With everyone focused on the decision by the Fed, today a legend in the business sent King World News a powerful piece that features an ominous warning from Ray Dalio and also covers the Fed decision, a large geomagnetic storm and a quadruple expiration.
From Art Cashin's notes: Late in the day there was a lot of buzz on a note from Ray Dalio (see below) that cautioned the Fed against raising rates now (see below). That puts him in the same corner as bond king, Jeffrey Gundlach, who was quoted as saying:
I’m afraid that the Fed is intent on being a blockhead and raising interest rates against this backdrop, and further strengthening the dollar, weakening the economy, weakening corporate earnings, and basically having to reverse policy.
The negative close kept alive the oddity of this month that the bulls have not been able to put together a rally for two days in a row. Can you spell – "indecisive?"
The Dalio Note – Here are some snippets from the FT's front page story on the Dalio note:
Ray Dalio, founder of the $165bn hedge fund group Bridgewater Associates, said in a note to clients and followers that he was avoiding large bets on the financial markets for fear that the Fed’s expected change of policy could have unintended consequences.
The note emerged as Christine Lagarde, head of the International Monetary Fund, warned on Tuesday that US rate increases could trigger instability in emerging markets, leading to a re-run of the Fed-induced “taper tantrum” of 2013.
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In Mr. Dalio’s note, the stark tone of which has led it to be widely circulated around the industry, he and his co-author urge the Fed to proceed with caution and to set out a public plan B, in case monetary tightening goes wrong.
“We don’t know — nor does the Fed know — exactly how much tightening will knock over the apple cart,” Mr. Dalio and Mark Dinner, his colleague, wrote. “What we do hope the Fed knows, which we don’t know, is how exactly it will fix things if it knocks it over. We hope that they know that before they make a move that could knock over the apple cart.”
“We are cautious about our exposures,” they added: “For the reasons explained, we do not want to have any concentrated bets, especially at this time.”
The note likens financial conditions today to those in 1937, eight years after the 1929 stock market crisis and at the end of four years of money printing that had led to surge in equity valuations. Premature tightening by the Fed led to a one-third slump in the Dow Jones Industrial Average in 1937 and the sell-off continued into the following year.
A word to the wise or, in this case should that be a word from the wise.
The Other Presence – While most of the talk will be on the probable removal of the word patient and Chair Yellen's press conference.
The FoF and other Wall Street types will look for hints of another influence at the table. Fed Vice Chair, Stanley Fischer may be far more influential than most media types assume. In fact, some believe he may be evolving an almost full chair role behind closed doors.
Vice Chair Fischer, has said that he thinks the Fed should hike rates this year and that the Fed should be a good deal less transparent. Maybe even a little vague. This will be an FOMC to watch in coming months.
Get Out The Tin Hats – We are experiencing a very large geo-magnetic storm, maybe the largest of this solar cycle. So far it has created no problem with satellites, power grids, or communications.
Then on Friday, we get the vernal equinox, a perigee moon (closest to Earth) and a solar eclipse. Oh yeah, and there's a quadruple expiration. WD Gann would have loved it.
Consensus – Fed statement day has about a 65% bias to the upside but that looks like another uphill fight. Traders will carefully watch the action between the statement at 2:00 and the press conference at 2:30. Maybe a gauge of how markets will react to credit "normalization". Stick with the drill – stay wary, alert, and very, very nimble.
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