***SPECIAL Fed Update – It Doesn’t Get Much Better Than This***

Stock Market Behavior Models for the Day

As with every Federal Open Market Committee (FOMC) statement day, there is a model for the stock market to follow pre and post announcement. Certain environments have very strong tendencies while others do not. Over the past few meetings, many of the strongest trends were muted but today is at least a little different.

As with most statement days, the model for the day calls for stocks to return plus or minus 0.50% until 2:00 PM. There is a 90% chance that occurs. If the stock market opens outside of that range which seems very unlikely today, there is a strong trend to see stocks move in the opposite direction until 2:00 PM. For example, if the Dow opens down 1%, the model says to buy at the open and hold until at least 2:00 PM.

Last meeting stocks rallied to their highest level in 50 days, thereby muting a strong trend. Today, we do not have the same regime. There is a strong trend in play for stocks to rally on statement day and especially after 2 PM.

After the last meeting on June 13, I mentioned that a trend may be in play for stocks to decline. That trend ended up working out very well as the S&P 500 went from 2780 to 2700 in the two weeks after the meeting. That trend is very unlikely to be active after today.

Powell & Co. to Stand Pat Today

After raising interest rates by 0.25% 6 weeks ago, Jay Powell and company won’t be undertaking any action after today’s meeting.  Markets will be paying very close attention to the statement released for clues about the Fed’s thinking for the rest of 2018. As I have mentioned all year, the likelihood is for four rates hikes this year with the next two coming in September and December. I just continue to chuckle and shake my head when I recall how many pundits changed their views to two or even a single rate hike when stocks were declining in February. They were better off just saying they didn’t have strong conviction rather than chase interest rates like lemmings.

That’s the problem with the vast majority of analysts; they focus too much on what is currently happening and lose sight of the intermediate-term and the big picture. Then, they get amnesia and revise history to never be wrong. I have never had a problem standing by forecasts, even when I end up being wrong. It’s all part of the business. Some I get right with precision accuracy while others I have fall flat on my face. Get up, move on and learn.

Economically, things are pretty firm right now with strong Q2 GDP growth, record corporate profits, inflation back up in the zone and more jobs open than people to fill them. Consumer confidence and consumer sentiment are at or near record highs. Only the tariffs are holding back the economy. In some way, it doesn’t get much better than this. Reread that last sentence. That’s the one that concerns me a little bit, not so much for the next few quarters, but certainly as we get into the middle of 2019. If it can’t get much better than this, it only has one way to go although recessions do not begin with data like this. It takes time for bad behavior to permeate the system and confidence to become exuberance.

Fed Arrogance & Ignorance Keeps on Truckin’

To reiterate what I have said for more than a year but a little more bluntly, the Fed is misguided, arrogant and in desperate need of help. NEVER before have they sold balance sheet holdings in the open market AND raised interest rates. In fact, I don’t think it’s ever been done in the world before. So why on earth do they believe they will so easily be successful? This grand experiment is going to end poorly and we are all going to suffer at the hands of the next recession which I stabbed in the dark as beginning between mid 2019 and mid 2020.

Yes, with banks holding $2.5 trillion on their balance sheets, the recession should be mild and look nothing like 2007-2009. And yes, this expansion will be more than 10 years old. And yes, there will be some external trigger like 9-11 or the S&L Crisis to push the economy over. This time, it could be tariffs or a European banking crisis. But the Fed will have greased the skids sufficiently for the economy to recess.

Let’s remember that the Fed was asleep at the wheel before the 1987 crash. In fact, Alan Greenspan, one of the worst Fed chairs of all-time, actually raised interest rates just before that fateful day, stepping on the throat of liquidity and turning a routine bull market correction into a 30% bear market and crash. In 1998 before Russia defaulted on her debt and Long Term Capital almost took down the entire financial system, the Fed was raising rates again. Just after the Dotcom Bubble burst in March 2000, ole Alan started hiking rates in May 2000. And let’s not even go to 2007 where Ben Bernanke whom I view as one of the greats, proclaimed that there would be no contagion from the sub prime mortgage collapse.

