A Strange New Normal

Well it is official, as of this morning that the Fed is not even masking its market manipulation.  Chair Yellen released her written testimony that she planned to present to Congress.  She details that we do not have the desired target inflation or inflationary pressure building at a significant pace and still plans on gradual rate increases and gradual un-winding of the Fed's balance sheet.  To put that in laymen's terms it means the excess liquidity party we have been enjoying will continue.  Cheap money will remain in the system with gradual increases and the Fed will not remove said liquidity by much by selling some of the assets from its balance sheet.  I am afraid that this kind of market manipulation is the new normal until we have the next financial crisis that will once again change the game. 

Our trading and economic models along with others had indicated since April a very high probability of a correction this summer so when our stops were triggered in late May we allocated the proceeds to cash for risk mitigation.  You all are well aware of the phrase "garbage in, garbage out" with regards to computer programming.  That phrase applies to economic models when the Fed reverse course on issues like interest rates and balance sheet actions. 

Earnings season will start for 2Q next week.  We will need to see significant earnings growth in 2Q to support the current stock valuations.  We have been hearing for some time that "This time is different".  Well I would counter that the underlying math is constant. 

Technology shares have seen a slight pullback from their highs and look attractive at this level so we are initiating new positions today.  We intend to proceed cautiously in a headline and Fed driven market