World On Hold for Fed

Yeah…sounds a bit Americentric and dramatic, and long too, but I always try to “call ’em like we sees ’em” around here.

Our Global Aggregate Index is up a mere 124 points for the week so far, and as we have explained the index to subscribers to our premium service, there is only just so much money in the world on any given week. 124 points out of just under 20,000 is friction losses or noise trading if anything.

Once you understand that, the crucial role of money supplies and manipulation begin to dig in and your ability to ‘see’ market movements in advance will evolve quickly.

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Until mid April, we have had a period of coordinated Central Bank looseness that seems to have come to a halt this month.  The result of this (money becomes more dear) is rates tended to firm since mid April.

As the Fed FOMC gavels in this morning, the problem they have is economic growth is not what was predicted.  The Trump Mantra about “making America Great again” sounds good and all.  But with a back-stabbing bunch of conservative democrats opposing him on the Hill, there’s been no meaningful new legislation.

Ergo, the GDP growth has fallen.

The Fed – along with other central banks – has really been “pouring on the coal” in terms of making ready cash available to “the big boys.”  But the problem here is that in doing so, the 10-year rates are stuck (as of the ^TNX Monday) around 2.33%. Markets are screaming “No Hike!”

Since the Fed applied the “monetary brakes” in April, the (pathetic) 2.179% lows in mid-April have edged up.

Consequently, the market now is voting to hold around present levels (though they may pull back a bit more) because we may be in Wave 1 of the final V up.

IF this is the case, then we already have a pretty good idea of where the blow-off highs will come this summer and we’ll roll them (and the new trading trend channel) out for subscribers tomorrow.  But we could go up another year, or more, as in 1928-1929.  (Missing is the 1929 tax cut so far, though.)

Meantime, there’s almost no point to sticking around for the Fed meeting comments tomorrow because they are not able to raise rates.  One percent chance, I reckon.

This is something we’ve seen coming for some time.

I’d refer you to Peoplenomics Issue 812-B of April 1, 2017.  “Are Fed Rate Hikes Over?”

It’s the updated version of pushing on a noodle.

In that article (over a month back!) I laid out a scary thought experiment which I’d like to share with you because it fits right in to the Long Wave Economic Outlook we track:

“It is axiomatic around here that the prices of bonds and the prices of stocks are roughly equal when it comes to return on investment at all times.

There are some adjustments to be understood, of course.

One reason that the Dow Jones Industrial’s dividends may tend to be slightly higher than, say, the interest paid on a 10-year bond, is because of stock price risk.

In other words, when you are trading stocks there is always the chance of a major downward stock market move. When the directional call goes wrong, total return to an investor declines. Sometimes precipitously.

Thus, to compensate for the riskier proposition of owning stock in a corporation, the dividend paid by a stock plus the trading risk (which is really a negatively signed number) should about equal whatever the bond is paying.

The Federal Reserve has a very touchy problem to deal with when facing the prospect of a potential rate increase this summer.

If the Fed makes another rate hike, consider what it will do to corporations: it will hammer them.

Corporations have been beneficiaries of the declining interest rate environment since the bond yields hit their highs in 1980. Having been in a 37-year long wave interest rate decline, the good times are about ready to hit the wall.

When the interest paid on a bond goes up, it means that corporations must find some way to make their proposition look equally enticing.

So how can they do that?

One way corporations can improve their prospects is to increase sales and/or reduce their cost of materials. So, if the bonds begin to pay 10% more than they are presently paying, then stocks must find a way to increase their sales such that dividends increase by a comparable 10%.

If they are not able to do this, however, there are other ways to skin the dividend cat: the least palatable of these is for the stock price to be slaughtered by the market and come down to a level to where the effective yields are again approximately equal after discounting for the price risk of stock trading.

There are other ways that corporations can do a better job of returning dividends to shareholders.

As my consigliere pointed out, most people are not familiar with the balance sheets of major American corporations. However, since he is both a tax attorney and certified public accountant, when he explains to me that interest costs are a huge portion of the corporate expense side of most publicly traded companies, I take him at his word.

To paraphrase his explanation, most large companies have been slowly restructuring their borrowing expenses as we have been settling in to the near-zero interest rate paradigm.

