Why are we doing this?
Stocks are surging today amid a dovish one-two punch from Fed whisperer Nick Timiraos who hinted that the time is coming to reassess the pace of rate hikes, followed a few hours later by the otherwise hawkish Mary Daly who also suggested that the Fed may be moving too fast while bringing up the sensitive topic of broken markets, and the reason for this particular dovish reversal and jawboning is becoming increasingly clear: the same reason we have been warning for the past year that the Fed’s tightening campaign, now in its terminal stages, will inevitably break something which will manifest itself first in a worldwide dollar shortage and short-squeeze crisis, as global USD funding markets grind to a halt.
Of course, this is good news, because as BofA Chief Investment Strategist Michael Hartnett (whose latest weekly note we will dissect shortly) is fond of saying ” Markets stop panicking when central banks start panicking.”
So in what may be the best news to shellshocked bulls after the worst September and worst Q3 in generations, in a harrowing year for markets, central banks are starting to panic more with every passing day. First it was the BOJ with its September intervention, then the BOE with its bailout of pensions, then the BOJ again with its second consecutive injection of billions of US dollars into the market – consider the paradox: there is such a massive USD short squeeze out there that it was the Bank of Japan that was compelled to inject approximately $40 billion in USD today (in only its second intervention this century) to prop up the yen since the Fed won’t lift a finger…