Yes. The Fed needs to stop.

Velocity of Money Most Important

Below is a chart I have shown at least quarterly since 2008. With the exception of a brief period from mid 2009 to mid 2010, the velocity of money collapsed. It’s still too early to conclude, but it does look like it stopped going down in 2017 and might be just slightly starting to turn up as you can see on the second chart of M2V since 2008. If 2017 does turn out to be the bottom, this would also coincide with the bottom of the commodity cycle which I have discussed and should lead to a massive commodity boom over the coming decade, especially in the non-energy products.

In the easiest terms, M2V measures how many times one unit of currency is turned over a period of time in the economy. As you can see, it’s been in a disastrous bear market since 1998 which just so happens to be the year where the Internet starting becoming a real force in the economy. Although it did uptick during the housing boom as rates went up, it turned out to be just a bounce before the collapse continued right to the present.

These two charts definitely speak to some structural problems in the financial system. Money is not getting turned over and desperately needs to. The economy has been suffering for many years and will not fully recover and function normally until money velocity rallies. This is one chart the Fed should be focused on all of the time.

It would be interesting to see the impact if the Fed stopped paying banks for keeping reserves with the Fed. That could presumably force money out from the Fed and into loans or other performing assets. It continues to boggle my mind why no one called the Fed out on this and certainly not Powell so far at his quarterly press conferences.

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***SPECIAL Fed Update – Continued Arrogance & Pomposity Spells Recession***

Stock Market Behavior Models for the Day

As with every Federal Open Market Committee (FOMC) statement day, there is a model for the stock market to follow pre and post announcement. Certain environments have very strong tendencies while others do not. Over the past few meetings, many of the strongest trends were muted and today is no different.

As with most statement days, the model for the day calls for stocks to return plus or minus 0.50% until 2:00 PM. There is a 90% chance that occurs. If the stock market opens outside of that range, there is a strong trend to see stocks move in the opposite direction until 2:00 PM. For example, if the Dow opens down 1%, the model says to buy at the open and hold until at least 2:00 PM.

With stocks  rallying strongly and closing at the highest level in more than 50 days, the usual post 2:00 PM rally has been reduced to slightly more than a coin flip, not exactly the big edge we are used to trading. However, with this strength, an opportunity for a decline opens up depending on how stocks close today.

Second Rate Hike of 2018  Today

The Fed is going to raise the Federal Funds Rate by 0.25% today. That’s almost 100% certain. Markets will be paying very close attention to the statement and Q&A from Chairman Jay Powell to glean what’s on their mind the rest of the year. With the usual Q1 sub-par GDP growth out of the way, Q2 and Q3 look to be much stronger. Additionally, May inflation numbers came in a little hot on both the consumer (CPI) and producer (PPI) side. With the PPI outpacing the CPI, companies are not able to fully pass along price increases to the consumer which is good for the consumer but not so good for companies who will see their margins squeezed somewhat. In turn, this could put some pressure on earnings down the road.

Back in January, I forecast 3.5 rate hikes this year with the risk to the upside. I am standing by that and I haven’t wavered for even a day when the pundits were out in full force during the February stock market decline cutting their rate hike forecasts to just one more in 2018. That’s the problem with the vast majority of analysts; they focus too much on what is currently happening and lose sight of the intermediate-term and the big picture. Then, they get amnesia and revise history to never be wrong. I have never had a problem standing by forecasts, even when I end up being wrong. It’s all part of the business. Some I get with precision accuracy while others I have fallen flat on my face. Get up, move on and learn.

Anyway, the likely scenario is another hike in September as well as December where I look for the Fed to begin patting themselves on the back for a job well done.

