Tuesday, June 27, 2017

Fake News, Fake Markets, Fake Money: Big Losses As Central Bankers Talk Tightening

Good luck to anyone trying to do fundamental analysis in this market.

Jawboning by Fed officials and today, especially, the grand liar of Europe, Mario Draghi, led the assault on spec stocks and the market in general by threatening to take away the low interest rate punchbowl.

Draghi's comments came at an economic conference in Portugal, ECB President Mario Draghi said that as economic prospects improve in Europe, the ECB could make adjustments to its policies of sub-zero interest rates coupled with huge bond purchases.

As if that wasn't enough, a trio of Federal Reserve loudmouths set their jaws to yapping about asset values, cueing a collapse in the equity and bond markets.

Fed Chair, Janet Yellen, Vice-chair Stanley Fischer, and San Francisco Fed President John Williams all focused on high equity valuations in speeches at separate locales.

Thus, market participants wet their pants on the awful prospect that their enormous gains would somehow evaporate if the accommodative policies of the Federal Reserve were to be unwound. Of course, they're right. Almost all of the gains of the past eight years have been the result of loose monetary policy. Any tightening of such policies would mean that stocks might not be so easily gushed to higher levels.

Bond yield rose substantially, with the 10-year-note gaining to 2.19%, erasing all of June's gains.

Not that any of today's loose lip talking matters. Actions will determine the ultimate direction of the markets. While some degree of sanity and honest price discovery in markets would no doubt involve a lower rate of return than what's been considered normal since 2009, it also might result in crisis, as all manner of wealth is tied to stocks and their continued appreciation.

At the Close, 6/27/17:
Dow: 21,310.66, -98.89 (-0.46%)
NASDAQ: 6,146.62, -100.53 (-1.61%)
S&P 500 2,419.38, -19.69 (-0.81%)
NYSE Composite: 11,716.92, -41.94 (-0.36%)

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