When Enough's Finally Enough

THROWING THE TOWEL - Well, unfortunately it looks as though it's time to stand aside with short bets on US equities. I had established a view in recent months the Fed would finally be forced to shift policy sooner than later with unemployment and inflation thresholds being met. But it's now clear the Fed has no intention of making any waves, and the forward guidance we grew to rely on, has now been downplayed at best or completely abandoned at worst. Unemployment below 6.5% and CPI above 2% no longer matters, and the Fed will continue to err on the side of ultra accommodation. Perhaps even more disappointing than the disregard for forward guidance, was Yellen's response to bubble talk in equity markets on Wednesday. The Fed Chair saw no signs of a bubble despite the record highs. As per one report late Wednesday, "the most recent median S&P 500 Price to Earnings ratio as of this moment is higher than 89% of all P/E prints in the history of the market." So for the Fed Chair to say there are no signs of a bubble is a little ridiculous in my view.

A RECKLESS APPROACH - I would even go as far to say this type of response is reckless and irresponsible. Stocks have been driving to fresh record highs on a daily basis with little regard for anything other than Fed policy. There is little in the way of actual investment on the belief in the underlying asset value, with practically everything being driven off the free money incentives given to take advantage. So in light of recent data which should have produced profit taking in US equities, and in light of this latest policy decision, which did nothing to show any real change on the Fed's part, the time has come to stand aside with US equities, and focus back on other markets. I now see very little in the way of any catalyst to trigger the still much needed corrective pullback in the stock market. Interestingly enough, USD/JPY and EUR/CHF both traded lower on Thursday. Food for thought.

So for the Fed Chair to say there are no signs of a bubble is a little ridiculous in my view. @jkonfx


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