Since the Financial Crisis, the market has taken on a different personality.
By injecting unprecedented amounts of capital into the markets, the Federal Reserve and other central banks have changed the very heart of market dynamics.
The markets are now driven almost exclusively by one dominant theme at a time.
This is the all-important market “narrative.”
If you’ve been with me since the beginning, you know how important this narrative – whatever it happens to be – is to the 10-Minute Millionaire system.
Well, get ready – because the current market narrative could be about to change.
Today, I’m going to show you why we could be on the verge of a massive shift in what’s influencing market participants, and what that means for 10-Minute Millionaires.
A Brief History of Recent Market Narratives
The Market Narrative Could Be About to Change – Here’s Why
There is a very good possibility that we could shift back to a Fed-centric narrative.
As you’ve seen from my Facebook Live coverage of the Fed interest rate hike in real time, the Fed did more than up interest rates by a quarter point.
A lot more.
More importantly, they also announced their formal plan to start pulling some liquidity out of the markets. That’s right – at least some of the trillions in cash they’ve been pumping into the markets since 2009 is coming out of circulation.
Here’s what the cash infusion looked like…
In “Fed-Speak,” they call this “normalizing their balance sheet.”
Beginning in 2009, the Fed injected money into the market by buying trillions of dollars of U.S. government bonds and mortgage backed securities.
Essentially they were purchasing the debt obligations of the government and of homeowners. They were buying up loans.
These purchases put money into the markets and put bonds and securities onto their balance sheet.
You can think about it as taking cash out of their “vault” and putting bonds and securities into the vault. When they start “normalizing,” they’ll essentially “empty the vault” of all those debt obligations and replace them with cash from the markets.
Just as the original infusion boosted markets, this “cash withdrawal” will have a negative impact.
The question is: How big?
The Fed’s hope is they can “empty the vault” in an orderly manner and not cause a market panic. In the best of all possible scenarios, the cash coming out of the markets would be replaced by cash from U.S. economic growth.
Less desirable outcomes include a declining stock market… or worse.
But the real wildcard is this: the Fed has not yet told us when they’ll start “emptying the vault.”
And the events leading up to that announcement will tell us whether or not the narrative has changed.
Going forward, I’ll detail how the Fed will sell off all this debt, what it means for us as traders, and how you can profit even if the markets decline.
But for now, let me give you the simplest way to know whether our narrative has changed. Just watch for two things:
- Do items that could impact President Trump’s growth agenda still move markets? For example, any positive progress made toward tax cuts should send the market up. If this happens, the Trump growth narrative is still intact.
- How does the stock market react to economic news? Right now, good employment reports push the market higher. If “good news” turns back into giving us bad reactions from the stock market, we’ll know that investors and traders are more concerned with the Fed emptying the vault than they are about the Trump growth narrative.
Whether the narrative changes or not, 10-Minute Millionaires are in good shape.
If we stick with the Trump growth narrative, we’ll continue to identify extremes that align with that scenario.
If the narrative changes and the Fed once again is front-and-center, then volatility will follow.
And more volatility equals more profit opportunities for us.
D.R. Barton, Jr.