To reiterate what I have said for more than a year but a little more bluntly, the Fed is misguided, arrogant and in desperate need of help. NEVER before have they sold balance sheet holdings in the open market AND raised interest rates. In fact, I don’t think it’s ever been done in the world before. So why on earth do they believe they will so easily be successful? This grand experiment is going to end poorly and we are all going to suffer at the hands of the next recession which I stabbed in the dark as beginning between mid 2019 and mid 2020.

Yes, with banks holding $2.5 trillion on their balance sheets, the recession should be mild and look nothing like 2007-2009. And yes, this expansion will be more than 10 years old. And yes, there will be some external trigger like 9-11 or the S&L Crisis to push the economy over. But the Fed will have greased the skids sufficiently for the economy to recess.

Let’s remember that the Fed was asleep at the wheel before the 1987 crash. In fact, Alan Greenspan, one of the worst Fed chairs of all-time, actually raised interest rates just before that fateful day, stepping on the throat of liquidity and turning a routine bull market correction into a 30% bear market and crash. In 1998 before Russia defaulted on her debt and Long Term Capital almost took down the entire financial system, the Fed was raising rates again. Just after the Dotcom Bubble burst in March 2000, ole Alan started hiking rates in May 2000. And let’s not even go to 2007 where Ben Bernanke whom I view as one of the greats, proclaimed that there would be no contagion from the sub prime mortgage collapse.

Yes. The Fed needs to stop.

Velocity of Money Most Important

Below is a chart I have shown at least quarterly since 2008. With the exception of a brief period from mid 2009 to mid 2010, the velocity of money collapsed. It’s still too early to conclude, but it does look like it stopped going down in 2017 and might be just slightly starting to turn up as you can see on the second chart of M2V since 2008. If 2017 does turn out to be the bottom, this would also coincide with the bottom of the commodity cycle which I have discussed and should lead to a massive commodity boom over the coming decade, especially in the non-energy products.

In the easiest terms, M2V measures how many times one unit of currency is turned over a period of time in the economy. As you can see, it’s been in a disastrous bear market since 1998 which just so happens to be the year where the Internet starting becoming a real force in the economy. Although it did uptick during the housing boom as rates went up, it turned out to be just a bounce before the collapse continued right to the present.

These two charts definitely speak to some structural problems in the financial system. Money is not getting turned over and desperately needs to. The economy has been suffering for many years and will not fully recover and function normally until money velocity rallies. This is one chart the Fed should be focused on all of the time.

It would be interesting to see the impact if the Fed stopped paying banks for keeping reserves with the Fed. That could presumably force money out from the Fed and into loans or other performing assets. It continues to boggle my mind why no one called the Fed out on this and certainly not Yellen at her quarterly press conferences. Hopefully, someone will question Chairman Powell on this today.

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***SPECIAL Fed Update – Fed’s Arrogance & Pomposity Leading to Recession Watch***

Stock Market Behavior Models for the Day

As with every Federal Open Market Committee (FOMC) statement day, there is a model for the stock market to follow pre and post announcement. Certain environments have very strong tendencies while others do not. Over the past few meetings, many of the strongest trends were muted.

As with most statement days, the model for the day calls for stocks to return plus or minus 0.50% until 2:00 PM. There is a 90% chance that occurs. If the stock market opens outside of that range, there is a strong trend to see stocks move in the opposite direction until 2:00 PM. For example, if the Dow opens down 1%, the model says to buy at the open and hold until at least 2:00 PM.

With stocks somewhat on the defensive lately, the next model calls for stocks to close higher today and rally after 2:00 PM. That is usually a very strong trend, 80%+, but it would have been stronger in magnitude had Tuesday’s early weakness not been overcome. Last meeting, this trend did not work as early strength on Fed day was sold in to and then piled on.

Rate Hike – One Down, Three to Go

The Fed is going to take no action today. At best, their commentary will be benign. At worst, Powell and company will upgrade their economic forecast which will also increase the likelihood for three or even four more rate hikes this year. June becomes the “live” meeting where rates should go up by another 1/4%. Then September and December. Back in January, I forecast 3.5 rate hikes this year with the risk to the upside. I am standing by that.