However, if the Fed raises rates again, that will put in a solid bottom in the lowering of corporate financial overhead.

Then that part of the corporate picture will reverse and stock prices will fall as interest expenses begin to bite into dividends.  I think  we are very close to that swing point now.”

You see that?  We about nailed the change in Fed Policy!

So to me, at least, it is a foregone conclusion that the Fed will mainly talk Fed-gibberish tomorrow.  The might say something like “We believe the economy is doing fine, but we are not yet raising rates until there is moreblah blah blah.

The problem is that they need to sound confident on the one hand (so people will keep investing in the future) but on the other there’s a screaming reality from the bond market:  When this much money has been sloshed into the system, rates don’t rise.

We pointed out last Saturday for subscribers that the M1 rate on a most-recent three months basis was up around 13.3% (yikes!) but in the sliding 13-week window had dropped to 8% and change.  Means money creation is slowing. Market rally should cool.

Still, this doesn’t mean the market can’t go up.

In fact, we see the talk today of a possible summit between Donald Trump and Kid Korea as being just the kind of headline that could power stocks higher regardless of Fed policy – to a degree and for a while.

But our expectations  today are simple: With our Aggregate Index up 124 points for the week, we should see a modest decline until the Fed mumbo-jumbo (which is sure to include something for everyone) comes out tomorrow.

After that?  Well, that’s why Thursday and Friday are so interesting because we will get a series of job reports starting tomorrow.

For what it’s worth, I’m back on the long side of things expecting stocks to go up.  We’re on a semi parabolic path, more muted than the 1928 analog, but less so when you correct out the differences due to the six day-a-week trading in the historical period.


Even if you don’t “Play the Market” it’s still worth following all this because it’s more like a “Snap-Circuits” kit.  Economics doesn’t easily fit into idiot-level SMS chatter as we screamed about in this morning’s Coping section.

But it does impact jobs, contributions to Social Security and a pile of other geared relationships which, again, require thought and connecting more than SMSBS or serial tweets.

The Big War: Turning of the Screw Dept.

Read-worthy headline: “FBI translator married ISIS terrorist she was supposed to investigate.”

Also see: Jailed: Cyber-terrorist Samata Ullah who used James Bond-style cufflinks to hide Isis propaganda.

Oh, yeah:  Skip Europe this summer.  State Department has issued an extremely rare blanket travel warning:

Recent, widely-reported incidents in France, Russia, Sweden, and the United Kingdom demonstrate that the Islamic State of Iraq and ash-Sham (ISIS or Da’esh), al-Qa’ida, and their affiliates have the ability to plan and execute terrorist attacks in Europe.  While local governments continue counterterrorism operations, the Department nevertheless remains concerned about the potential for future terrorist attacks.  U.S. citizens should always be alert to the possibility that terrorist sympathizers or self-radicalized extremists may conduct attacks with little or no warning.

Extremists continue to focus on tourist locations, transportation hubs, markets/shopping malls, and local government facilities as viable targets.  In addition, hotels, clubs, restaurants, places of worship, parks, high-profile events, educational institutions, airports, and other soft targets remain priority locations for possible attacks.  U.S. citizens should exercise additional vigilance in these and similar locations, in particular during the upcoming summer travel season when large crowds may be common.

Terrorists persist in employing a variety of tactics, including firearms, explosives, using vehicles as ramming devices, and sharp-edged weapons that are difficult to detect prior to an attack.

The facts seem to argue my case that there’s a war on, it is transnational in scope and anyone who doesn’t see it is a retard.

But we have no shortage of those, so let’s move on to…

Trump Bash du Jour

Litigious Society discussion:  Now the (hand-wringing) Left is looking at lawsuits against Trump for the Bikers for Trump isolation of protesters/provocateurs at the Harrisburg deal last weekend.

Here’s the Reality:  the Founders loved FREE SPEECH.  But that doesn’t give anyone the RIGHT TO INTERUPT OR DISRUPT Or ATTEMPT TO SILENCE anyone else’s.


The radicals in America think – since they are the sole arbiters of what’s wholesome and allowable – that THEY AND ONLY THEY should have disruptive speech rights.

