With the last key economic data the Fed would see ahead of its Sept 21 meeting – retail sales – coming in disappointing, and confirming the contractionary trend painted previously by weaker payrolls, as well as near recessionary service and manufacturing surveys, algos were initially delighted as the ongoing US contraction meant no rate hike is imminent, sending futures to session highs, then unexpectedly pulling the rug and watching as futures hit an air pocket, there may be just one tiebreaker here: Dennis Gartman.
So for all those who need that one, little “push” from the market’s anti-oracle, here it is:
Here in the US, the monetary authorities are very near to “taking the punch bowl away” when it comes to monetary stimulus. Indeed, we’ll argue that the process has already begun in earnest as evidenced by the fact that the Fed’s most important monetary aggregate, the Fed St. Louis’ adjusted monetary base, has been falling rather steadily since its peak one year ago at $4.15 trillion. Presently, the base stands at $3.83 trillion with the monetary officials simply allowing old securities that it had previously owned to run-off via maturity. Others may take up the debate over the Fed’s impending decision to perhaps raise the o/n Fed funds rate by 25 basis points and may consider this as definitive; we, on the other hand, consider the evidence of the steadily weakening adjusted monetary base as even clearer… and older… evidence that the decision to tighten monetary policy was made some long while ago.
In our retirement funds here at TGL, we have chosen to simplify our positions in that we’ve liquidated the small long position we had had in fertilizer shares and took those funds and bought more aluminium shares, while at the same time having sold more of the same out-of-the money calls against those shares. We have derivatives positions in place sufficient to keep our net market position to one that is somewhat net short. We are also long, of course, of gold predicated in EURs and we have a very, very small position in “SPY” puts that are rather far-out-of-the-money at the moment as a bearish “punt.”
Alas, those far out of the money puts will likely remain very fair from the money. Trade accordingly.