Trading Range Being Established

As I have been discussing, the stock was longing for a reason to decline and it seems to have found it in Coronavirus. Whether it was that or something else, stocks were much in need of a pullback. As you know, sentiment had reached the frothiest of frothy levels, but the foundation remained solid. That usually leads to your garden variety short, sharp pullback, to at least get sentiment back to neutral. I don’t think we have the set up to see a decline that leads to despair and despondency just yet.

Again, I would be surprised to see just bottom last Monday and rocket to new highs. That would be a much more dangerous set up. I think the likely case is that some type of trading range is being established, bound by the 2020 highs and lows or perhaps a few percent below that. The bull market remain intact so we don’t need to start that discussion just yet.

The Dow Industrials, S&P 500 and NASDAQ 100 look to have the best foundations here with the S&P 400 and Russell 2000 weaker.A breach of Monday’s low seems like the next stop on the downside and that will be the first test for the bulls. If that doesn’t hold on a closing basis, stocks will likely fall another few percent to the 5% pullback mark.

My favorite group of 2019, semis, has been hit with the ugly stick over the past week. Semis also just ended their most favorable time of the year. I think their day in the sun has ended for now. Banks and transports are trying to hang in. Discretionary is the strongest of the four key sectors. The defensive sectors, REITs, utilities and staples are certainly the strongest sectors in the market right now.

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Media Day, Fed, Coronavirus & More Today

I am excited to join Yahoo Finance’s On The Move from 10:20am to 10:30am discussing the Coronavirus’ impact on the markets and if the worst is behind the markets.

After that, the TD Ameritrade Network is next to give a market update and offer some stock picks. I have to admit; it’s been tough to find fresh ideas after such a strong rally since October. I keep waiting and waiting for the traditional energy names to set up, but that’s not happening just yet.

Finally, I am looking forward to joining my old friend, Charles Payne, on Fox Business’ Making Money from 2:00pm to 2:30pm discussing one of the more boring Fed meetings in years. I am sure we will spice it up with some politics and where stocks are headed.

Turning to the markets, on January 17th, I sent this piece around about how investor behavior is now very dangerous. It’s definitely worth a read or two. So far, that was right at the all-time high. However, that peak should only be a temporary one as the bull market remains alive and reasonably well.

A few things I want to reiterate. First, between the extreme greedy nature of investors and the almost parabolic rise in the market since October, stocks are vulnerable. Similar set ups were seen in January 2018, January 2017, May 2011 and Q1 2000. There were others as well, but I think you get the idea.

The major difference between the other times and now is that the stock market’s foundation is much more solid today than any of the other times. That’s important to note as sideline cash is more apt to buy more shallow dips like we saw on Monday.

However, the only way to cure all this giddiness and greed is with at least a short, sharp pullback. Trading ranges rarely create enough of a scare. Over the next few months, stocks could take two paths to repair sentiment. First, the bounce since Monday’s low could peter out sooner than later with another leg down in February to clean everything up. Or, stocks could be entering a multi-week or month trading range that ultimately breaks to the downside later in Q1.

I would be a little surprised if stocks saw the final bottom on Monday and immediately surged to new highs and beyond. That would be the most dangerous set up and likely lead to more significant selling later in Q1 and perhaps Q2.

We also have the conclusion of the Fed’s two-day meeting at 2:00pm today. This is one meeting no one is talking about and rightfully so. The FOMC will stand pat for the foreseeable future. About the only thing people will focus on is any comment on the Repo crisis and the Fed’s support to the tune of several hundred billion dollars.

The market model on Fed statement day calls for plus or minus .50% until 2:00pm and then a rally. This is among the better set ups since Powell assumed the chairmanship although the stock market has not done well under Powell on statement day.

A full Canaries in the Coalmine is on tap for next week.

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Fed to Cut Rates, Indicate Pause & Move to Neutral

What to Expect Today

The Federal Open Market Committee (FOMC) is going to cut interest rates by another 1/4% at 2:00pm on Wednesday. The market is expecting it and the cut has already been priced in. Any other action would be a shocker. With stocks essentially at to all-time highs, this continues to be reminiscent of 1995 when the Fed came from an overly restrictive monetary policy in 1994 to realizing they screwed up and quickly played catch up. Stocks had long understood and priced this in with 1995 being one of the all-time great investing years in modern history.

Right after the Fed announces their decision, all eyes will be on the statement for clues of future interest rate cuts or signs that the Fed may be close to being done. Given the data and stock market behavior over the past 6 weeks, I do think Jay Powell and company will offer some hawkish comments or indications that a pause in the rate cutting cycle may be in order into 2020.

Model for the Day

As with every Fed statement day, 90% of the time stocks stay in a plus or minus .50% range until 2pm before the fireworks take place. I fully expect that to be the case today. Besides that, there is also a strong long-term trend for stocks to close the day higher, although that is not as strong as it used to be. Additionally, with stocks at all-time highs and significant upside progress over the past month, the bulls have even less dry powder than normal, not to mention how poorly stocks have done under Jay Powell on Fed day. In his short tenure as Fed chair, Powell already has the weakest stock market performance of any Fed chair in history on Fed day.

Countdown to a Trump Tweet

It’s certainly no secret that the President isn’t the biggest fan of Jay Powell, even though Donald Trump appointed Powell as Fed chief. Trump has been as misguided as Powell when it comes to interest rates. The President has been publicly trying to shame the Fed into copying the failing and disastrous European model for negative interest rates, something I hope and pray never, ever happens in the U.S. Low or negative interest rates are certainly not an economic panacea.

On the other hand, whether intentional or by accident, President Trump has been ingenious in creating a natural scapegoat for any potential economic weakness before the election. If the economy strengthens over the coming quarters, Trump will certainly take credit for it, in spite of his perception that the Fed had been working against him. If the economy weakens from here, the President will obviously blame Powell & Company as Trump has been publicly campaigning for more aggressive action by the Fed. In either case, Trump likely wins in the court of public opinion.

Jay Powell’s Arrogance & Ignorance

As I already mentioned, everyone knows what the Fed is going to do at 2:00 pm today. That’s not in debate. And right now, the market is pricing in at least another rate cut. Long time readers know that I have been very critical of the Fed, more with Yellen and Powell than Bernanke although Big Ben did make perhaps the single greatest imbecilic comment in 2007 when he said the sub prime mortgage crisis was “contained” and there would be “no contagion”. It would be impossible to have been any more wrong than that and on an epic scale.

