Last week the Fed announced an increase to the Fed Funds Rate. I covered that here:
In the piece I called out Forbes for their article about the Santa Rally. Their math is preposterous. I've seen authors attribute the rally to an assortment of factors. Everything from holiday spending, year-end bonuses, increased pay rates leading to increased 401k contributions, portfolio rebalancing for pension funds and “feeling more joyous about the next year". While all these factors might have a slight influence, the bigger influences will be the money supply, margin debt, and the positioning of the big banks.
The final money supply report of the year drops December 27th but I'm going to go out on a limb here and say it is going to be very close to the past 12. The money supply has been frozen since Thanksgiving of ‘21 and Powell has no inclination to change that now.
This means the idea of a Santa Rally is going to be far-fetched. If a rally does come to wall street, it will be very short lived.
We are seeing this reality become exposed in the housing data that came out today.
Do you think it is any coincidence that building permits peaked a month after the money supply went flat? Or that builder confidence has been down for 12 straight months?
While I think that the broader market is setup for lower lows, I do see some bright spots. I'm still a big believer in offshore oil. With the central banks battle against inflation, this will cause some oil demand destruction. Short-term moves in oil are based on the demand side of the equation but long-term moves will be dictated by supply and supply is not in a position to satiate the demand that is coming.
I also see value in coal.
Lastly, I want to mention this article from Trader's Notes:
This idea originated with David over at LiveBetterNow.
I've now dipped my toes in the water with a small TQQQ/SQQQ position. A word of caution, do not set “market" orders when opening a position like this. Use limit orders instead and slowly bump them up to get the best fill price. These option contracts are much more thinly traded and can be somewhat of a shock if you've never traded options before.
For further consideration, I've been consumed by the amount of quality content I've been reading at “Meaning in History”. Mark's latest piece covers a lot of the politics surrounding the Fed, the wall street banks, Powell, and Desantis. A lot is derived from Tom Luongo's Theory of Everything.
Tax loss harvesting is another headwind for the Santa Rally. Great post, Mark's article was excellent.