During most of November we had to listen to all the bulls tell us why “this time is different” and that the stock market rise was here to stay. I have to admit, it was pretty frustrating being a bear during the seemingly never ending bull move.

http://themacrotourist.com/images/Azure/bearDec1714-1.png

The pundits were falling all over themselves claiming that the US market was the “cleanest shirt in the dirty laundry pile.” My twitter feed was filled with traders poking fun of anyone who didn’t “get it.” But I wonder if all those traders who “got it” are still hanging tough with their long positions?

http://themacrotourist.com/images/Azure/SPXDec1714.png

I am not trying to rub salt in the wounds of the bulls by any means. I am just trying to remind you how pervasive the bull market infection was a couple of short weeks ago. And yet, now that we are 110 S&P 500 handles lower, suddenly the sentiment is quite negative.

I am not getting bullish, but it wouldn’t surprise me if the market stabilized from here and headed higher into year end. I know things seem glum, but it wasn’t that long ago that everything was perfect and that “stocks were the only game in town.”


Fed meeting today

The Federal Reserve is meeting today and the warnings about how the recent Russian market collapse is not going to affect the FOMC’s decision has been filling the airwaves. There has been a concerted effort to prepare the market for a relatively hawkish decision.

Although I understand that the Federal Reserve does not tune monetary policy for any other country except the US, I don’t buy that the committee is impervious to collapsing global inflation. Yes, many Federal Reserve members seem to assign more weight to survey based inflation expectations rather than market based indicators, but there is simply no way that the recent market movements cannot influence the FOMC’s decision.

I have long held the belief the Fed was going to tighten until something breaks. I think that we haven’t even had the first raise, but the liquidity withdrawals have already caused things to start to break.

The recent “talking down” of this meeting’s expectations is nothing more than the Fed setting up an under promise and over deliver situation. The last thing the Fed wants is for the market to anticipate being saved, and then have the actual announcement fall flat.

At the end of the day, this is still the most dovish Fed ever assembled. Don’t forget that.

Do you really think the Fed wants to make a hawkish statement right in front of Christmas as the markets are teetering on the edge? Not a chance. They will find a way to be dovish. I don’t know the specifics, but they will find a way to stay on the easy side of the ledger.


Sub-merging markets

Although the US stock market has had a bad week, the emerging markets have struggled even worse. But it’s not like there haven’t been clues that this carnage was coming.

Have a look at this chart of copper versus the EEM ETF.

http://themacrotourist.com/images/Azure/EEMHGDec1714.png

The price of copper is highly correlated to the price of the Emerging Markets ETF. Earlier this year EEM rallied, but copper did not confirm the move. With the recent drop in EEM, that discrepancy has been largely eliminated.

EEM is also sensitive to the price of the US dollar. As the US dollar has rallied, this has weighed heavily on EEM.

http://themacrotourist.com/images/Azure/EEMDXYDec1714.png

I am not sure if the selling in EEM is finished, but at least these charts are showing that we are getting closer to a potential bottom. Although the whole world is bullish on the US stock market, I would rather patiently wait for a chance to buy these sub-merging markets on the cheap.