Anyway, I think the Jay Powell led Fed is among the worst groups since 1988 when I entered the business. Greenspan may have been the worst Fed chair since Arthur Burns in the 1970s but Powell is certainly working on his legacy and it’s not an enviable one.

For 6 years I have pounded the table that raising interest rates AND selling assets which is now being referred to as quantitative tightening is the mistake of all mistakes. Selling assets is akin to also hiking rates as it reduces liquidity and tightens financial conditions. Janet Yellen should have chosen one or the other. Pick your poison. Instead, she forged ahead with both.

Jay Powell continued on that path except he, in a grand stroke of additional arrogance, decided that rates should go up at a quicker pace. Arrogance and ignorance are among the two worst character traits and I think Powell has them both. We all saw what happened last December when the Fed added that one additional rate hike and did not temper the asset sales. The global financial markets collapsed like hadn’t been seen since the Great Depression.

The Fed – Savior of the Financial Markets

Now, you can argue that it’s not the Fed’s job to appease the financial markets and you would technically be correct. The Fed has a dual mandate from Congress. Price stability (inflation) and maximum employment. However, the Fed, for the most part, usually follows what the markets want and have priced in. I say “usually” because there have been a few times when the Fed has gone off book.

Remember, the Fed doesn’t want to upset the financial markets. These markets are absolutely vital the U.S. and global economies. And despite what you may hear from Lizzie Warren and Bernie Sanders, a healthy and vibrant Wall Street community is an absolute necessity to a growing economy, even though that same group is prone to bouts of greed and bad behavior which can have a periodic and significant detrimental impact on the economy (see chapter on how the financial crisis began in 2007 and 1929).

When politicians from both sides talk about how Wall Street “wrecked” the economy, they always forget how many direct and indirect jobs were created from Wall Street’s work. The problem is that we (the U.S.) always seems to reward bad behavior and don’t punish it. And so many politicians continue to pat themselves on the back for the Dodd-Frank piece of legislation which did good by increasing capital standards but failed miserably by declaring victory that the days of Wall Street bailouts were over. Not a chance.

When push comes to shove, the political will is never there to let a Morgan Stanley or a Goldman potentially take down the economy. In real time in 2008, my thesis was that AIG should not have been saved which would have sent Goldman down with it. I thought letting more institutions be punished would have caused more short-term pain, but the free market would picked up the slack and the economy would have seen a much, much better recovery than it did. A topic for a different day.

Dual Mandate

As I already mentioned above, the fed has a dual mandate from Congress. Regardless of what President Trump believes or wants, the Fed’s instructions are from Congress. When we look at the Fed’s dual mandate, Congress essentially directs the Fed to keep inflation manageable and seek to have the country fully employed.

Right now, unemployment is at or near record lows with minority unemployment also at or near the lowest levels since records began. That is maximum employment, a point where the Fed would normally worry about a labor shortage and a spike in wages. While wages are finally rising, we are not seeing a squeeze and nothing like McDonalds paying signing bonuses like we saw years ago. With half of the Fed’s mandate pointing towards a rate hike, it’s makes me wonder.

Looking at price stability (inflation), we see the same trend that has been in place for more than a decade; inflation cannot seem to get going. While many people are familiar with the Consumer Price Index, the chart below is a much better gauge and you can Google if you want more info about it. The blue line excludes food and energy and this CENTURY you can’t find a single year of 3%. The very random Fed target of 2% has barely been met since the financial crisis.

So, the second half of the dual mandate is certainly amenable to a rate cut although the most recent data was just a tad “hotter” than the market was expecting. You have the dual mandate at odds. In my world, that would mean a neutral stance by the Fed. Leave rates unchanged and stop selling assets, which they did announce at the July meeting.

Jay Powell & Company at Odds

Jay Powell and the majority of the voting members of the Fed want to cut interest rates by 1/4%. There is a minority faction that wants to leave rates alone. Powell has spoken about an “insurance” rate cut which in my mind means a single cut. Today, we are look at cut number three. He discussed weakening economies in Europe and Asia that eventually could impact the U.S. He is worried about the trade war with China. I just want to know where in the dual mandate it says that the Fed should worry about China and Europe. The rest of the world is now loosening financial conditions so now Powell wants to follow them.

ECB chief Mario Draghi is on his way out of Dodge, leaving Europe in worse shape than when he began 8 years ago. With more than $15 trillion in negatively yielding bonds and a whole new round of bond buying starting, Europe is that fly in search of the windshield. That story ain’t gonna end well. However, the powers that be refuse to accept their fate. The Euro experiment is a failure, plain and simple. It should be dismantled, but I digress.

What I Would Do

My own economic forecast remains unchanged since I first offered it in late 2017. I think the U.S. will experience a very mild recession beginning before the 2020 election. Although there are so many doom and gloomers who forecast something much more ominous, it’s almost impossible with the banks in such great shape, literally sitting on more than two trillion dollars in cash. And if you want to know what I would do instead of cutting rates, I would stop paying the banks to keep their excess reserves at the Fed. This would force them put some money to work in the economy.

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Here Comes Another Cut, But Will the Markets Celebrate?!?!

What to Expect Today

The Federal Open Market Committee (FOMC) is going to cut interest rates by another 1/4% at 2:00pm on Wednesday. The market is expecting it and the cut has already been priced in. Any other action would be a shocker. With stocks so close to all-time highs, this is again reminiscent of 1995 when the Fed came from an overly restrictive monetary policy in 1994 to realizing they screwed up and quickly played catch up. Stocks had long understood and priced this in with 1995 being one of the all-time great investing years in modern history.

Right after the Fed announces their decision, all eyes will be on the statement for clues of future interest rate cuts or signs that the Fed may be close to being done. The stock market will definitely not like a rate cut with a hawkish statement, meaning comments from the Fed that they are not looking for more cuts ahead. I find it hard to believe that Jay Powell & Company will cut rates and then prepare the markets for more rate cuts this year.

Model for the Day

As with every Fed statement day, 90% of the time stocks stay in a plus or minus .50% range until 2pm before the fireworks take place. I fully expect that to be the case today. Besides that, there is also a strong long-term trend for stocks to close the day higher, although that is not as strong as it used to be. Additionally, with stocks near all-time highs and significant upside progress over the past month, the bulls have even less dry powder than normal, not to mention how poorly stocks have done under Jay Powell on Fed day. 6 weeks ago, I offered that “any short-term rally may be sold”. From 2:00pm on July 31 until August 5, stocks fell in a straight line after Powell et al indicated that the rate decrease was a “mid-cycle cut” and not the beginning of a new accommodative cycle.

