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The Rout Gets Re-Routed


The market lost over 2% in the first hour, bounced, and then fell about 4% by midday. (During the selloff I covered my AAPL short and sold my puts, as I flattened out my small-ish short exposure.) From there, the indices staged a huge rally that eliminated the losses and produced the small gains that you see in the box scores. How far the market might be able to bounce will likely depend on how well Jay Powell can try to have it both ways on Wednesday: tight enough to fight inflation, but easy enough to prop up stocks.

Away from stocks, green paper was stronger, as was fixed income initially, but it gave up its gains after stocks recovered. The metals were mixed, with silver falling over 1.5% compared to a $5 gain for gold. The miners were quite weak through mid-day, despite the fact that gold itself hung in there quite well, but they trimmed their losses late in the day.

Kind of a Big Deal On the topic of gold, Friday saw one of the roughly 10 biggest inflows into the ETF ever and, according to Bloomberg, based on dollars as opposed to tonnes, it was the largest inflow ever. I would label that as encouraging, because one thing that gold hasn't had is any real buying in the Western World, even as the rest of the planet has been accumulating. Obviously, that didn't matter to the miners today, but at some point, if gold continues to behave well, the miners will begin to do much better.

On the subject of the current stock market rout, obviously this has been one of the worst starts to a January ever, and while it's not infallible, there is something to the old saying that if January's weak, the whole year's liable to be bad. Even though there's been quite a bit of damage done in the short run, there are still vast pockets of wild overvaluation.

Top Signs You're In a Codependent Relationship For the moment, the Fed would have you believe it doesn't care about the stock market, which means that a lot of stocks are free to keep falling until the Fed changes its tune. It's pretty clear that despite the fact that QE is still underway, the collective weight of stocks, crypto, NFTs, real estate, etc., resulted in exhaustion, even without the Fed actually tightening. That said, guessing about exhaustion is harder than it's ever been because we don't really have any datapoints of how markets behave during QE, although we do know that the last time the Fed tried to switch from QE to QT, it was unable to. This time it hasn't even been able to exorcise QE without causing quite a bit of damage.

The fact that the Fed is trapped, talking about wanting to fight inflation, while the stock market gets hammered, should be clear to everyone and it should cause them to lose a tremendous amount of credibility. Thus far that hasn't been the case, but opinions and perceptions can change rather quickly.