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|Cycle||Count||Observation||Probable Outlook||Cycle Clarity||Trend|
|Daily||Day 29||Range 36-42 Days – 2nd DC||Bearish||Green||Failed|
|Investor||Week 12||Range 20-24 Weeks||Bearish
|4Yr||Month 76||Range 50-56 Months- 8th Investor Cycle.||Bearish||Green||Up|
It’s sad that equity markets continue to be so focused on the FED, and the liquidity support it may or may not provide. In my view, this is symptomatic of the entire bull market advance, and is evidence that the bull market is not built on secular economic expansion, as is both normal and healthy. Any market that is artificially supported is living on borrowed time. The current fixation with the FED is born from fear that the liquidity support will be removed.
I do not believe that the FED is as clueless as many investors want to believe. Rather, the FED has created an environment from which it is very difficult to exit. In 2008, with the economy facing a serious bout of deleveraging, the FED chose to push the problem into the future by papering it over. In doing so, they put their policies on the path of no return; at this point, the FED is so committed to easy money that any exit would be crushingly painful.
And this is why it’s ludicrous to think that the FED could have raised rates during the current business cycle expansion. Rate hikes are normally a tool to cool off an economy that is overheating, and that’s clearly not the case today. Although the economy is expanding and there are some bright spots, the expansion is clearly tepid and mixed across sectors. When we consider that both the Federal Reserve and the Federal Government have undertaken the most aggressive accommodative support for markets in world economic history, it’s clear that what little growth we have is the result of monetary intervention and not organic economic activity.
With low, liquidity-driven growth and an aging business cycle (it’s been six years since the last recession), the chance of a rate hike is almost nil. We should consider that there is a far greater chance of more quantitative easing being needed to keep markets propped up.
Although I’m not generally a fan of the monthly payroll number as a barometer of the current market environment, the downtrend developing in the numbers is alarming. And the report itself was dismal; the Labor Department reported an adjusted increase of 142,000 jobs in September, and also revised both July and August lower. On a three month basis, the trend is now lower and this is the first time we’ve seen back to back months with below 200,000 jobs created. (more…)