YELLEN EASED MONETARY POLICY YESTERDAY

Greetings from Shanghai where it is 7:15 pm Wednesday night. Hoping you are doing well as we will be back from our trip this coming Saturday. We have a lot to say in two parts.

Firstly, we do not know what you’re hearing but here is what happened yesterday. Janet Yellen just eased monetary policy. Yes, after a whopping 1/4% rate hike, Janet Yellen stopped dead in her tracks and eased monetary policy. You don’t have to print to ease. You don’t have to lower to ease. You just have to yap away to ease. Everything this woman said for months has now been turned on its back. And to be clear and in case you did not know, this is just the culmination of a coordinated global effort to stave off market trouble. You don’t believe us? In just the past 6-8 weeks, the Bank of Japan went into negative rates a week after saying they wouldn’t. They have also bought up their market and injected a ton of money into the system. The People’s Bank of China just recently injected $100 billion into the system and has been buying up their market and lowering rates.The European Central Bank cut rates even further into negative territory and added more printing of money. Norway cut rates. Yes, that Norway. But the cherry on top of the big cake of easy money was first, Janet Yellen cutting the rate outlook once and then just yesterday, a second time but this time even more emphatically.

Here are just a few other tidbits. The deposit rate of the European Central Bank is -.40%. Switzerland is -.75%. Sweden is -.35%. The Bank of Japan is now negative. More than $26 trillion of government bonds now trade at yields below 1% and depending on which abacus you are using, there is between $7 and $10 trillion yielding  less than 0%.

All this and we haven’t even mentioned the years and years of 0% rates. We haven’t even mentioned that every time markets drop, central banks around the globe add more stimulus. With Mrs. bubble blinking, the game is back on. Again, leave no doubt this is a coordinated effort to stop the market carnage. It has been our contention for a very long time that there’s never a problem until markets say so. Every time markets started to say so, Central banks just go deeper into their bag of goodies to stanch the bleeding. It only took one little rate hike to cause serious damage in markets around the globe. They finally got on their bat phones and realized that they had no choice

but to go back to the old playbook and pray that it would work again.

Which leads us to the second half of our thoughts:the market. To review, we thought a good low was being put in on February 11 and February 12. Last Wednesday was the first day since the low that we thought could’ve been a sign of trouble. We immediately changed that stance on Thursday when the market finished flat after a big down open and the realization we werel heading into the end-of-quarter window dressing. As we have told you, window dressing is illegal, so it never happens. Wink, wink, nod, nod.

To be blunt, yesterday’s action was quite meaningful technically as markets got back the few days of pullback in minutes as Janet shot off her bazooka. This enabled several important areas to move back to the high of recent ranges and some above.  On top of that, the new yearly high list finally started to pick up and also noticed the risk juices flowing as a bunch of glamour growth names moved out of range. The Nasdaq is back to leading for this second.

A lot of fundamentalists are pulling their hair out of their head not understanding how a market can go up when just last week, GDP projections were lowered. Does not matter! A lot of permabears who have gotten the macro correct, now have to deal with a market again going up even though earnings and sales growth are going down. Doesn’t matter! The fact is the only thing that matters and has mattered is the policy decisions of a select few people that are following each other into a continued frenzy of easy money in order to goose markets up. This has nothing to do with their economies. This has 100% to do with the markets. So the rally off the lows continues. Until distribution rears its ugly head, it is folly to argue with what is now the tens of trillions of conjured up bucks around the globe. Wall Street knows it is ultimately a monstrous mistake because it can never, ever, ever be rolled back but Wall Street likes higher markets. If distribution does show up, we will let you know. Could always come out of nowhere!

Gary Kaltbaum