Discussion
This week in the WOTE Asset Management write-up below we discussed the risk that Yellen would issue a hawkish QRA on January 31. Our thinking was the fact the Fed has been willing to push back against easing financial conditions so forcefully just weeks after a full Powell Pivot indicated perhaps FED/Treasury policymakers are not as focused on limiting financial market downside as we originally thought. You never know how a thesis is going to come together, but the thesis for a 10-15% SPX correction in 1Q24 just came into view today while picking up extra gas for the generator and listening to Cem Karsan on a podcast recorded Friday. (As we often say, our best thinking almost always occurs indirectly while away from markets.)
In the podcast circa minutes 40-50 Karsan talks about the election year incentive for policymakers to fiscally stimulate, and that they may welcome market volatility to provide an excuse to stimulate. We never thought of this, but it puts a bow on our thesis that there is a risk Yellen issues a hawkish QRA.
The way VOL is currently behaving suggests SPX has another run to make to new highs, but the set-up to short that run has now been officially confirmed.