Jay Powell’s Arrogance & Ignorance

As I already mentioned, everyone knows what the Fed is going to do at 2:00 pm today. That’s not in debate. And right now, the market is pricing in at least another rate cut. Long time readers know that I have been very critical of the Fed, more with Yellen and Powell than Bernanke although Big Ben did make perhaps the single greatest imbecilic comment in 2007 when he said the sub prime mortgage crisis was “contained” and there would be “no contagion”. It would be impossible to have been any more wrong than that and on an epic scale.

Anyway, I think the Jay Powell led Fed is among the worst groups since 1988 when I entered the business. Greenspan may have been the worst Fed chair since Arthur Burns in the 1970s but Powell is certainly working on his legacy and it’s not an enviable one.

For 6 years I have pounded the table that raising interest rates AND selling assets which is now being referred to as quantitative tightening is the mistake of all mistakes. Selling assets is akin to also hiking rates as it reduces liquidity and tightens financial conditions. Janet Yellen should have chosen one or the other. Pick your poison. Instead, she forged ahead with both.

Jay Powell continued on that path except he, in a grand stroke of additional arrogance, decided that rates should go up at a quicker pace. Arrogance and ignorance are among the two worst character traits and I think Powell has them both. We all saw what happened last December when the Fed added that one additional rate hike and did not temper the asset sales. The global financial markets collapsed like hadn’t been seen since the Great Depression.

The Fed – Savior of the Financial Markets

Now, you can argue that it’s not the Fed’s job to appease the financial markets and you would technically be correct. The Fed has a dual mandate from Congress. Price stability (inflation) and maximum employment. However, the Fed, for the most part, usually follows what the markets want and have priced in. I say “usually” because there have been a few times when the Fed has gone off book.

Remember, the Fed doesn’t want to upset the financial markets. These markets are absolutely vital the U.S. and global economies. And despite what you may hear from Lizzie Warren and Bernie Sanders, a healthy and vibrant Wall Street community is an absolute necessity to a growing economy, even though that same group is prone to bouts of greed and bad behavior which can have a periodic and significant detrimental impact on the economy (see chapter on how the financial crisis began in 2007 and 1929).

When politicians from both sides talk about how Wall Street “wrecked” the economy, they always forget how many direct and indirect jobs were created from Wall Street’s work. The problem is that we (the U.S.) always seems to reward bad behavior and don’t punish it. And so many politicians continue to pat themselves on the back for the Dodd-Frank piece of legislation which did good by increasing capital standards but failed miserably by declaring victory that the days of Wall Street bailouts were over. Not a chance.

When push comes to shove, the political will is never there to let a Morgan Stanley or a Goldman potentially take down the economy. In real time in 2008, my thesis was that AIG should not have been saved which would have sent Goldman down with it. I thought letting more institutions be punished would have caused more short-term pain, but the free market would picked up the slack and the economy would have seen a much, much better recovery than it did. A topic for a different day.

Dual Mandate

As I already mentioned above, the fed has a dual mandate from Congress. Regardless of what President Trump believes or wants, the Fed’s instructions are from Congress. When we look at the Fed’s dual mandate, Congress essentially directs the Fed to keep inflation manageable and seek to have the country fully employed.

Right now, unemployment is at or near record lows with minority unemployment also at or near the lowest levels since records began. That is maximum employment, a point where the Fed would normally worry about a labor shortage and a spike in wages. While wages are finally rising, we are not seeing a squeeze and nothing like McDonalds paying signing bonuses like we saw years ago. With half of the Fed’s mandate pointing towards a rate hike, it’s makes me wonder.

Looking at price stability (inflation), we see the same trend that has been in place for more than a decade; inflation cannot seem to get going. While many people are familiar with the Consumer Price Index, the chart below is a much better gauge and you can Google if you want more info about it. The blue line excludes food and energy and this CENTURY you can’t find a single year of 3%. The very random Fed target of 2% has barely been met since the financial crisis.

So, the second half of the dual mandate is certainly amenable to a rate cut although the most recent data was just a tad “hotter” than the market was expecting. You have the dual mandate at odds. In my world, that would mean a neutral stance by the Fed. Leave rates unchanged and stop selling assets, which they did announce at the July meeting.

Jay Powell & Company at Odds

Jay Powell and the majority of the voting members of the Fed want to cut interest rates by 1/4%. There is a minority faction that wants to leave rates alone. Powell has spoken about an “insurance” rate cut which in my mind means a single cut. Today, we are look at cut number two. He discussed weakening economies in Europe and Asia that eventually could impact the U.S. I just want to know where in the dual mandate it says that the Fed should worry about China and Europe. The rest of the world is now loosening financial conditions so now Powell wants to follow them.

ECB chief Mario Draghi is on his way out of Dodge, leaving Europe in worse shape than when he began 8 years ago. With more than $15 trillion in negatively yielding bonds and a whole new round of bond buying starting, Europe is that fly in search of the windshield. That story ain’t gonna end well. However, the powers that be refuse to accept their fate. The Euro experiment is a failure, plain and simple. It should be dismantled, but I digress.

The markets are expecting 1/4% cut. One of the many great charts and work that Tom McClellan does has to do with forecasting a rate move based on the two-year Treasury Note. Below is a chart of that instrument overlayed with the Federal Funds Rate which is the actual interest rate the Fed controls. Tom argues that all the Fed needs to do is follow the two-year Note instead of meeting and debating all the time. His analysis certainly has merit.

When the solid black line is below the colored line, the Fed is allowing easy financial conditions. The reverse is true when it’s above the colored line. Right now, the two-year Note (the market) is telling the Fed to cut rates although a little less than it did 6 weeks before the Fed’s last meeting. While I believe it’s premature, the market does not.

What I Would Do

While I could go on and on and on as I sometimes tend to do, I am going to wrap this up by saying that Powell is going to hide behind tariffs and China as the reason to cut rates today. Although I absolutely do not think he will intend to poke the President, I do think that labeling tariffs as the potential economic weakness culprit will certainly tweak Donald Trump.