To reiterate what I have said for more than a year but a little more bluntly, the Fed is misguided, arrogant and in desperate need of help. NEVER before have they sold balance sheet holdings in the open market AND raised interest rates. In fact, I don’t think it’s ever been done in the world before. So why on earth do they believe they will so easily be successful? This grand experiment is going to end poorly and we are all going to suffer at the hands of the next recession which I stabbed in the dark as beginning between mid 2019 and mid 2020.

Yes, with banks holding $2.5 trillion on their balance sheets, the recession should be mild and look nothing like 2007-2009. And yes, this expansion will be more than 10 years old. And yes, there will be some external trigger like 9-11 or the S&L Crisis to push the economy over. But the Fed will have greased the skids sufficiently for the economy to recess.

Let’s remember that the Fed was asleep at the wheel before the 1987 crash. In fact, Alan Greenspan, one of the worst Fed chairs of all-time, actually raised interest rates just before that fateful day, stepping on the throat of liquidity and turning a routine bull market correction into a 30% bear market and crash. In 1998 before Russia defaulted on her debt and Long Term Capital almost took down the entire financial system, the Fed was raising rates again. Just after the Dotcom Bubble burst in March 2000, ole Alan started hiking rates in May 2000. And let’s not even go to 2007 where Ben Bernanke whom I view as one of the greats, proclaimed that there would be no contagion from the sub prime mortgage collapse.

Yes. The Fed needs to stop.

Velocity of Money Most Important

Below is a chart I have shown at least quarterly since 2008. With the exception of a brief period from mid 2009 to mid 2010, the velocity of money collapsed. It’s still too early to conclude, but it does look like it stopped going down in 2017 and might be just slightly starting to turn up. If 2017 does turn out to be the bottom, this could could eventually lead to the commodity boom I see for the 2020s, especially ex energy.

In the easiest terms, M2V measures how many times one unit of currency is turned over a period of time in the economy. As you can see, it’s been in a disastrous bear market since 1998 which just so happens to be the year where the Internet starting becoming a real force in the economy. Although it did uptick during the housing boom as rates went up, it turned out to be just a bounce before the collapse continued right to the present.

This single chart definitely speaks to some structural problems in the financial system. Money is not getting turned over and desperately needs to. The economy has been suffering for many years and will not fully recover and function normally until money velocity rallies. This is one chart the Fed should be focused on all of the time.

It would be interesting to see the impact if the Fed stopped paying banks for keeping reserves with the Fed. That could presumably force money out from the Fed and into loans or other performing assets. It continues to boggle my mind why no one called the Fed out on this and certainly not Yellen at her quarterly press conferences. Hopefully, someone will question Chairman Powell on this next month.

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***SPECIAL Fed Update – Rates Are Going Up Again & Then Some***

Stock Market Behavior Models for the Day

As with every Federal Open Market Committee (FOMC) statement day, there is a model for the stock market to follow pre and post announcement. Certain environments have very strong tendencies while others do not. Over the past few meetings, many of the strongest trends muted although the system that said to sell on the close of the meeting hit a home run. The S&P immediately crashed from 2824 to 2645 or 6% during this quarter’s big market swoon. To be fair, although 6% was the return for the system, it certainly wasn’t due to the post-FOMC trend that the trade was based on. Sometimes, it’s better to be lucky than good!

As with most statement days, the model for the day calls for stocks to return plus or minus 0.50% until 2:00 PM. There is a 90% chance that occurs. If the stock market opens outside of that range, there is a strong trend to see stocks move in the opposite direction until 2:00 PM. For example, if the Dow opens down 1%, the model says to buy at the open and hold until at least 2:00 PM.

With stocks somewhat on the defensive lately, the next model calls for stocks to close higher today and rally after 2:00 PM. That is usually a very strong trend, 80%+, especially after seeing weakness into statement day (today).

