet?

        • Wolf Richter says:

          Yes, you got it partially. TBA is where the Fed buys MBS. So the Fed cut its purchase schedule way down (I just looked at it yesterday), but those lower purchases won’t hit the balance sheet for 2-3 months. What we’re seeing now that is arriving are the purchases from 2-3 months ago.

          The other part is this: The Fed sheds most of the MBS via the pass-through principal payments, when mortgages are paid off, or are paid down, and the principal payments are forwarded to MBS holders. This is a very uneven flow that reduces the MBS balance. That’s why the MBS chart has this jagged line.

          We will very clearly see QT in about three months. Treasury securities already dipped yesterday, and they will keep declining. I went through this the last time (2017-2019), so I know how long it takes for all this to show up in large enough a number to even be visible on the $9.7 trillion balance sheet.

  44. Michael Engel says:

    Let’s play in the casino for fun and entertainment :
    1) Who make money in the casino : mgt with an edge, Doctors in statistic that
    identify thieves and smart traders with superior edge. Casino technicians
    working day and night to fix broken slot machines.
    2) Dow S-Wave completed a round trip after JP 0.75% hike : after plunging to Mar 23 2020 low the Dow made a new all time high, plunged in lower highs/ lower lows to 2020 highs.
    3) The Dow might wait for SPX to complete it’s round trip.
    4) We don’t know what will happened next. All I know is that front line soldiers die and the generals survive. Don’t get shot before the ceasefire.

  45. Michael Engel says:

    Fri 2PM, for fun and entertainment :
    1) QQQ weekly is a doji on the highest vol in the last five weeks. Something is going on.
    2) After 4 weeks, finally there is a close May 9 low it’s a trigger.
    4) June 6 closed at 2 PM < May 31 low, a setup bar. This week is a trigger.
    5) We don't know what the triple QQQ do next. It can get worse on Tues, or popup.
    6) Have a great Father's Day…

    • sunny 129 says:


      Hopium is still high! Strong denials of the rising fundamentals. Many of have forgotten that without Fed’s PUT, there is NO market of any kind in the World. But they will how ever try, following every ‘over sold’ conditions!

      No matter Mkts including NASDAQ are headed lower!
      Lower of the highs and lower of the LOWS!

  46. MICHAEL BOND says:

    It’s actually the FOMC meeting pattern that the Fed themselves researched and published. The day after is the real reaction.

    • Wolf Richter says:

      No, this report you linked says the opposite of the J-Pow pattern. Go look at it instead of blindly linking it, or at least read the article so you know what it says.

      According to this report you linked, stocks DROP right after the statement is released, then bounce back a little, and drop again and end the day roughly flat with just before the statement. And then the next day, stocks rise a little.

      But in the J-Pow pattern, stocks SURGED on statement day and PLUNGED the next day, and those were huge moves.

      The moves in your report were SMALL, and in a different direction, compared to the mega moves of the J-Pow effect.

  47. Michael Engel says:

    7) NDX daily : Anti BB : May 12 low/ 17 high, Bubble up to June 2 high/ bubble down to yesterday close.
    8) Option #1) A trading range will last at least until July to build a cause for either going up or down, extending the congestion.
    9) Option #2 : popup.
    10) Option #3 : cont the correction, perhaps to complete the S- wave, a round to Feb 2020 high.

  48. Staunton16 says:

    The J-Pow pattern is volatility, especially the week of the FOMC! To trade it properly, on the Monday before the next FOMC meeting (July 26-27), buy July 29th and Aug 5th ATM calls AND puts for SPY and QQQ. Sell the calls at the height of the run up and sell the puts after the crash down. (And then put all the profits into I-bonds @ 9.62 percent!)

    This is, of course, not financial advice. I just like to gamble. ¯\_(ツ)_/¯

  49. The Analyzer says:

    Amazing work Wolf! I know it’s impossible to call the bottom, but for amusement purposes, where do you see the S&P, DOW, and NASDAQ end up when the dust settles? Also would love to hear your thoughts on the Southern California housing market, from the buyer’s perspective?

    I know, I know. Geopolitics, inflation, interest rates, QT, etc…, but for amusement purposes…

    Thanks Wolf!

    • ace says:

      read his *old* articles, and read the comments.

      • The Analyzer says:

        I’ve been following the blog for a few years now and reading all of the comments. Tough to circle back and try and find all of Wolf’s thoughts where the dust might settle.

