The Fed ran out of bullets, and needed to re-energize to keep the monetization happening without the market getting ahead of them. So we have the President and the Fed chairman lamenting the sequestration, and sober warnings on ending the asset purchases early.
This gave cover to the banks to sell off commodities hard, allow money to flow into Treasuries without the Fed doing the work itself, and because the Fed did not have to work so hard on the rates, allow the VIX to move up.
All the while SPY had a few little sell offs and is back to a place where the ramp can begin. But I think we have another week or so before that happens, as and until the sequestration news gets fully absorbed. The President painted such a dire picture of what will happen on March 1st, that as these things do not happen, the market will look towards the next event a month down the road (the debt ceiling), and off we go.
The strategy is still intact; the government needs sources of revenue and capital gains is the big one, and as long as they can keep food and energy under control, we are going higher. Phase two was announced last week, a rise in the minimum wage.
This serves three purposes for government;
- Provides for higher payments into Social Security and Medicare,
- Creates money velocity as this strata must spend everything they make,
- Reduces government transfer payments such as earned income credit.
Republicans are not going to fight it.
Anyway, here are some charts. Enjoy