Morning Note: Now, Let's Be Real

Markets freaked out a bit yesterday as they digested the minutes from the Fed's December policy meeting.

The mere mention of purposely shrinking its massive balance sheet while raising its benchmark rate is utter heresy to today's Wall Street, and the street demonstrated accordingly. International markets, by and large, followed in sympathy overnight.

Now, let's be real! Jerome Powell and company attempted such blasphemy back in late 2018, and Wall Street promptly greeted them with a swift 20% spanking. 

And while indeed the Fed is now feeling the heat of the, well, hotter inflation they previously stated they were after, and therefore paying it proper lip service (and, yes, will push against it a bit with less bond buying and an attempted interest rate hike or three), well... we'll see if they have the conviction to stick with tighter policy if/when the market seriously hits back (in notable double-digit fashion, that is). 

I'm, alas, doubtful...

On another note, from last year's final message Part 3:

"Now, before we expand our case for why we're somewhat diverting our allocation away from where the momentum's been these past many years — beyond the compelling historical evidence that extended periods of underperformance tend to be followed by extended periods of outperformance — we want to make very clear that whether we're talking growth, value, US or Non-US, we presently view equity markets in a skating-on-historically-thin-ice sense.

Therefore, while we're not predicting that some great collapse is in the offing, we're continuing to take measures designed to limit the hit should one occur.

Note: While said measures won't protect us from the shallower, say single-digit to low-double-digit corrective declines, we anticipate -- as they did during last year's washout -- that our hedging activities will produce meaningful mitigation amid a deep selloff."

That post is worth a re-read to get the basics around our present allocation biases. Part 4 gets a little deeper into the weeds. 

Asian equities got hammered overnight, with 13 of the 16 markets we track closing lower.

Europe's ugly as well this morning, with all of the bourses we follow trading lower as I type.

US major averages are red across the board early in the session: Dow down 162 points (0.45%), SP500 down 0.43%, SP500 Equal Weight down 0.14%, Nasdaq 100 down 0.71%, Nasdaq Comp down 0.93%, Russell 2000 down 0.44%.

The VIX sits at 20.41, up 3.45%.

Oil futures are up 1.84%, gold's down 1.09%, silver's down 2.83%, copper futures are down 1.86% and the ag complex is down 0.28%.

The 10-year treasury is down (yield up) and the dollar is flat.

Led by energy stocks, Latin American equities, consumer staples, industrials and financial stocks -- but dragged by uranium miners, silver, ALB (lithium miner), metals miners, solar stocks and carbon credits -- our core allocation is down 0.44% to start the day.

Here's macro expert and consultant Felix Zulauf making sense in a Grant Williams interview on December 17th:

emphasis mine...

"We have seen the biggest stimulation, fiscal and monetary ever in many countries, particularly in the U.S. And we have seen the reaction after the market crash, markets rallying virtually in a straight line up to this day and to new record highs.

And this has been a far away from normal, extraordinary thing. And people usually forget that the markets are action and reaction. And if you have an excess in one direction, you see a response with an excess in the other direction."

Have a great day!
Marty