What Goes Up, Must Come Down

What can you say about Thursday?

Triumph of the central bankers we suppose. It’s all up:

That’s stocks and oil.

Now have a look at bonds:

Same story. Steady, but with a yield bias lower.

Here’s how Bloomberg’s Richard Breslow put it:

“That dud landed with a thud. It fits the FOMC’s desired narrative to have the latest decision called a “hawkish hold.” That’s a very sympathetic description of the event. We’re supposed to take comfort that the economy really is (we promise) getting closer to meeting the necessary goals, all meetings are live and they’ve got December in their sights. I’m sure it is. But we’ve heard it all before, as well as the caveats.”

“If the outcome was hawkish, it’s curious that equities flew, the dollar swooned and the yield curve flattened. It’s also unlikely that anything that held them up, at least from the economy’s standpoint, will be materially different three months from now. But it does buy time.”

Indeed. That’s something we noted yesterday. How exactly is this hawkish? As we noted on Wednesday, the whole enterprise seems dovish to us. The BoJ controlling the yield curve and abandoning their inflation target. And now the Fed on hold with no mention of recent economic data as an excuse? The whole enterprise screams “dove” and markets agree. Here’s Bloomberg;

“From the U.S. to Europe and Asia, markets are sending a clear signal -- the era of cheap money is far from over.”

“Traders piled into equities, bonds and commodities as the Federal Reserve’s decision to lower its outlook for future rate hikes soothed worries that global central banks would taper stimulus efforts. American stocks approached record highs, euro-region notes had their best day since Brexit, and the dollar fell against most major currencies. The announcement also gave fresh impetus to emerging markets, with Russia and Argentina planning to sell debt abroad. Commodities jumped for a sixth straight day as oil topped $46 a barrel.”

Well, thank God for that. But you can see the extent to which this all depends on central bank action (or, more appropriately, “inaction”). We’re now completely beholden. The Nasdaq hit an all-time intraday high - do you think that would have happened had the Fed hiked?

Of course not.

This is all about asset prices at this point. Now, make no mistake, they can keep inflating this. But “what goes up must come down” and on that note, we’ll leave you with the following chart:

(Chart: TCW)