A Monumental Shift in Our “Narrative” May Already Be Underway

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.

But first…

A Brief History of Recent Market Narratives

2009 – Mid-2015: The Omnipotence of Central Banks

During this extended run, anything at all that meant more money would be injected by central banks made the markets happy.  Anything that threatened the continuation of the monetary gravy train caused drops. Proof points:

  • The prevalence of “good economic news is bad” occurrences.  Positive employment number? Stocks go down.  Manufacturing falters? Stocks go up…
  • European Central Bank President Mario Draghi’s “whatever it takes” speech in July of 2012 that sent global markets rocketing higher.
  • The combination of S&P’s downgrade of the U.S. debt rating and the European debt crisis in August of 2011 gave the market a two month window where it seemed like the central banks may not be in control. U.S. market drops 26%.

Mid-2015 – December 2015: FANG is the Thang

In the last half of 2015, what was good for Facebook, Amazon, Netflix and Google (now Alphabet) was good for the markets.  These four tech giants were on a tear and good news for them was good news for the markets and vice versa.  Proof points:

  • From March 2015 to August 2015, the market made multiple new all-time highs despite very few stocks following the FANG stocks to new highs.  This poor market breadth foreshadowed the following…
  • On August 24, China’s market meltdown translated into a 1,000-point intraday drop in the Dow and the first 10% correction in the market since 2011.
  • FANG stocks lead the recovery from the correction into the beginning of December 2015.

December 2015 – November 2016: It’s All About the Fed (Again)

The first Fed rate hike since June of 2006 hit in December 2015.  Though widely anticipated, it combined with a congress deadlocked over the “fiscal cliff” talks, plus a China growth slowdown to trigger another deep stock drop into February 2015. Proof point:

  • Back to “good news is bad for stocks.”  With one rate hike in the bag, investors look for clues as to when the next one could happen in every headline.

November 2016 – Present: Trump & Republican Congress Growth Agenda

From the day President Trump was elected, news has been parsed by the markets based on whether or not it would help or hurt the president’s economic growth agenda.  There have been many proof points, but this chart of SPX from February to May gives a good example…

10MM1

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…

10MM2

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.

Great trading,

D.R. Barton, Jr.

11 Responses to “A Monumental Shift in Our “Narrative” May Already Be Underway”

  1. Never have I received so much investment information that makes sense. The simple yet informative way the investment information is presented, makes it so easy to understand. Thank you for providing such valuable insight and removing the shroud of mystery. Looking forward to continued growth and good investment advise!

    Gonzo

  2. I respect this reading and telling of the Big Picture.
    For next-step-more-focused I suggest looking at the (DIA) vs. the (IWM) over the last two weeks. It sure looks like a lot of money’s not sticking around to see whether indeed these pro-growth policies are going to be implemented.
    The rivers have been rushing in “accommodation” so long– who has the energy, resolve and willingness to carve a new riverbed?
    Like me perhaps, every what-the-hell-do-I-know individual investor or trader can only try their best to build a working Big Picture (in your words Narrative) and grind out their objectives from there.
    Hedging my bets and gonna sit down and Whinny-the-Pooh as best I can through this fall and winter. Thanks for reading my 2-cents. If ever losing faith or confidence, just return to work on your Big Picture/ Narrative and making the best of it you can.

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