Federally Fueled Thursday – WTF?

The Futures went flying this morning.

Apparently, after having a strong day in the US yesterday and despite the Fed minutes that indicated imminent tightening, China decided to stick it in Moody's eye by strengthening the Yuan to boost their own markets.  The move drove the Shanghai Composite 1.4% higher for the day while the Hang Seng gained 0.77% and the subsequent plunge in the Dollar, to 96.80, goosed our own stock Futures to even higher highs

We're long on the Dollar (/DX) down here and we also have Dollar ETF (UUP) June $25 calls, now 0.24 with UUP at $25.08 as we think there are still strong odds the Fed tightens at their June 14th meeting.  We went over the minutes of the last meeting in yesterday's Live Trading Webinar and noted that the Fed was waiting for evidence that an "economic slowdown is transitory" since May 2nd and, since then, we've had generally bullish data that indicates the Fed will go ahead with the next phase of tightening sooner rather than later. 

Federal funds rate history and recessions.png

Goldman Sachs (GS) agrees with us and pegs the likelihood of a June hike at 80% with another rate hike in September, followed by the announcement of balance sheet normalization at the December meeting and possibly another hike there though I think they'll be more likely to hike on Nov 1st if the markets take the Sept hike well.  Citibank agrees with me there, saying:  "The fact that operational details are closer to being specified shows that the FOMC could be ready to announce tapering of its balance sheet earlier than previously expected. This increases the risk of a September announcement relative to our current view for an announcement in December."

The chart above is not complicated, Fed tightening ALWAYS leads to recession (grey lines) and recessions are rarely more than 10 years apart.  The markets are very likely enjoying their last harrah at the top but my advice is to SELL IN MAY (get back to CASH!!!) and go away until we have a proper correction.  Our Member Portfolios are roughly 80% CASH!!! (have I mentioned how much I like CASH!!! lately?) and we are very,…
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