Wall St says: Trust the Fed

The smartest guys in the Wall St room pondered long and deep and decided the Middle East ‘event’ over the weekend could only add to last Friday’s ‘good news’ jobs data.

Wall St rallied overnight on Monday.

So, the smartest guys in the Wall St room pondered long and deep – about as deep as a toddler’s wading pool - and decided it was back to a Friday afternoon future.

That, bluntly and even more crudely, that ‘event’ over the weekend on the other side of the world, at the other end of the Mediterranean, could only add to last Friday’s ‘good news’ US jobless data.

Simply, bluntly, that after the initial negative reaction to the big and unexpected surge in jobs, on the Street on Friday morning, on ‘fuller’ analysis in the afternoon they were judged not really that great; and that they might well have confirmed the long hoped-for end to Fed rate hikes.

Then, good golly Miss Molly, the ‘event’ might even indeed spur rate cuts – a la 2001, 2008 and 2020. And rate cuts and the Fed even better printing money is all that Wall St cares about; indeed has come to lust after.

Tuesday, our entirely derivative downunder market took the hint and surged nearly 100 points.

And this time, as opposed to Monday, it wasn’t just the knee-jerk buying of gold and energy stocks.

Ah, memories of the last time this happened, back at the start of March 2020, when Wall St similarly decided that Covid was essentially a ‘good news’ story – because the Fed would slash rates – and consequently leapt more than 5 per cent over a single day.

Now of course Wall St was ‘right’.

The Fed did slash rates. It embarked on money printing the like of which we’d never seen before. The Trump and then the Biden administrations went on spending sprees that have taken US government debt over $US33trillion ($52trillion).

Most importantly, so far as the Street is concerned, the Dow would surge 40 per cent; and is still up 30 per cent, since the start of Covid, after the recent Fed rate hikes ‘unpleasantness’ of the last few months.

What happened in America was of course replicated, faster than a spreading virus, in every country in the world. All of the zero rates, the money-printing and the government spending.

Just as happened, albeit at lesser intensities, after 9/11 and the GFC. With corresponding surges in asset prices – property and shares.

But does anyone, outside a, say, 80km radius of lower Manhattan, rally believe we got to eat successive, monumental, free lunches?

That it was all successive upsides, and no downsides?

Can I just say: ‘can’, actually ‘cans’, plural, and ‘road’. And as each event erupts and is reacted to, the ‘can(s)’ gets humungously bigger, the ‘road’, progressively shorter.

That’s before we even begin to think about what could actually flow from the Hamas terrorist-cum-war attack and Israel’s response.

Does any sensible, half-compos person think it’s all going to be confined to a short stretch of the Mediterranean coast? Even if we don’t – can’t – know how and when it will spill into much bigger and much worse?

And that provided the Fed slashes rates, Wall St can keep partying? As it did after 9/11 and 2008 and 2020?

Hmm. Good luck with that.

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