My own economic forecast remains unchanged since I first offered it in late 2017. I think the U.S. will experience a very mild recession beginning before the 2020 election. Although there are so many doom and gloomers who forecast something much more ominous, it’s almost impossible with the banks in such great shape, literally sitting on more than two trillion dollars in cash. And if you want to know what I would do instead of cutting rates, I would stop paying the banks to keep their excess reserves at the Fed. This would force them put some money to work in the economy.

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Powell’s Arrogance & Ignorance to Continue – Here Comes the Cut

What to Expect Today

Let’s get the worst kept secret out of the way. The FOMC is going to cut interest rates today by 1/4%. I don’t know of anyone who doesn’t believe that short-term rates are going down today, regardless of whether they agree or not. The big question is going to be what Powell says after that. Is this an “insurance” cut as in one and done? Or, is it the beginning of a rate cut cycle like we saw in 2007 and 2001? The last two cutting cycles began with 1/2% cuts and as we know, ended very poorly for the economy and especially the financial markets. I would be very surprised if the Fed cut by 1/2% today and frankly, a little more than concerned. Today’s cut is most similar to July 1995 when stocks were also at or close to all-time highs, but the economy then was stronger and inflation and unemployment were much higher.

Model for the Day

As with every Fed statement day, 90% of the time stocks stay in a plus or minus .50% range until 2pm before the fireworks take place. I fully expect that to be the case today. Besides that, there is also a strong long-term trend for stocks to close the day higher, although that is not as strong as it used to be. Additionally, with stocks near all-time highs and significant upside progress over the past two months, the bulls have even less dry powder than normal.

Given Apple’s earnings beat last night and other positive reports, I can certainly make the case that the easy money will be made from last night’s close to 10:00 am today. Finally, although not conforming to any special Fed day trend, I am certainly aware that any short-term rally may be sold, either from Jay Powell’s comments or just routine, sell the news, profit taking.

Jay Powell’s Arrogance & Ignorance

As I already mentioned, everyone knows what the Fed is going to do at 2:00 pm today. That’s not in debate. And right now, the market is pricing in at least another two rate cuts. Long time readers know that I have been very critical of the Fed, more with Yellen and Powell than Bernanke although Big Ben did make perhaps the single greatest imbecilic comment in 2007 when he said the sub prime mortgage crisis was “contained” and there would be “no contagion”. It would be impossible to have been any more wrong than that and on an epic scale.

Anyway, I think the Jay Powell led Fed is among the worst groups since 1988 when I entered the business. Greenspan may have been the worst Fed chair since Arthur Burns in the 1970s but Powell is certainly working on his legacy and it’s not an enviable one.

For 6 years I have pounded the table that raising interest rates AND selling assets which is now being referred to as quantitative tightening is the mistake of all mistakes. Selling assets is akin to also hiking rates as it reduces liquidity and tightens financial conditions. Janet Yellen should have chosen one or the other. Pick your poison. Instead, she forged ahead with both.

Jay Powell continued on that path except he, in a grand stroke of additional arrogance, decided that rates should go up at a quicker pace. Arrogance and ignorance are among the two worst character traits and I think Powell has them both. We all saw what happened last December when the Fed added that one additional rate hike and did not temper the asset sales. The global financial markets collapsed like hadn’t been seen since the Great Depression.

The Fed – Savior of the Financial Markets

Now, you can argue that it’s not the Fed’s job to appease the financial markets and you would technically be correct. The Fed has a dual mandate from Congress. Price stability (inflation) and maximum employment. However, the Fed, for the most part, usually follows what the markets want and have priced in. I say “usually” because there have been a few times when the Fed has gone off book.

Remember, the Fed doesn’t want to upset the financial markets. These markets are absolutely vital the U.S. and global economies. And despite what you may hear from Lizzie Warren and Bernie Sanders, a healthy and vibrant Wall Street community is an absolute necessity to a growing economy, even though that same group is prone to bouts of greed and bad behavior which can have a periodic and significant detrimental impact on the economy (see chapter on how the financial crisis began in 2007 and 1929).

When politicians from both sides talk about how Wall Street “wrecked” the economy, they always forget how many direct and indirect jobs were created from Wall Street’s work. The problem is that we (the U.S.) always seems to reward bad behavior and don’t punish it. And so many politicians continue to pat themselves on the back for the Dodd-Frank piece of legislation which did good by increasing capital standards but failed miserably by declaring victory that the days of Wall Street bailouts were over. Not a chance.

When push comes to shove, the political will is never there to let a Morgan Stanley or a Goldman potentially take down the economy with out. In real time in 2008, my thesis was that AIG should not have been saved which would have sent Goldman down with it. I thought letting more institutions be punished would have caused more short-term pain, but the free market would picked up the slack and the economy would have seen a much, much better recovery than it did., A topic for a different day.

Dual Mandate

As I already mentioned above, the fed has a dual mandate from Congress. Regardless of what President Trump believes or wants, the Fed’s instructions are from Congress. When we look at the Fed’s dual mandate, Congress essentially directs the Fed to keep inflation manageable and seek to have the country fully employed.

Right now, unemployment is at or near record lows with minority unemployment also at or near the lowest levels since records began. That is maximum employment, a point where the Fed would normally worry about a labor shortage and a spike in wages. While wages are finally rising, we are not seeing a squeeze and nothing like McDonalds paying signing bonuses like we saw years ago. With half of the Fed’s mandate pointing towards a rate hike, it’s makes me wonder.

Looking at price stability (inflation), we see the same trend that has been in place for more than a decade; inflation cannot seem to get going. While many people are familiar with the Consumer Price Index, the chart below is a much better gauge and you can Google if you want more info about it. The blue line excludes food and energy and this CENTURY you can’t find a single year of 3%. The very random Fed target of 2% has barely been met since the financial crisis.

So, the second half of the dual mandate is certainly amenable to a rate cut. You have the dual mandate at odds. In my world, that would mean a neutral stance by the Fed. Leave rates unchanged and stop selling assets. Let things be for now.

Jay Powell & Company at Odds.

Jay Powell and the majority of the voting members of the Fed want to cut interest rates by 1/4% or 1/2%. There is a minority faction that wants to leave rates alone. Powell has spoken about an “insurance” rate cut. He discussed weakening economies in Europe and Asia that eventually could impact the U.S. I just want to know where in the dual mandate it says that the Fed should worry about China and Europe. The rest of the world is now seeking to loosen financial conditions so now Powell wants to follow them.