        I do remember his saying that he is not selling but using options to mitigate risks.

  50. CrazyDoc says:

    Is the put/call ratio over 1 a telling sign of something changing, hasn’t been up this high for a while.

    • sunny129 says:

      It is the reverse of the events following ’09!
      There is NO mkt(s) of any kind any where in the world, without Fed’s put, of course with few exceptions!

  51. sunny129 says:

    An open question to fellow commenters:

    Wonder how many here, are trading options either now or trading the in the past?
    Same question using inverse ETFs?

    Thank you

    • Yancey Ward says:

      I tried buying some puts a year and half or so back, unsuccessfully. The only other times I have used options is to sell covered calls (which I used to do regularly). I was too much of a pussy to sell them uncovered last fall. Sigh.

      I have been thinking about selling some puts in the stocks I would like to own after this all shakes out, but I need to see more blood in the streets to do that.

      • sunny129 says:

        Most of money in IRA accts. Not allowed sell PUTS even covered one
        I wouldn’t even if I could b/c mkt trend is down in general. Buying /selling puts and made profits, Hedging with leap calls!

        Thank you for responding!

  52. Marbles says:

    Ha Ha It’s Friday humor to me. Do you feel lucky punk? Well do ya?

    • sunny129 says:

      Are you whining, complaining, moaning, crying or sarcastic laughing?
      Whatever, My sympathy for your condition!

      All the Best for you!

  53. gametv says:

    A couple days up and down, that’s all. Buy companies with great management with huge opportunities and just wait. Have alot of cash in difficult times so you can average down at really low prices.

    Too many people are running to put assets into categories that have already gone up, like energy and other inflation hedges. Why? You might be very late if you pile into energy now.

    There are a few really great bargains right now in future growth companies. Not many, but a few. Look for relative strength. Find a high growth company that was actually green on Thursday.

    • suny129 says:


      I would rather wait until there is WIDE carnage and blood on the streets.
      The Mkts have to GIVE BACK all if not 50-60% gain since ’09!

      Impossible you, say, right? There has been 9 fold increase in Fed’s balance and 6 fold in increase global DEBT, since ’08, unlike any time in human history. Stocks still remain way over valued considering, NO more Fed’s put, rate hikes on the way and inflation raging! S&P lost nearly 60% during GFC and Nasdaq nearly 90% in a matter of 22 months

      Conditions compared to 2000 or 2008 are way WORSE!

      Don’t listen to me just go ahead, when stocks lose 30% and again at 40%, b/c some bozo in Wall St will cry, that the stocks are NOW cheap.
      Seen it, done it and still survived since ’82 by going thru more than ONE bear mkts!
      Guess, one needs their own ‘experience’ but be aware that it comes with high tuition fees!

    • sunny129 says:


      “Have a lot of cash in difficult times so you can average down at really low prices’
      $ averaging works great during secular Bull mkt but NOT so, during protracted, secular BEAR like now! Just read mkt history!

      May be ‘Value’ averaging!? I don’t know.

  54. sunny129 says:

    I couldn’t pass this one up!

    ‘The longstanding idea of central banking is what former Fed Chair William McChesney Martin referred to as taking the punch bowl away just as the party starts to get good. I worried that the Fed’s new framework was saying that the punch bowl was going to flow freely until you started to see people staggering around drunk.’
    former SecY – Lawrence summer

    • historicus says:

      Wouldnt everything be better if , for the past 12 years,
      Fed Funds were stuck at 2%
      30 yr mortgages pegged between 5-6%?
      The Fed seems to complicate and interfere … create instabilities and imbalances
      Formula “guard rails” rather than whimsical policy decisions are needed imo

      • sunny129 says:


        “The Fed seems to complicate and interfere … create instabilities and imbalances”
        1. Banish our good ole American Free Market Capitalism with CRONY/Predatory kind, on March of ’09!?
        2. Start buying MBSs. which Fed NEVER did before ’09, in it’s history!?
        3. QEs have no prior research or prior record but Barnake’s idea, to bailout Banks and housing industry?
        4. Suspension of Mkt to Mkt accounting standard, since ’09! Never before!
        5 ZRP kept too long-Refusing to take punch bowl until now!
        6. Twists and stimuli ++++

        Now the reality and Mkt forces have forced Fed(CBers) to change their ill thought monetary policies and (you) that’s causing imbalances and imbalances?? LOL!