Rate Hike Coming Today – At Least 3 More On The Way After

This is Chairman Jay Powell’s first meeting as chairman. History has shown that markets typically test newly confirmed chairs very early in their term and 2018 was no different as stocks immediately collapsed in early February as Powell assumed the reigns. The change from Yellen to Powell should be fairly seamless as their views were very much in line. I do not expect Powell to deviate much from Yellen’s course.

As such, everyone is expecting another 1/4% rate hike today at 2 pm.

In my 2018 Fearless Forecast, I called for 3.5 interest rate hikes by the Fed this year. With the data so far this year, I am sticking with that forecast with the risk to the upside, meaning that four or an outside shot at five hikes could be in the cards.

After announcing their hike today, I also expect Powell et al to slightly upgrade their economic forecast, continuing to lay the groundwork for higher short-term interest rates. At the same time the Fed will forge ahead with their program to reduce the size of their massive balance sheet, accumulated through three rounds of quantitative easing. As I have said too many times to count, this experiment is going to end very badly.

The Fed should have chosen one or the other. Hike rates or sell assets. Conducting both is an horrendous decision in my view. There is absolutely no doubt in my mind that recession is going to hit by the election of 2020. While it may be mild like we saw after 9-11, it will still hurt. And the Fed’s fingerprints will be all over this as they have before every single recession of the modern era. It seems like the Fed just can’t help themselves. They are destined to screw up economic expansions. Of course, there is always some external final catalyst like the financial crisis, 9-11, S&L crisis, etc. However, the Fed has always been hiking rates right into those events, long after common sense dictated a pause.

Let’s remember that the Fed was asleep at the wheel before the 1987 crash. In fact, Alan Greenspan, one of the worst Fed chairs of all-time, actually raised interest rates just before that fateful day, stepping on the throat of liquidity and turning a routine bull market correction into a 30% bear market and crash. In 1998 before Russia defaulted on her debt and Long Term Capital almost took down the entire financial system, the Fed was raising rates again. Just after the Dotcom Bubble burst in March 2000, ole Alan started hiking rates in May 2000. And let’s not even go to 2007 where Ben Bernanke whom I view as one of the greats, proclaimed that there would be no contagion from the sub prime mortgage collapse.

Yes. The Fed needs to stop.

Velocity of Money Most Important

Below is a chart I have shown at least quarterly since 2008. With the exception of a brief period from mid 2009 to mid 2010, the velocity of money collapsed. It’s still too early to conclude, but it does look like it stopped going down in 2017 and might be just slightly starting to turn up. If 2017 does turn out to be the bottom, this could could eventually lead to the commodity boom I see for the 2020s, especially ex energy.

In the easiest terms, M2V measures how many times one unit of currency is turned over a period of time in the economy. As you can see, it’s been in a disastrous bear market since 1998 which just so happens to be the year where the Internet starting becoming a real force in the economy. Although it did uptick during the housing boom as rates went up, it turned out to be just a bounce before the collapse continued right to the present.

This single chart definitely speaks to some structural problems in the financial system. Money is not getting turned over and desperately needs to. The economy has been suffering for many years and will not fully recover and function normally until money velocity rallies. This is one chart the Fed should be focused on all of the time.

It would be interesting to see the impact if the Fed stopped paying banks for keeping reserves with the Fed. That could presumably force money out from the Fed and into loans or other performing assets. It continues to boggle my mind why no one called the Fed out on this and certainly not Yellen at her quarterly press conferences. Hopefully, someone will question Chairman Powell on this!

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And Stocks Go Down AGAIN

More than a week ago, I started discussing the idea that a trading range was setting in with modestly lower and higher prices as the range. For a few session, stocks blew right past that idea. Before today, the stock market had very, very quietly pulled back for four sessions without much fanfare except for some weak internal readings.