The markets are expecting 1/4% cut. One of the many great charts and work that Tom McClellan does has to do with forecasting a rate move based on the two-year Treasury Note. Below is a chart of that instrument overlayed with the Federal Funds Rate which is the actual interest rate the Fed controls. Tom argues that all the Fed needs to do is follow the two-year Note instead of meeting and debating all the time. His analysis certainly has merit.

When the solid black line is below the colored line, the Fed is allowing easy financial conditions. The reverse is true when it’s above the colored line. Right now, the two-year Note (the market) is telling the Fed to cut rates. While I believe it’s premature, the market does not.

What I Would Do

While I could go on and on and on as I sometimes tend to do, I am going to wrap this up by saying that Powell is going to hide behind tariffs and China as the reason to cut rates today. Although I absolutely do not think he will intend to poke the President, I do think that labeling tariffs as the potential economic weakness culprit will certainly tweak Donald Trump.

My own economic forecast remains unchanged since I first offered it in late 2017. I think the U.S. will experience a very mild recession beginning before the 2020 election. Although there are so many doom and gloomers who forecast something much more ominous, it’s almost impossible with the banks in such great shape, literally sitting on more than two trillion dollars in cash. And if you want to know what I would do instead of cutting rates, I would stop paying the banks to keep their excess reserves at the Fed. This would force them put some money to work in the economy.

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Post Fed – A Rate Cut – SERIOUSLY?!?!

Jay Powell & Company gave the markets exactly what they wanted on Wednesday. They threaded the needle which is no easy feat. As someone who has been very critical of the Fed, I have to give them props for not upsetting the apple cart. The problem now is that markets are pricing in a 100% chance of a interest rate cut in July which doesn’t sit well with me. If stocks continue rallying, how can the Fed really give it more juice?

The Fed has now gone from being concerned about inflation to trying to stimulate inflation, all in 6 months. If the June employment report due out on July 5th is not weak, how could the Fed cut rates with unemployment below 4%? I guess if trade talks with China fail at the end of next week, the cover will be that the FOMC will cut in July in anticipation of slower growth because of the tariffs. Trump and Xi are supposed to meet at the end of the month at the G20 in Japan. The June employment report will be released on July 5. Like everything else, we will watch and see what happens.

 

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Insurance Rate Cut, Oasis in a Recessionary Desert, Dow 30,000

Here we go. We went a whole two FOMC meetings without the media labeling them something like, “the most important Fed meeting ever”. That was a whole 12 week respite. But fear not, there is widespread labeling today that there has never been a more important FOMC meeting than the one ending today at 2:00 pm. Before I begin to unpack today and what lies ahead, I want to extend a thank you for the support I have received since my accident. I feel great and I am healing way ahead of schedule. It’s been nothing short of miraculous. I am one lucky guy.

Model for the Day

As with every Fed statement day, 90% of the time stocks stay in a plus or minus .50% range until 2pm before the fireworks take place. I fully expect that to be the case today. Besides that, there is also a strong trend for stocks to close the day higher. Finally, the other strong trend is to see stocks surge between 2 pm and 4 pm. Given the strong rally in stocks over the last 5 and 10 days, the trends should be somewhat muted.

No Rate Hike Today. July on the Table

The FOMC is not cutting interest rates today. I know the media has played up the possibility, but the market has only priced in a 20% chance of a cut and few are really expecting any action. Shockingly, at least to me, the market has priced in an 80% chance of a rate cut at the end of July. Right now, I don’t see it.

While the Fed supposedly doesn’t use the stock market as an interest rate guide, the stock market is now just about 1% from all-time highs, certainly not in need of rescue like it did in December. Economic data has been mixed. The most recent employment report was weak, but retail sales have had a bit of a resurgence. Housing continues its struggle from what was (no longer) higher mortgage rates and the capping of state and local tax (SALT). However, consumer sentiment and confidence has rallied yet again. The demise of the consumer seems to have been greatly exaggerated, at least so far.

Adding all of the preceding up, I find it very hard to argue for lower interest rates. Now, we all know there is more than just what I mentioned. The FOMC had been raising rates as GDP strengthened. GDP is now tailing off a bit. The FOMC had been concerned about inflation that hasn’t materialized at all in over 10 years. There is no present worry about inflation, either at the core or including “volatile” food and energy.

Europe’s economy is weakening to the point of needing stimulus from the European Central Bank. China’s economy has been severely hurt by U.S. tariffs. Some will argue that the U.S. economy can’t continue as an oasis in an otherwise recessionary desert. If the Fed moves to rate cut alert, it would be doing so purely as insurance and not based on their Congressional mandate of maximum employment and price stability.

What to Expect in the Statement

Overall, it is widely expected that the message from Powell & Co. will be dovish. In other words, the Fed should move the message towards an interest rate cut without actually doing one. As with every FOMC meeting, pundits and the computer algorithms will quickly parse Jay Powell’s statement for material changes from the last meeting. It is widely expected that the FOMC will remove the word “patience” from its statement. Yes, I know. It’s hard to believe that the markets will hang in the balance for the removal of a single word in the statement. Analysts will also quickly turn to the “dot plot”, an anonymous forecast, FOMC member by FOMC member, of where they forecast the Federal Funds Rate to be in the future.

And Then There’s Trump

Everyone knows that this presidency has been different and unique from all others. Regarding the Fed, President Trump has certainly tossed aside all historical norms. Until Trump, the President did not comment about the Fed, its chair or its policies out of respect for its independence and for fear of rattling the global markets. We now know the latter has been debunked. Donald Trump has been a very vocal critic of Jay Powell and the Fed’s policies, even though the President chose Powell to lead the Fed. Frankly, I find it very uncomfortable that the President criticizes Powell and the Fed or even speaks about them at all. I don’t think that’s healthy. But I don’t get a vote in that regard.

Some have wrongly speculated that the last rate hike in 2018 was some sort of payback by Powell and the Fed to Trump. I find that to be absolute nonsense. Why would the body responsible for the economy do intentional harm? They wouldn’t. Lately, there has been talk of Powell being demoted or terminated as chair. I rate that as very unlikely.

The Fed also has to deal with what I have affectionately referred as the Trump Tariff Tantrum. As I have written since day one, no one wins a trade war. Some just lose less. The on again, off again tariff war with mainly China has put the Fed in a difficult position. If all threatened tariffs proceed ahead, then you can certainly make the argument that an insurance rate cut or even two makes perfect sense. If a deal is reached with China, then the economy should see a small bump higher.

