Momentum Structural Analysis is a technically-driven research provider.  MSA provides a unique proprietary technical vantage point that is seldom in-line with normal Wall St. technical “product.”

MSA does have a solid sense of fundamentals from time-to time, but does not allow any fundamental view to interfere with its technical assessment process.  It’s called The New Libertarianism... J. Michael Oliver Best Price: $11.77 Buy New $11.95 (as of 12:55 UTC - Details) methodological self-restraint.  Therefore, when MSA sees a pending major technical top or bottom in a core asset market, its reports focus on the technical parameters and clamp mouth shut about whether that technical assessment fits with any coincident fundamental viewpoint.

But the observation provided here is quite large – VAST.  I thought about it, held back, then I decided to set aside the normal MSA editorial limits and…well, here goes.

The dominant driving fundamental factor of equity pricing in the U.S. over the past several years has been the Fed and its presumed “put” – meaning the Fed’s perceived ability, at will, to support and sustain an upward price trajectory in that asset category.  At each and every “Fed moment,” wherein the Fed dispenses its views, the investor and analyst public sit down and listen like some kindergarten class awaiting milk and cookies.  The assumption has been, and has grown to a religion, that the Fed has “our backs” and apparently always will.   Period!  Nothing more need be said.  All other numbers and stats are to be interpreted in-line with this overriding supposed never-to be- doubted fundamental.

But the floor under this fundamental has changed and changed massively.  And this observation can and should be made by any astute observer, regardless of his political viewpoint.

The push by libertarian and conservatives forces in the GOP has grown over the past 4 years, and now with the recent Congressional election the GOP (with these forces widely arrayed within it) has vastly altered the makeup of Congress – not merely in the House but now also in the Senate.  MSA does not presume to argue that all those GOP now-majority Congressional forces are libertarian or conservative (so called “Tea Party”).  But clearly enough shift has occurred that these combined forces now have some degree of high ground which heretofore they have not had.  And certainly they are no longer lost within a “minority” voting block as they were before, where their actions were contained solely in the House.  And net-on-balance these folks are not blanket fans of central bank policies of money printing and QEs.  There is a body of the new Congress that will resist, threaten, stall, or otherwise mobilize to halt any future aggressive Fed policy.  This was not an important shift just because the GOP came out on top in the election  What is important is that the composition of the GOP since 2010 has vastly evolved from a statist mainstream core (not so much different from the policy intent and direction of the Democrat party) to a far more libertarian or libertarian/conservative core – with associated economic concepts guiding their thoughts and policy intent.

The Great Deformation:... David A. Stockman Best Price: $2.00 Buy New $9.95 (as of 09:55 UTC - Details) In recent years it was usually only a single House hearing here or there, often run by retired Congressman Ron Paul, that would cause Ben Bernanke some inconvenience and generate some perspiration on Ben’s upper lip.  But now it’s both House and Senate, hence with some artillery-like punch, that if the new chairman is brought up to explain this or that new “initiative,” she will have some explaining to do and to a majority audience that is not warmly receptive to her notions of intervene this and intervene that.  Many of these GOP Congressmen and Senators are actually somewhat familiar and in agreement with anti-central bank critiques, such as have long been offered by the Mises Institute or Cato Institute, among others.  Many of those now in Congress oppose government policies (including Fed policy) of selectively bailing-out a privileged sector and taking it out of the hide of a “lesser” sector.  And this preference game is an issue that also is pointed-out, but with less intellectual consistency, by some on the left who correctly see rising inequality.  It is not merely a “partisan” divide.  And of course the Fed’s unique contribution to the preference game has been the Fed’s multi-year policy that has denied market-determined rates on conservative debt instruments (key for retirees and pension funds) through the Fed’s suppression of yield on select U.S. government instruments, and by the Fed’s simultaneous policy intent to drive investors into risk-on and “high-yield.”  There are now many in Congress – a large segment now within what is now a majority party – that are aware of the flaws and dangers in such a policy.  These new folks, who have since 2010 taken over the cadaver of the GOP, are not confused and snowed by the academic mainstream economic concepts issued by Bernanke or Yellen, regarding how the government knows best on issues of pricing of stock and bond assets.

Not only is there a pro-market mindset among many of those within the new GOP Congress, but I suspect there will be at least hard talk, with some muscle-threat behind it, to curtail the Fed’s “dual” mandate if the Fed attempted another QE.  Realize that there are now many and at least a sufficient gravitas of sympathy among those bodies to at minimum put a threat to the Fed – if it sought to do it again.  After all, if the Fed ever argued for another QE that would in itself be an admission and prima facie evidence that the prior QEs did not work – did not create sustained positives as promised, but instead created yet again another bubble and hence bubble-breaking sequence of events. A History of Money and... Rothbard, Murray N. Best Price: $5.53 Buy New $42.06 (as of 08:00 UTC - Details)

And finally, markets tend to price-in various factors over time.  And sometimes they overrun a given factor and price it excessively  –  to the relative neglect of other lesser factors.  And then there often pops-up  a new variable that is uncomfortable to trend followers and which – for a time – the market attempts to ignore.  But if that new factor has some degree of gravitas to it, and if prevailing known factors have been simultaneously overpriced, then be not surprised if the market begins to price-in that new variable, even if its reality is merely a distinct potential.

I do not think this dropping of the perceived supporting Fed floorboard (imagine a gallows floor being removed) is much talked about among financial commentators, asset managers and certainly not investors.  It’s still the belief that there is the Fed put, forever, witness the market action of the past day.  Despite this continued belief-structure, MSA argues now, that the Fed put is actually kaput!

I suspect by end of Q1 2015 the equity market in U.S. will have rapidly begun to price that prior dominant factor back-out of the market to some large extent.

Flash Boys Michael Lewis Best Price: $1.17 Buy New $5.79 (as of 11:15 UTC - Details) Dark Pools: The Rise o... Scott Patterson Best Price: $6.32 Buy New $11.74 (as of 06:25 UTC - Details) Broken Markets: How Hi... Saluzzi, Joseph C. Best Price: $7.44 Buy New $24.98 (as of 05:40 UTC - Details) The Secret Club That R... Kate Kelly Best Price: $2.23 Buy New $16.87 (as of 09:55 UTC - Details)

The Best of J. Michael Oliver