Yellen was on the hot seat once again; this time, her performance was more startling due to the admissions, which were admirable and frightening.

The Riddle Continues

Wow! The all-knowing Fed didn’t see the dollar getting as strong as it did or crude oil crashing.  I guess that’s comforting to us mere mortals, but it seems to me that they are not gaming out all the possible scenarios from their handiwork; they’re just looking for ways to justify such handiwork.

I understand the gambit by Saudi Arabia caught the world flat-footed and couldn’t have been modeled for other than maybe some elaborate game theory program (or script from those old Batman shows), but Yellen & Co surely understands there will always be different potential reactions to crazy riddles that is Fed policy.

So, the Street has to deal with the notion of negative rates, even as Yellen spouted off about a solid economy.  The markets are beginning to think that negative rates are in our future- what a horrible decision that would be.

While we focus on European banks, let’s not take our eyes off domestic banks that are being hammered as well.  The losses are overdone and overestimate risks from bad oil industry loans while negating the strength of the balance sheet or signaling that things are a lot worse than we even know.  For now, I think it’s the former.  (By the way, Jamie Dimon bought $26 million in JP Morgan (JPM) stock yesterday.)

The Crux of the Matter

There is a global crisis of confidence.   It all gets back to the idea that leaders must somehow provide prosperity to citizens at any cost.  Whether it’s the socialist nations of Europe, the communist nation of China, or the supposedly capitalist nation of America, governments are facing the limits of where manipulation can take nations, especially when such manipulation is funded through higher taxes, fees, and regulations that choke off the actual source of prosperity.

It’s the idea that people somehow will not tolerate a hard landing so levers are pulled, money is printed, and policies are enacted to soften the blow.  The problem is that they are always temporary solutions.  The reality is that the ‘powers that be’ are not trying to help the folks, but they want to retain their positions of power.  We’ve tasted harsh medicine in this country before- most noticeably when Reagan and Paul Volcker turned around the Carter malaise.

The market is oversold in so many ways, but we still have no clue about risk at banks and confidence about the next move from the Fed.

There are stocks to nibble at if you have the temperament (can deal with gyrations); more important, make sure you aren’t selling good companies now (too late and will regret later) because the world has realized our leaders have no clothes on.

Today’s Session

Equity futures have been higher all morning, initially up with the increasing scuttlebutt of an OPEC deal on crude oil, and as we head closer to the open, news of Deutsche Bank announcing its buying back $5.4 billion of its own bonds.   European banks have a lot of work to do to prove they aren’t on the cusp of insolvency.  American banks have their work cut out as well.

This morning retail sales beat consensus, and I read where it was the first time the release beat headline consensus since November 2014.  That’s a shocking revelation.  We’ll have more details on the afternoon note.

The market is set to open higher, and we aren’t going to chase it.  Sure, there is a plethora of oversold stocks, but just as 2014-2015 were the years of buying the dips, thus far, 2016 has been the year of selling rallies.  At some point, that will change.  So, let’s see how things shakeout.