Mild Recession Coming by the Election

Whatever happens, one thing is almost a certainly. The Fed will not forecast the next recession.

WHY?

Because in the history of the Federal Reserve, the Fed has never, ever accurately predicted the next recession. They are perfectly in their incompetence! You could also argue that secretly they really do see problems coming down the road, but could never telegraph that publicly for fear of upsetting the markets. This is the argument I fall on the floor laughing my head off.

The Fed is almost always late. 1995 was the exception and they threaded the needle. For years, I have criticized them for raising rates and selling assets. I thought it would fertilize the landscape for recession. The tax cuts forestalled that, but the next recession is coming, but to be fair, it’s always coming. I continue to believe that a mild recession will begin before the election. For sure, it will be interesting to see if the Fed begins a rate cut cycle and that somehow pushes recession out for years. I don’t have strong confidence, but I will certainly root for that to be the case.

Housing remains very challenging with what was higher mortgage rates, millennial behavior changes and the capping of state and local taxes at $10,000 from the 2017 tax cuts. Credit card and auto delinquencies remain elevated in the face of the good economy. The tariffs are the big question mark. A full-fledged tariff war with a teetering economy could tip us over. The next 17 months into the election are going to be interesting and full of “fun”.

Stocks Set to Burst to New Highs Before Declining

Since the last Fed meeting, the stock market has gone essentially nowhere. In between, we saw a 7% decline and roughly the same rally. Both seem to have been strongly influenced by the Fed and the tariffs to a lesser degree. My long-term message remains unchanged. The bull market is alive and reasonably well. Dow 27,000 should be seen sooner than later with a chance at 30,000 by Q1 2020. Higher stock prices will make it more challenging for the Fed to cut rates.

Over the intermediate-term, I have a small but growing list of concerns that is causing me to shift from buying the dip to selling the rally. Stocks are positioned to see one more burst higher to new highs on the Dow and S&P 500. The NASDAQ 100 may also follow suit, but I doubt the S&P 400 and Russell 2000 will. If we do see that surge to new highs, I think it happens right here. The worst thing for stocks would be a quick push higher post 2 pm today and then a decline with a close near the lows for the day. That could set stocks up for another single digit pullback.

Semiconductors are not leading. Neither are transports. Banks continue to look very appealing to me, but they are not leading yet. Only consumer discretionary is in a leadership position from my key group. High yield bonds are acting well, but they could be stronger, especially of late. Very importantly for the sustainability of the bull market, the New York Stock Exchange Advance/Decline Line which you can see in the second chart below, continues to make new high after new high. Bull markets do not end with behavior like this. There is widespread participation in the rally, even though it’s not perfect, or at least not yet.

With stocks rallying sharply into the FOMC meeting, there is certainly a chance of selling the news or disappointing. There is also a chance that stocks surge and then fall. The only scenario which seems unlikely right here is for stocks to blast off, unabated. That path would definitely catch me off guard. After today concludes, it’s also one road I will need to do work on to figure out how to best navigate.

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The Most Unanticipated FOMC Meeting

The Most Unanticipated FOMC Meeting

Today is one of the most unanticipated Fed statement days in recent memory. How will we ever survive without hearing that “today is the most important Fed day ever”? I say that because absolutely nothing is really expected today. Chairman Jay Powell did his 170 degree turn earlier this year and the Fed is now on a new course. Okay. Maybe, I am exaggerating a little bit. Perhaps, we will hear about their plans to end their sale of bonds purchased during their Quantitative Easing programs, but that should be about it.

Financial markets have ripped since Powell’s embarrassing mea culpa in early January with stocks and bonds sharply higher. Crude oil is also up significantly and the dollar is marginally higher. Gold is basically flat.

Model for the Day

As with every Fed statement day, 90% of the time stocks stay in a plus or minus .50% range until 2pm before the fireworks take place. That should be the case today as well. After that, we usually see strength into the close roughly 75% of the time. That trend has been muted today after Tuesday’s action. However, there may be a less frequent and negative trend setting up for after the Fed which would call for lower prices in the very short-term.

No Rate Move

The FOMC is absolutely not going to touch interest rates today nor at their next few meetings either. They are effectively on hold until further notice and the odds favor the next move to be a rate cut. Besides Powell and the rest of the FOMC doing an about face in early January, a few very important pieces of economic news have surfaced lately. None come as a surprise.

First, the European Central Bank cut their annual GDP forecast from 1.7% to 1.1%. As I have written about before, for all intents and purposes, Germany and Italy are already in recession. Second, China’s economy continues to surely and steadily weaken. Finally, the February employment report in the U.S. was wildly weak although I feel fairly confident that it is going to be revised sharply higher.

Although the Fed’s dual mandate calls for maximum employment and price stability, I do not believe they can ignore what’s going on around the world. The global economy is soft. Continuing to raise interest rates here would certainly have detrimental effects on growth as well as likely strengthen our currency. Neither would be considered good for the global economy.

Right now, Goldilocks is alive and well and residing in the U.S. economy. Not too hot. Not too cold. The Fed would be backed into a corner if the U.S. economy re-accelerated again without Europe and China following suit. That would force Powell to raise rates and hasten recession.

Recession Coming in Late 2019 to Late 2020

Speaking of recession, I stand by my forecast from 2018 that the U.S. will see a mild recession beginning between Q3 2019 and Q3 2020 although I would happily be proven wrong. Economic data is decelerating. I believe we have seen the trough in weekly jobless claims along with the peak monthly new jobs created. Housing has been a challenge for some time and that does not appear to be changing any time soon. Credit cards delinquencies are spiking and auto loans, especially from millennials, are a big problem.

Don’t get me wrong. The economy is not teetering on recession. I just listed the problems. GDP is still growing, coming off a 3.1% year with 2% likely in 2019. Wage growth is the best in many years and money is flowing back to our shores. It’s going to take time for all this to wear off and some external shock to hit.

One thing I know for sure. Powell and the Fed will not forecast the next recession. Why? Because the Fed has never, ever, ever once correctly predicted recession in the U.S. or really anywhere for that matter. You could say that they are perfect in their incompetence. You could also argue that secretly they really do see problems coming down the road, but could never telegraph that publicly for fear of upsetting the markets. This is the argument I fall on the floor laughing my head off.