That all changed as a solid employment report with finally some real wage growth further spooked the bond market, sending yields on the 10 year note to 2.85%. There is fear that 3% will be next and that will make bonds more attractive again and give stocks competition. I don’t buy that at all.

The issue is not that yields hit 2.85%, but rather that they are doing it in spike fashion. If yields had taken two steps and one step back on their way to 2.85% in orderly and boring fashion, I doubt the stock market would really care. It’s the same thing with oil. When oil either surges or plummets, the stock market usually follows suit. Markets are very good at adjusting and adapting to new levels as long as they get there slowly and orderly.

The long, long, long awaited stock market pullback is here. It should be a mid single digit affair and conclude by the end of the quarter. Because of how large the numbers are on the Dow, the point decline will make headlines. But remember, the Dow is down 4% right now and that’s over 1000 points. It’s not the end of the bull market and certainly not the end of the world.

Friday selloffs always concern people because they have snowballed in the past. Wherever stocks close on Friday, it is unlikely to mark the final bottom. Dow 25,000 is a logical target. The volatility Genie is out of the bottle and should be the rest of the year. Pullbacks are good to allow you to jettison investments that are lagging or you no longer like to rotate into better performing or higher quality ones.

Anyone still talking about the “melt up”???

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Fed Statement Day Disappoints. Defensive Groups Lead.

Fed statement day was certainly atypical and a volatile affair. Early strength was sold into which accelerated after the 2pm announcement. And Just when it looked like the bears would turn the day into a rout, the 3pm bell rung and the bulls came roaring back to life. What was most interesting was that while the Fed didn’t say much in their statement and actually was slightly more positive on the economy, it was the defensive groups, like REITs and utilities that acted the best on the day.

Two very reliably bullish short-term studies did not deliver on statement day which sets up a mildly negative trend for today and possibly longer. Keep in mind that the bull market remains intact as does this leg of the bull market. The rally is not over just yet. Leadership continues to be strong and only high yield bonds are offering any warning. It will be interesting to see if the defensive groups stay strong today, not to mention on Friday when we have the employment report. Unless it really lays an egg, the Fed will be raising rates 6 weeks from now.

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Fed’s Arrogance Will Lead to Disaster for Economy

Stock Market Behavior Models for the Day

As with every Federal Open Market Committee (FOMC) statement day, there is a model for the stock market to follow pre and post announcement. Certain environments have very strong tendencies while others do not. Over the past few meetings, many of the strongest trends immediately before and after were muted except for a modest post FOMC trend last meeting which called for mild weakness the very next day. The S&P 500 lost 10 points or -0.40%.

After the stock market’s decline over the past two days, one FOMC trend said to buy yesterday’s close. That was a strong signal. I was really hoping for a lower opening today for a few reasons. First, the third straight lower open is usually a good buying opportunity in a bull market. Second, it would have triggered a number of bullish short-term studies for the next one to two weeks. Finally and most importantly, a lower open would trigger two of the most powerful FOMC trends to buy the S&P 500 at the open. As Robert Burns said “the best laid plans of mice and men often go awry”. Stocks seem poised to bounce back at the open rather than decline.

As with most statement days, the model for the day calls for stocks to return plus or minus 0.50% until 2:00 PM. There is a 90% chance that occurs. If the stock market opens outside of that range, there is a strong trend to see stocks move in the opposite direction until 2:00 PM. For example, if the Dow opens down 1%, the model says to buy at the open and hold until at least 2:00 PM.

The next model calls for stocks to close higher today and rally after 2:00 PM. That is usually a very strong trend, 80%+, especially after seeing weakness into statement day (today). Finally, assuming stocks close higher today, there is a trend setting up for a post statement day decline, but that is not a certainty just yet.

No Rate Hike But All the Wrong Moves for Yellen & Co.

This is Chair Janet Yellen’s final meeting as chairman as well as final meeting sitting on the FOMC. With the Fed raising interest rates only 6 weeks ago, today’s meeting should be very unexciting. The next real opportunity for a rate hike will come at the March meeting. Remember, the Fed forecast one to two rate hike in 2018. I continue to believe the risk is to the upside for three to four increases.

