The Powellenburg Omen! Will Powell Pop The Asset Bubble Created By The Fed’s Repeated Policy Errors? (Blackrock Rises, NVR Homes Gets Crushed)

As of today, Jerome “Nero” Powell and The Gang at The Federal Reserve have not trimmed the Fed’s balance sheet and have only raised their target rate once under President Biden.

Here is the Hindenburg Omen, named for the catastrophic explosion on May 6, 1937 at Lakehurst Naval Air Station in New Jersey. The Hindenburg Omen was flashing red before the stock market correction of late 2007-2009. But, the Hindenburg Omen has flashed red repeatedly since the financial crisis, yet the S&P 500 index has kept rising. The reason? Repeated policy errors by The Fed leaving monetary stimulus in place for too long leading to a bubble forming in the stock market.

The Shiller CAPE (Cyclically-adjust price-earnings) ratio is at the second highest level since the 1800s. The highest point was the infamous bubble and bust in 2000/2001.

Since The Fed continues to say “We have a plan!” to slow/shrink The Fed’s balance sheet and raise their target rate … it has not done anything yet (other than a 25 basis point bump at the March meeting).

I am not advocating technical analysis for stocks, but the Bollinger Band analysis for the S&P500 index is showing the S&P 500 index near the top band indicating that a decline in likely.

Today, the US equity market in essentially flat given the massive uncertainty about the Russia/Ukraine situation and whether the US economy is slipping into darkness. But this morning, Federal government blessed companies (healthcare, solar energy and Blackrock) are doing quite well, while homebuider NVR is taking it on the chin thanks to hints that The Fed will raising rates.

Now, NVR (Northern Virginia Homes, Ryan Homes) had explosive earnings growth in their February 1, 2022 report.

But the market is pricing in the crushing Fed rate hikes that are expected.

So, will Foul Powell pull a Volcker and raise rates and crush the economy (and stocks)? Or will Foul Powell And The Fed gang let inflation burn out of control, but preserve the massive asset bubbles?

The Powellenburg Omen Is Flashing … Again (ECB Balance Sheet Is 79.62% Of European Union GDP)

Well, the US stock market is raging along with Federal Reserve monetary stimulus, Federal government fiscal stimulus and a roaring economy.

A note of caution: the Hindenburg Omen chart is flashing … again. It forecast the stock market crash of 2008, but growing monetary stimulus from The Federal Reserve (green line) has helped prevent another correction.

The Shiller CAPE ratio is signalling a correction just like the Hindenburg Omen.

But Fed Chair Powell and Treasury Secretary Yellen along with our free-spending Congress and Administration have nothing on Europe where the ECB’s balance sheet is a whopping 79.51% of European Union GDP! The Fed’s balance sheet is “only” 36.66% of US GDP.

Here is the SS Powellenburg cruising over Wall Street.

The Jackson Hole Omen: What Will Powell Announce At Fed Conference? (Can Overstimulated Market Survive Without ZIRP/QE?)

The financial markets are overstimulated like a cranky child after too much sugar (aka, sugar rush). So what will happen to overstimulated markets if Fed Chair Powell announces withdrawal of monetary stimulus?

The famous Hindenburg Omen is already flashing WARNING ahead of this week’s Fed meeting at Jackson Hole. Will Powell take the punch bowl away?

The Shiller CAPE ratio is at a high since the financial crisis and stock market correction in 2008 and early 2009.

I would expect Powell to walk softly since he has the opportunity to terrify financial markets. But I expect Powell will announce a small adjustment to the growth of The Fed’s balance sheet in line with The Fed’s DOTS project signalling interest rate increases in the futures.

Throw Covid, a slowing China and Europe into the mix, and Powell and the gang had better think long and hard about they are going to withdraw the record monetary stimulus from the cranky financial markets.

Meanwhile I hope that have a few beers from Bond’s Brewing Company, the best beer in Laramie, Wyoming!!