The Fed is always late. Had they started the rate hike cycle earlier or the asset sales, they could have avoided conducting them concurrently. I have said this from day one and never wavered; what the Fed was trying to do is like landing a 747 on I-95. It’s technically possible, but so beyond likely to be successful. In fact, as I have stated many times, it has created a fertile landscape to grow recession.

Janet Yellen & Jay Powell Are to Blame

Let’s get back to Jay Powell and the Fed. Longtime readers know that I was a very big fan of Ben Bernanke while I called Alan Greenspan the single worst Fed chair ever, or at least on par with Arthur Burns from the 1970s. I call it like I see it. For several years, I have been a very vocal critic of Yellen and Powell for trying to land a 747 on a postage stamp by raising interest rates AND selling fixed income assets, now to the tune of $600 billion a year. In the history of the world, no central bank has ever had the temerity to believe it could accomplish this without consequences.

Cue our Fed with Yellen and Powell.

This group is and has been either arrogant or ignorant or both. Look, the Fed is behind 90% of the recessions. They begin a rate hike cycle and push and push until the landscape is so fertile for recession that all it takes is a little spark. They did it leading up to the financial crisis. They did it during the Dotcom burst. They did it in 1990 with the S&L Crisis and Iraqi invasion of Kuwait.

This time, the pomposity has been taken to new heights by adding the program of what’s been labeled Quantitative Tightening. The Fed is now selling the securities in the open market that they purchased during Quantitative Easing. These sales are effectively interest rate hikes by themselves. The markets and economy cannot withstand the Fed conducting both. And although the rate hike cycle appears to have ended, the damage has been done.

Now we have Greenspan and Yellen both forecasting gloom and doom. “Run for cover.” “Crisis on the horizon.” What a joke! Yellen remarked on her way out of Dodge that she didn’t think we would have another financially related crisis in our lifetime. Now, all of a sudden, she sees a series of crisis.

Is this all in the name of selling books? Goosing demand for their 6 figure speeches? Or, do they really believe this, but just outright lied to the public when they were in charge? No matter how you slice it, Janet Yellen and Alan Greenspan are embarrassments.

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Markets Not Waiting on Fed Statement Today

Powell Turns 180 Degrees and Loses Credibility

Fed statement day is here once again. Yippee! Chair Jay Powell did something I don’t think I have seen in 30 years in the business. He did an almost 180 degree turn in just three weeks after raising rates and forging full steam ahead with more asset sales on December 19. When the markets, both stock and credit, accelerated to the downside, Powell eventually walked back his very hawkish stance to try and appease investors. That must be the third mandate of the Fed after maximum employment and price stability. Financial market appeasement.

Anyway, stocks have rallied sharply since Christmas and bonds have followed suit. It’s going to be fascinating to listen to the press conference today and watch Powell struggle through the questions without upsetting the markets, unless, of course, the Fed is done hiking rates and they are actually pulling back on asset sales. Don’t bet on it!

Model for the Day

As with every Fed statement day, 90% of the time stocks stay in a plus or minus .50% range until 2pm before the fireworks take place. With pre-market action indicating a much higher open, the opportunity is there for a momentum trade to the upside from the open until 2pm or even 4pm although I have to admit that given recent activity, I am a bit gun shy about pushing the envelope intra-day. I want to give proper attribution for this Fed trend and I am pretty sure data miner extraordinaire, Rob Hanna and his supercomputers at Quantifiable Edges, shared it with me.

No Rate Hike

The FOMC is absolutely not raising interest today and I would be shocked if they raised them at the next meeting in March. Global economic growth has slowed substantially and I expect Q4 and Q1 GDP here in the U.S. to be weaker than the previous three quarters.

Let’s not forget that the Fed has never, ever, ever once correctly predicted recession in the U.S. or really anywhere for that matter. You could say that they are perfect in their incompetence. You could also argue that secretly they really do see problems coming down the road, but could never telegraph that publicly for fear of upsetting the markets. This is the argument I fall on the floor laughing my head off.

The Fed is always late. Had they started the rate hike cycle earlier or the asset sales, they could have avoided conducting them concurrently. I have said this from day one and never wavered; what the Fed is trying to do is like landing a 747 on I-95. It’s technically possible, but so beyond likely to be successful. In fact, as I have stated many times, it has and is creating a fertile landscape to grow recession.

Recession Coming in Late 2019 to Late 2020

The economic data in the U.S. may be decelerating, but it is certainly not close to recession as many people are now forecasting based on the stock market’s action. Germany may be in recession with other European countries to follow, but it seems like the U.S. will be last on the list.

Housing remains very challenging with higher mortgage rates, millennial behavior changes and the capping of state and local taxes at $10,000 from the 2017 tax cuts. Credit card and auto delinquencies remain elevated in the face of the good economy. The tariffs have certainly put a damper on trade, but they are a huge question mark as we approach the March 1 deadline with China to get a deal done. At the end of the day, I am sticking by my call for a mild recession beginning sometime between Q3 2019 and Q3 2020 although I am realizing that it may be later than sooner.

Janet Yellen & Jay Powell Are to Blame

Let’s get back to Jay Powell and the Fed. Longtime readers know that I was a very big fan of Ben Bernanke while I called Alan Greenspan the single worst Fed chair ever, or at least on par with Arthur Burns from the 1970s. I call it like I see it. For several years, I have been a very vocal critic of Yellen and Powell for trying to land a 747 on a postage stamp by raising interest rates AND selling fixed income assets, now to the tune of $600 billion a year. In the history of the world, no central bank has ever had the temerity to believe it could accomplish this without consequences.

Cue our Fed with Yellen and Powell.

This group is and has been either arrogant or ignorant or both. Look, the Fed is behind 90% of the recessions. They begin a rate hike cycle and push and push until the landscape is so fertile for recession that all it takes is a little spark. They did it leading up to the financial crisis. They did it during the Dotcom burst. They did it in 1990 with the S&L Crisis and Iraqi invasion of Kuwait.

This time, the pomposity has been taken to new heights by adding the program of what’s been labeled Quantitative Tightening. The Fed is now selling the securities in the open market that they purchased during Quantitative Easing. These sales are effectively interest rate hikes by themselves. The markets and economy cannot withstand the Fed conducting both.

Now we have Greenspan and Yellen both forecasting gloom and doom. “Run for cover.” “Crisis on the horizon.” What a joke! Yellen remarked on her way out of Dodge that she didn’t think we would have another financially related crisis in our lifetime. Now, all of a sudden, she sees a series of crisis.