Remember the Tom Cruise movie, “All the Right Moves”? It was a football movie set in steel country PA with Cruise having to make a number of life decisions. Well, if the Fed’s plan was a movie, I would title it “All the Wrong Moves”. Their academic arrogance has sprung up again and it will not end well for our economy.

I want to stop for a moment and rehash an old, but still troubling theme. I am absolutely against the Fed hiking interest rates AND reducing the size of its balance sheet at the same time. It’s an unprecedented experiment and the Fed doesn’t have a good track record in this department. Pick one or the other. Stop worrying about ammunition for the next crisis. Given that the Fed has induced or accelerated almost every single recession of the modern era, I have no doubt that the recession coming before the 2020 election will certainly have the Fed’s fingerprints on it with their too tight monetary policy experiment.

Let’s remember that the Fed was asleep at the wheel before the 1987 crash. In fact, Alan Greenspan, one of the worst Fed chairs of all-time, actually raised interest rates just before that fateful day. In 1998 before Russia defaulted on her debt and Long Term Capital almost took down the entire financial system, the Fed was raising rates again. Just after the Dotcom Bubble burst in March 2000, ole Alan started hiking rates in May 2000. And let’s not even go to 2007 where Ben Bernanke whom I view as one of the greats, proclaimed that there would be no contagion from the sub prime mortgage collapse.

Yes. The Fed needs to stop.

Velocity of Money Most Important

Below is a chart I have shown at least quarterly since 2008. With the exception of a brief period from mid 2009 to mid 2010, the velocity of money collapsed. It’s still too early to conclude, but it does look like it stopped going down in 2017. In the easiest terms, M2V measures how many times one unit of currency is turned over a period of time in the economy. As you can see, it’s been in a disastrous bear market since 1998 which just so happens to be the year where the Internet starting becoming a real force in the economy. Although it did uptick during the housing boom as rates went up, it turned out to be just a bounce before the collapse continued right to the present.

This single chart definitely speaks to some structural problems in the financial system. Money is not getting turned over and desperately needs to. The economy has been suffering for many years and will not fully recover and function normally until money velocity rallies. Without this chart turning up, I do not believe the Fed will create sustainable inflation at 2% or above. This is one chart the Fed should be focused on all of the time.

It would be interesting to see the impact if the Fed stopped paying banks for keeping reserves with the Fed. That could presumably force money out from the Fed and into loans or other performing assets. It continues to boggle my mind why no one calls the Fed out on this and certainly not Yellen at her quarterly press conference. In March, perhaps someone will question Chair Powell on this!

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Bulls Remain In Charge

Stocks came back from the semi-holiday weekend in good spirits, at least for the morning. There was no follow through though as a post-Thanksgiving hangover is usually the theme for the first day or two of the new week.  We still have a variety of crosscurrents over the very, very short-term, but looking out one to three months, the picture is positive.

As you know, it’s very difficult to see an end of year decline, especially when the year has been up. Additionally, December is usually an up month when it begins in an uptrend as defined by price being higher than the average price of the past 200 days. Remember, mutual funds typically close their books their books at the end of October and often square up gains and losses. Additionally, in an up year investors will often wait to take gains until the new year to forestall paying capital gains. Finally, companies rarely warn regarding earnings in December. It would really take an exogenous event to cause a meaningful decline next month.

Given all that, the ongoing theme remains to buy any and all weakness until proven otherwise. In “normal” years, stocks will see a very mild pullback early in December where small caps become the leader to year-end and into January. 2017 has certainly not been a “normal” year as volatility as been essentially nil.

On a separate and final note, Jay Powell’s Senate confirmation hearing to succeed Janet Yellen as Fed chair is today. I would be absolutely shocked if Powell made any unexpected comments that impacted stocks. It should be very ho hum.

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