  55. sunny129 says:

    Another nugget from Larry Summers: on forward guidance:
    ( B/w Volcker didn’t do dot chart or forward guidance – just did it what was needed, unlike Mr. Powell. Apparently he didn’t want to shock the mkt! doing it his DOVISH way! Wow!)

    “There’s a phrase that my children use: TMI, or too much information. It’s an idea that central banks might want to include more in their repertoire. The Fed should return to a much more modest framework around the objectives of price stability and full employment in the face of changing data. It should resist the broad idea of forward guidance, which I think is one of those elegant academic ideas that doesn’t work very well in practice because central banks don’t and can’t know what they’re going to do in the future. And so forward guidance is, the vast majority of the time, folly. Markets don’t particularly believe it, so it doesn’t have positive effects when you give it. But having given it, you feel constrained to follow through on it, and so it diverts policy from what would otherwise be the optimal path.

    • TomS says:

      The difference is that back then only rich people played the markets and the government at least pretended to also care about regular people. Now the corporate government block has pushed everyone’s pensions into the casino and we have reverse wealth effect. The Fed’s tolerance for a crash is going to be very limited. Also, if Trump comes back he will want higher stonks, to make everyone feel rich.

      • sunny129 says:


        Hoping and wishing for a back to ‘Happy days are here again’ ( good ole days!) no matter what cost?

        WRONG assumptions:
        ” back then only rich people played the mkts..”
        The top 10%, NOW own more than 90% of wall St ( Top 1% more than 55%!) and the rest less than 7%! More INEQUALITY in wealth and income, than before 2008!

        ” we have reverse wealth effect”
        Wealth effect’ was a myth, created by Fed, to justify their ‘actions’ for the sheeple! Wealth always gravitated to the top but expected ‘trickle’ effect was hardly noticeable! Labor wage growth, stagnated since late 80s, until now!

  56. sunny129 says:

    Larry summers on Fed’s policy errors”

    ‘The Fed’s errors were in significant part errors that were widely shared in the professional forecasting community. For the first six or eight months of 2021, there was substantial agreement with the kinds of things that the Fed was saying, so it is important to understand the paradigms of error. Then, the Fed clung to the transitory-inflation view after it was being increasingly abandoned in the forecasting community. That, too, needs to be a matter for some internal soul searching’.

  57. SpencerG says:

    Sorry Wolf… not for Love nor Money would I speculate with my own cash as to this j-pow pattern holding true in the future. The direction of the equities markets is obvious… DOWN (or flat). Sucker’s Rallies are simply the Fates giving people invested on margin a fighting chance to sell and move to the sidelines. Sadly, most of them will not do so.

    • sunny129 says:


      I agree with you except for ‘sadly, most of them will not do so”

      Look at the fierce bounce(s) back RALLY after a (supposedly) ‘oversold’ Mkt condition, aka ‘BEAR trap’ b/c there is still a lot of hope, wishful thinking and repeated ‘positive spin’ articles from financial media!? This is expected and usual in all secular BEAR mkts by historical record!

      Long way to reversion to the mean (of course with numerous bear traps) , which is inevitable.

  58. Franz Beckenbauer says:

    Japan, China and the UK sold 80 billion of US treasuries in April.

    Here’s your real QT. The Fed is done.

    • Wolf Richter says:

      Don’t get too excited.

      In terms of QT, it doesn’t matter who outside the Fed holds or sells Treasury securities. It’s irrelevant to QT. QT concerns only the Fed’s holdings.

      Japan is trying to shore up its plunging yen by buying yen and selling dollar denominated assets, such as Treasuries. And China might be doing the same thing. China has a huge problem right now.

      Americans are now buying Treasuries because yields are becoming more attractive. Lots of demand in the US. The higher yield stimulates demand. This includes me.

      Here the Treasury holdings of China and Japan over the years. Their combined share of total US Treasuries is down to 7%. It’s meaningless.

      • Franz Beckenbauer says:

        Good thing you’re jumping in now the Fed is out.

        It’s a dirty job but somebody’s gotta do it.

        Two more meaningless trillions to go for Japan and China.

  59. Finster says:

    Ahhh the perils of trying to trade short term! Hard enough to divine the larger trends.

    My theory is US stocks still have a lot of downside left; they went so high that even after these months of selling off they’re still way overvalued.

    But bonds may be near the bottom. Treasuries have been taken out and shot. Then the corpse dragged up, propped against the wall, and shot again. The Fed won’t get as far as the market has priced in because something will break first. Gold looks good for the next year or so too…

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