'The Ides of March' are upon us, along with the 'postulated' conclusion of negative price behavior for the S&P, at least temporarily. It's seasonal rallies of course that we allude were coming, with the CPI number merely ignition.

Freepik

There's 'risk' now, but mostly for the Fed, and it's nonsense about credibility of course, since that should be least paramount in their thinking. Overstaying on the low side too long after pandemic, and overstaying high side more recently were expected to result (our ongoing views) in problems, which it did or does.

I say 'or' because pundits and economists keep talking about higher rates and inflation, while things are blowing-up right in-front of their eyes. Not hiking or a pause are presented 'as if' that's inflationary, and actually 'now' it's not. Really the danger would be if the so-called 'data-dependent' Fed moves... that's nuts now. Yes I know people like Larry Lindsey ('former' officials) advocating hikes, and you have others like Ken Griffin (Citadel and part of the problem) talking about 'moral hazard' by 'not' hiking or for bailing-out SVB. Wrong.

You have credit crunch regardless (tighter lending standards regardless in the wake of the SVB debacle), the solution they have is viewed inflationary but is not particularly variable just because of the size of QT. I gather it should stop, to avoid a financial crisis that's broader.

And that's a similar reason Citadel's 'moral hazard' argument has merit, if you wish to advocate that, but is reckless to promote. Because, when it comes to risking a financial debacle like 2008, their championing of morality would look pretty immoral if markets have another resultant wipe-out, more expensive by the way than the loans (ok.. bailouts) for a couple banks. (Going after execs. paid bonuses hours before collapse is another story, with claw-backs of those funds justified, but that's an enthical story of that Bank, not of Fed morality.)

In-sum: 

We got a 'friendly-enough' CPI, in a market set-up to rebound anyway but sustainability was limited, as it paused just shy of S&P's 200-Day Moving Average. (That's former support becoming resistance on the snap-back). In a sense limited the rebound is likely a good thing, as you probably don't want an upcoming FOMC Meet staring in the face of a strong rally, feeling confronted.)

There are other matters in the world, as I've tried to reference obliquely nearly daily. This day saw 2 Russian Fighter Jets collide (or purposely hit) an MQ-9.. US Air Force Drone, over the Black Sea. The Drone crashed in the Black Sea (international waters) and we do know this was an incident of provocation by the Russian Jets presumably to stop reconnaissance. One of the jets dropped fuel on the USAF drone, and then hit its propellant with his wing..good piloting as the Russian didn't crash but forced-down the U.S. drone.

Initial US remarks were ridiculous, saying spilling fuel wasn't environmentally very responsible. Say what? It's a war-zone, lots of climate pollution. Heck of way to dismiss a Russian 'attack' in international airspace as 'environmentally unsound'. I am glad subsequent Pentagon Briefings were more candid, not focused on a 'green agenda', which laudable or not has nothing to do with it.

The U.S. response should be continued observation, and our fighters nearby, as we are in this proxy-war like it or not, so might as well be fairly candid now. I don't advocate escalating the situation, but the Russians did that as unlike a few incidents with the Chinese, this was clearly international airspace and just the 'tipping' of the Russian's wing to knock the drone's propeller could not be a 'coincidental accident'. I wonder if the drone photographed its own demise? The US has been flying reconnaissance in that area by that drone for a year, so this was nothing newly provocative as Moscow will likely allege.

Aside war, now the S&P meanders a bit indecisively probably to leave unclear the macro stand of stocks ahead of the FOMC. Anything around the 200-Day is in-essence part of aggressive neutrality, as the market uncertainty concurs.

So we had a 'relief rally' that started to consolidate before the Black Sea 'fight' between the 'Reaper' drone and 2 SU-27 Jets. And yes, U.S. European press briefing reiterated the 'unprofessional and environmentally unsound' aspects.. I'm unsure what level of geopolitical risk to factor into market consideration for now, and doubt Ukraine 'really' is incapable of counter-attack offensives soon.

If there's another wild card, it's the Persian Gulf, where the Iran-Saudi deal in my view is risky, and demeans the efforts of the U.S. and Israel to build better relationships (and intelligence sharing) in the region. The Saudi purchase of a bunch of 787 Dreamliners from Boeing is a palliative, and might be viewed as future competition for Emirates, which dominates route-maps around there.

Perhaps the slide in Oil (to my surprise a bit heavier than I'd expect) reflects a lower consumer demand, but global demand (China) is said to be picking-up. I would not get excited about lower Oil, and expect above current prices soon.

I do not agree with the minority who believe the Fed should 'stay the course' and tighten rates further. I believe the 'moral hazard' argument collides with a common sense argument, and the intervention is less costly than guiding this already heavily-indebted nation through a maze of fiasco or recovery efforts.

Bottom-line: 

We don't have systemic failure in the banking system. Blame the Fed to some extent, in both directions (excess shift to equities and then take it to the reverse extreme more recently as 5% returns became available, hence a tricky time for bankers, as everyone learned). Idiosyncratic bank traders are partially responsible too, having focused on long durations rather than short.

So the Federal backstops worked, short-sellers tried to fade today's rally and got caught late in the day. Tier 1 capital ratios are high, liquidity not so bad as some suggest, return on assets is adequate and what I'm saying is that we're not having a catastrophic risk, we're at the 'Ides of March', and structurally we should/could be looking at the early stages of Spring rallying, in harmony with our overall semi-roadmap for this year. However we do see credit restraints, a lot of concern that people normally not focused on markets recognize, and it's likely tempering a lot of spending plans for the moment. Need to see more.

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