From the intro to my last Patron Post:
Thursday morning CPI, again, proved what has become my standing narrative for two years — that hot inflation would force the Fed to tighten faster and [thus] would kill the economy, the bond market and stocks — when all of the following headlines hit on a single morning (as collected on The Daily Doom):
- Inflation hotter than expected!
- Core US Inflation Rises to 40-Year High, Securing Big Fed Hike
- Dow futures instantly cliff-dived more than 500 points after a hotter than expected inflation report
- “Horrible”… “Brutal”…”A Disaster for Democrats”: A Shocked Wall Street Reacts to Today’s CPI Nuclear Bomb
- US 10Yr Treasury breaks 4%, highest in fifteen years!
- What we Are Seeing in The UK Is Decades-Long Hyper-Financialization Being Unwound on Fast-Forward at Gunpoint
- Ugly US 10Yr Treasury Auction Stops at Highest Yield Since 2009 as Foreign Buyers Flee
- Yellen Flip-Flops Over Adequate Liquidity in Treasuries
That string of headlines was like a grand slam for all that I’ve been saying, suddenly being reported now as facts in a single morning. In fact, Thursday’s CPI report was described on Wall St. as “indisputable evidence inflation is not coming off,” pushing several big-name analysts to raise their Fed rate-hike bets to a terminal Fed Funds Rate of 5% … but …
After falling like a stone thrown off a cliff with the Dow plunging more than 500 points due to the severe inflation news, the market rapidly reverted and soared straight back up as if the stone had caught an enormous updraft and soared more than 800 points above the top of the cliff!
The swing in the S&P was, in fact, the fifth largest one-day swing of this kind in history, and the only days that were EVER larger came during the extraordinarily volatile and rapidly destructive Covidcrash that ran from February through March, 2020:
As for the Dow, fourteen of the top seventeen intraday swings in history came during the Feb-Mar. 2020 crash. As you can see, the market during these massive crash events tends to alternate between record intraday swings that are up days (like Thursday’s) and large ones that are down days, but the down days clearly set the trend:
The bounce that went bust
Thursday’s bounce didn’t hold up, however, because it was, as I had told my Patrons, made of hot air:
Zero Hedge explained that “Stocks Erase CPI Losses After ECB Headlines.” According to Reuters, the European Central Bank’s terminal interest rate was projected in a week-old report to be end up being lower than the ECB had formerly anticipated. That, supposedly, was the thread upon which the US stock market’s major 1200-point rebound from the start of the day hung. However, that’s the ECB’s interest rates, not US interest rates, which impact the US stock market far more directly, in spite of the fact that the morning’s news related to US Federal Reserve interest rates clearly indicated those rates would likely be pushed higher than formerly expected! It didn’t matter, the market lunged for what it wanted to hear and ignored reality all around it like a convulsive creature, gasping for air.
We are seeing the most extremely insane or rigged behavior in the stock market imaginable. In fact, the ECB report that investors chose to instantaneously cling to because it gave them the tiniest dose of hopium ever measured out actually stated the ECB would NOT even use this report for determining its interest rate, making the tiny dose of hallucinogens a diluted dose as well
So Friday turned into a bloodbath. That, too, is typical of major crashes. Note how, in the graph above, there is a reverse in the swing direction alternating from one day to the next, just as there was from Thursday’s through Friday. Several writers, after Thursday’s bizarre bounce and Friday’s flush, commented it was one of the craziest they had ever seen. As one stated to his readers in his newsletter that I received:
The volatility and swings in the market this week were some of the wildest that I can remember in recent memory.
Thursday’s bounce was the kind of pure testosterone nonsense you see in big bear markets, and those kinds of nonsensical bounces that deny reality (which is scorching inflation = more Fed tightening, not less) are exactly what you expect to see during major extended crash events like this that stretch on for YEARS, not months — like 1929, 2000 and 2008 where the market’s fall happened over a protracted period of years. That’s when the bulls go insane with rage.
In fact, really big rallies like the one we had in summer are typical right before the market’s worst down period, and nonsensical extreme one-day gyrations like we just had on Thursday clearly do not indicate the waterfall’s bottom as they happen all along the ride down the chute. (And that’s all they are is gyrations. You cannot even call them rallies because they are a will o’ the wisp that lights up for a day and just as quickly goes out.)
Market analysts struggled to find explanations for this gyration, which were all over the board; but I’ll put it simply, though I know there are technical reasons behind it: With the worst events in major crashes seeming to love to wait to turn up as October surprises, and with the complete hot-air nonsense we saw the market bounce over on Thursday, only to come down hard on Friday, I’m anticipating this coming week will be horrendous. That kind of extreme bouncing is nothing but the rapids right before the lip of the waterfall.
