The Day of Reckoning is coming, and it won’t be pretty for the overall markets. While the Fed liquidity has pushed the major U.S. indexes to new highs, the underlying fundamentals in the economy continue to deteriorate. Without the record amount of Fed QE and Repo Operations, the market and economy would have gone into a tailspin in 2019.
Now, to give credit where credit is due, the term, “The Day of Reckoning” was the title from the Northman Trader’s most recent public article. What I like about Sven Heinrich’s work (the Northman Trader), is his ability to use technical and fundamental analysis to provide “PRICE DISCOVERY” in the markets.
Unfortunately, we don’t have price discovery anymore due to the Fed and Central bank decade-long propping up of the markets. This chart from the Northman Trader shows how the Fed’s interventions have come in to support the markets at key technical levels:
What is quite interesting more recently (2019) is the substantial Fed’s rate cuts, QE, and Repo Operations at a time when there isn’t a downturn in the U.S. economy. When the Fed started QE1 in 2009, the stock market had crashed to a low, and the economy was in a severe recession. The Fed continued to support the economy and markets with QE2, TWIST, and QE3 into 2013. Again, these Fed interventions took place during a struggling economy.
Today, the Fed is pulling out all the FIREPOWER when the markets are at new highs, and the economy is still rolling along nicely. This is a recipe for DISASTER at some point. Furthermore, the energy market that is one of the driving forces of the U.S. economy is in serious trouble.
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