Does the Fed know something we don’t?

Sometimes too much good news can be interpreted badly. Take the U.S. central bank’s about face on monetary policy late last year. That was good news and investors responded by bidding the stock market up by 20%. But this week we may have received even better news, or did we? The Fed did more than met investor’s expectation this week at the central bank’s monthly Federal Open Market Committee meeting. Chairman Jerome Powell indicated that there would be no more interest rate hikes for the remainder of the year (after saying back in December that two rate hikes were on the table for 2019). There was even some discussion that a rate cut might be possible, if conditions merited such a move. One would have thought that would send the markets flying, and they did, at least on Thursday. Friday, however, the opposite occurred. Granted, the reaction could simply be dismissed as a “sell on the news” moment or algos playing their daily games. If so, nothing more needs to be said. But I ask myself–why would Powell and the Fed be contemplating a rate cut? The news startled some analysts and left them asking questions. Is the economy weaker than most suspect? Has the slow-down in the global economy infected the U.S. as well? Afterall, the Fed did lower their forecast for GDP growth this year from 2.3% to 2.1%, but it is still growing, or is it? As most economists know, the economy is getting a little long in the tooth; we call it a “late cycle” market. One of the reasons you might want to cut...

Will pot stocks go up in smoke?

Today, medical marijuana is legal in 33 states, while recreational marijuana is legal in ten states, plus the District of Columbia. Although there has been progress, little of the recent enthusiasm and hype over pot stocks will come to naught unless the Federal government does a major about face and legalizes the substance. What are the chances of that? Billions of dollars’ worth of investment, stock market gains, and federal, state, and local taxes are at stake. Predicting the outcome of such a change in Federal legislation is, for now, like betting all your chips on red or black in a roulette game. Nonetheless, a growing number of retail investors want to “get in” on pot stocks. The calls and emails I get today are reminiscent of two years ago. Back then it was all about Bitcoin or some other crypto currency. As Bitcoin climbed (from a few hundred dollars to $20,000), the interest and demand to “get in” was almost hysterical. As you might imagine, most of those calls were made as Bitcoin hit new highs. Fast-forward to today and, while no one has called about a cryptocurrency in over a year with Bitcoin now around $4,000, pot stocks are all the rage. And like Bitcoin, few callers know anything about the marijuana industry. “What do I need to know? “said one client (an ancient hippie like me). “You put it your mouth, inhale, and bingo. You are high.” But smoking it is a lot different than investing in it. There is now a bewildering array of investment vehicles (and more coming every day) that confronts the up...

Two puts support the markets

What a difference one quarter can make in the stock market. Here we are in mid-March and stocks are back to almost where they were at the beginning of October. The trends have been supporting the bull’s case and investors seem happy to buy stocks. Readers should realize by now that there are two “puts” supporting this market. A “put,” in financial jargon, is an option that protects you and your investments from catastrophic losses. That’s not to say you can expect no downside, but at some point, the put will come into play and support the markets. Back in 2008-2009, the Fed’s massive monetary stimulus program characterized by record low interest rates and massive purchases of bonds, was seen as such a put. Two years ago, the Fed began to remove that support by raising interest rates and selling some of those bonds they had purchased over the years. The markets did not take kindly to that exercise, nor did the president. After a near 20% decline in equity prices last quarter, the Fed did an about face and re-instated that put by once again easing monetary policy. As a result, the markets also did an about face starting the day after Christmas. Donald Trump represents the second put working in your favor. Although he has never publicly stated it, the president regards the stock market as his barometer on how well or poorly he is running the country. Polls, he believes, are suspect and should be ignored (unless they happen to be in his favor). He reasons it is much harder to manipulate the stock market than...

Does our debt really matter?

The country’s national debt hovers at historically record highs, as the nation’s budget battle begins. It’s a pretty safe bet to expect another budget-busting compromise as well as a hefty increase to our already-overwhelming debt load. At times like this I wonder whether Americans are facing the prospect that someday the United States could be the world’s largest impoverished nation, and if so, does it really matter? Last week’s column examined the subject of debt, both private and domestic, and how large it has become. This week, I begin by asking why debt matters at all? On a personal level, we know the answer, but what about the nation? Debt has been a popular whipping boy for economists and politicians in this country for decades. At times, one or the other political party has found it expedient to become a champion of economic sobriety. Of course, once they recapture control of the government purse strings, they pretend amnesia. The Republicans, for example, spent eight years fighting the Democrats under President Obama on every dollar of proposed spending, except defense. Their argument back then was that any spending would increase the public debt and make it impossible to balance the budget. Republicans even refused to approve funding for our national debt limit and actually shut down the government in defense of what they called fiscal responsibility. Fast forward to 2016-2018, when the same party (and the exact same politicians) added more debt to the country than at any time in our history, while throwing the budget into the red by trillions of dollars. The president’s recent budget proposal only adds...

Pick your poison

Investors were greeted on Friday with two nasty surprises. Both occurred in February. Chinese exports dropped by 20.7%, while in the U.S., the nation added a dismal 20,000 jobs. As you might expect, the stock market did not take the news well. What really spooked traders was how far apart these numbers were to expectations. Over here, we were expecting 180,000 jobs to be added to the payroll number. In China, where the economy had been expected to weaken, exports had been forecasted to decline by 6%, versus the prior year. Before the ink had dried on the jobs data, the administration was already sending their point man on the economy, Larry Kudlow, the Director of the National Economic Council, on television to assure Wall Street that the February data was “fluky” and should be ignored. As for China, investors there took the Shanghai Composite down by 4.4% overnight. Japan dropped half of that (-2%), even after the government said its economy grew by 1.9% in the fourth quarter of last year. It also didn’t help that the European Central Bank lowered its forecasts yesterday for growth in the Eurozone and announced more stimulus measures to support the economy. Over the last two weeks, I have been warning readers to expect a pullback in the markets, nothing too serious, but maybe a 3-5% decline. If I were to take a guess, we could see the S&P 500 Index hit 2,700 or so, before we mellow-out. From there, it depends on how low those crazy algo- trading machines decide to take us. Where is John Connors when you need him?...