Victoria De Almeida Artist
A statement Frida Kahlo rejected, her work was described by Andre Breton (Surrealist) in 1938 as a “ribbon around a bomb.â€
As this is the Chinese Year of the Monkey, this painting reminds me that the market may have tied a ribbon around a potential bomb. The monkeys, both smart and mischievous, represent the on again off again debate about whether or not interest rates will rise or remain close to or at zero.
Some say that the ribbon around the market bomb has been and still is the liquidity the Federal Reserve and Central Banks have injected since 2008. Once the ribbon is untied, lots of very smart people expect nuclear fallout.
Kahlo did not see herself as a surrealistic painter. She argued her work reflected more of her reality than her dreams.
Is this market rally steeped in reality or surrealism? If the Federal Reserve and Central Banks are the market monkeys, seems we will know soon enough just how smart or mischievous they really are.
Will they, should they untie the ribbon?
Yesterday I wrote, “the TLTs daily chart shows it sitting close to a phase change to warning after one failed attempt in April and then another failed attempt in May. Since then, the 50 daily moving average has risen in slope and now acts as a line in the sand.â€
Headlines today read, “Two Fed Rate Hikes ‘Conceivable’ in 2016†according to Atlanta Federal Reserve Bank President Dennis Lockhart. NY Fed President Dudley echoed those words when he intimated that they might raise rates as soon as the September policy meeting.
As technicals often precede fundamentals, the channel top on TLTs monthly chart and today’s drop in price close to the 50 daily moving average certainly point in that direction.
The Modern Family held tight regardless. And, it should continue to do so if indeed the U.S. real economy is improving. With the Russell 2000 (IWM), Retail (XRT), Transportation (IYT), and Regional Banks (KRE), we have four reliable indicators to verify if the Fed is on the right track or not.