Is this all in the name of selling books? Goosing demand for their 6 figure speeches? Or, do they really believe this, but just outright lied to the public when they were in charge? No matter how you slice it, Janet Yellen and Alan Greenspan are embarrassments.

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The Absolute Arrogance, Ignorance & Incompetence of the Fed

Here we go. Cue the media’s hype. “The single most important Fed meeting, perhaps of All-TIME!”

Oh brother.

Model for the Day

Let’s start with the model for the day. As with every Fed statement day, 90% of the time stocks stay in a plus or minus .50% range until 2pm before the fireworks take place. With pre-market action indicating a much higher open, the opportunity is there for a momentum trade to the upside from the open until 2pm or even 4pm although I have to admit that given recent activity, I am a bit gun shy about pushing the envelope intra day. I want to give proper attribution for this Fed trend and I am pretty sure data miner extraordinaire, Rob Hanna and his supercomputers at Quantifiable Edges, shared it with me.

Panic Without a Rate Hike

Moving on to today’s meeting, the market says there is a 75% chance that Jay Powell & Company raise interest rates today. Frankly, that number seems on the low side. The post-Greenspan Fed has done an incredible job of repeatedly telegraphing moves well in advance of the meeting. I think the market could panic if the Fed just stopped raising rates because stocks have fallen 13%. I think that would signal something newly ominous on their radar screen which could cause a massive move lower in stocks.

Rather, if the Fed wanted to help the markets, I think they would hike rates today and then change their commentary and remove “continued, gradual rate increases”, perhaps even offering the path of one additional hike in 2019. Of course, we know that Powell et al are “data dependent”, until markets seize up and them the Fed think it can rescue them.

Relentless and Unusual Selling of Stocks

It’s certainly no secret that stocks have been under pressure this week, this month and this quarter. Corrections happen from time to time. Always have, always will. Stocks corrected 10%+ in Q1 2018, Q1 2016, Q3 2015, Q3 2011 and Q2 2010. They were all bull market declines that mightily shook the trees and confidence, but led to new highs.

What’s different here is a few things. First, selling of this magnitude in December has only been seen one other time in history and that was 1931 as the Smoot Hawley Tariff Act was instituted. It’s not exactly the greatest analog as The Great Depression was unfolding, but before you ask, NO; I do not believe we are on the precipice of anything remotely similar.

Stocks are also not only selling off on good news, something we don’t often see in bull markets, but there really hasn’t been a slew of bad news. Selling has been relentless since December 4 without any rally developing at all. The market is also not responding to a myriad of indicators that would ordinarily turn stocks around, whether this remains an old bull market or a nascent bear market. We will certainly see sooner than later which environment the stock market is currently in.

Recession Coming in Late 2019 to Late 2020

The economic data in the U.S. may be decelerating, but it is certainly not close to recession as many people are now forecasting based on the stock market’s action. It feels like stocks are trying to say something that the majority of data are not indicating just yet. Credit card and auto delinquencies are beginning to rise and housing has weakened substantially. The job market looked to have started to roll over, but the last weekly jobless claims fell significantly. I am sticking by my call for a mild recession beginning sometime between Q3 2019 and Q3 2020.

What’s a little unnerving or even puzzling is that crude oil has completely collapsed. The notion that it’s just a supply glut is nonsense. Crude oil doesn’t plummet 39% because there is extra supply. Sorry. That’s just wrong. Now, just because crude is crashing also doesn’t imply impending economic doom. We saw a similar collapse from mid 2014 to early 2016. It’s something to keep an eye on.

Janet Yellen & Jay Powell Are to Blame

Let’s get back to Jay Powell and the Fed. Longtime readers know that I was a very big fan of Ben Bernanke while I called Alan Greenspan the single worst Fed chair ever, or at least on par with Arthur Burns from the 1970s. I call it like I see it. For several years, I have been a very vocal critic of Yellen and Powell for trying to land a 747 on a postage stamp by raising interest rates AND selling fixed income assets, now to the tune of $600 billion a year. This is the story least argued in the media. In the history of the world, no central bank has ever had the temerity to believe it could accomplish this without consequences.

Cue our Fed with Yellen and Powell.

This group is and has been either arrogant or ignorant or both. Look, the Fed is behind 90% of the recessions. They begin a rate hike cycle and push and push until the landscape is so fertile for recession that all it takes is a little spark. They did it leading up to the financial crisis. They did it during the Dotcom burst. They did it in 1990 with the S&L Crisis and Iraqi invasion of Kuwait.

This time, the pomposity has been taken to new heights by adding the program of what’s been labeled Quantitative Tightening. The Fed is now selling the securities in the open market that they purchased during Quantitative Easing. These sales are effectively interest rate hikes by themselves. The markets and economy cannot withstand the Fed conducting both.

I do find it laughably pathetic that no Fed chair ever warns of recession in advance. They ignore and deny until recession hits and then respond. However, now we have Greenspan and Yellen both forecasting gloom and doom. “Run for cover.” “Crisis on the horizon.” What a joke! Yellen remarked on her way out of Dodge that she didn’t think we would have another financially related crisis in our lifetime. Now, all of a sudden, she sees a series of crisis.

Is this all in the name of selling books? Goosing demand for their 6 figure speeches? Or, do they really believe this, but just outright lied to the public when they were in charge? No matter how you slice it, Janet Yellen and Alan Greenspan are embarrassments.

Trump’s Brilliance

I knew that headline would get you. It’s not often that people label Donald Trump as brilliant, but I am going to in one regard. While I absolutely detest his politization of the Fed, I do think it was a brilliant strategy to lay blame and prepare the country for a scapegoat. By criticizing, admonishing and disrespecting not only the Fed,  but also the guy Trump put in charge, the President has set the stage for one giant game of “I told you so” if the economy does fall into recession with stocks in a bear market in advance of the 2020 election.

By repeatedly challenging the Fed to stop raising interest rates, Trump will be able to blame Powell & Company for any and all economic issues between now and 2020. The President will campaign  that he knew this was a path to disaster and he absolutely did not support higher rates. Trump will then call for Powell’s replacement after Trump is reelected. And what happens if the economy does not recess? The President will smartly take credit as his policies of tax cuts and reduced regulations were so strong that they were even able to overcome horrific Fed policy.

It really is a brilliant strategy, whether intentional or not although I believe that President Trump will have other things to worry about come 2020 and the election.

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