Wrong, bucko.

NO ONE has them.  To deliberately go to the oppositions event to hijack a peaceably assembled group is no more allowable when it’s anti-Trumpers or BLM.

Not that anyone under 40 will understand this, since in the dumbed-down country once called America, this is no longer driven home in civics classes.  Only civics that matter are Hondas.

It’s all teaching free-for all and get whatever plumbing changes you feel like this week and we’ll find some way to stick the taxpayers for it.

Yeah think of it as NBSC – new bullshit civics.

Dear Santa Monica Cowboys

I couldn’t help but notice that a lousy 3.0 earthquake in Santa Monica is BIG NEWS.

Flyover country reality:  There have been 12 earthquakes in the past week in “fracking country” up in Oklahoma.  Two of those were 3.0 and larger.  See anything in the press?  Hell no.  Not even in OKC for the most part.

Left Coast?  Hysteria!  Monetization opportunity:  Everyone run from street!  The quakes are coming!  The Quakes are coming!

My God.  I can see it now:  “Quake injury reported and Santa Monica as supermodel reports “Quake broke my fingernail!”

Jeez…cowboy the f*** up.

(Or cowgirl…I mean this is California…sheesh  Hmmm, lest we be sued by the rads I suppose we could throw in arriba vaquero and arriba vaquera…and for our undervetted new arrivals aistajmae qawak.  Did I leave anyone out?  Oh yeah: kovboy aroyf, which might get a laugh at our favorite deli (Jerry’s) out on Ventura, or not.)

Coffee and a blintz?

12 thoughts on “World On Hold for Fed”

  1. George, you seem to blame a lot of folks for a lot of stuff. Perhaps you’ve forgotten that Your Team is now driving the bus? The Republicans have control of all three branches of the government, and have chucked the 60 vote threshold in the Senate. Last time this happened, your team broke the Middle East and gave us the Great Recession. Hopefully it goes a bit better this time. Best, Mike.

    • My “team” is not driving. Micreant, improperly labeled conservative dems who couldn’t get elected dog catcher as dems are today’s rogue repubs. So sorry, small central gov, balanced budget, growth and prosperity at home, slow globalism…that’s my party.
      I don’t know what to call the congressional pileup, but it ain’t “my party driving”

    • your slag line, best….what a joke, the joke of the day, between you and jon it’s a laugh a comment column here for us old geezers!

  2. RE: ISIS, al Qaeda and a war being on – it can be argued that the war is a revolutionary/guerilla/religious war vice a more traditional force-on-force one. Still, there are lessons American leaders can glean from studying their own revolution, how it was fought and ultimately won which would help form a viable strategy for victory (or at least prevent defeat) against the radical Islamist revolutionaries. Britain lost against their former American colonies primarily due to the length of the conflict placing a severe strain on supply lines and political resolved, combined with the intervention of France as a viable American ally near the end of the conflict. At this point, the strain for Britain became too great. The rebels achieved victory at Yorktown, effectively ending the war. The Middle Eastern Islamic revolutionary war leadership depends more upon the destitute and the poor to man their seemingly amorphous, rag tag armies. This model for rebellion will be slower due to the lack of a large, well equipped army and a major national ally to provide the necessary ‘force on force’ knockout punches. But that does not mean the radical Islamists are doomed to ultimately fail. Perseverance is a virtue during a revolution, plus religious underpinnings tend to fan the flames hotter and longer than the usual politically based ideological war. Victory for America and her allies depends upon their ability to adapt fighting techniques and strategies combined with steadfast alliances. For ISIS and al Qaeda, victory is living to fight another day. Winning even the smallest battle provides enormous propaganda and recruiting value.

  3. “Catherine Austin Fitts believe the real US GDP is around $5tn after taking out financial engineering and govt. spending.

    If she is correct, and I think so, the illusion is far bigger than even cynics like us think.”

    Above is a reader comment on this article. Google Catherine Austin Fitts if you don’t know who she is.

    The only value the fed report has is that it goes into the algorithms that do 80% of the trades that occur. Otherwise, you are trading in a market where only 17% of the increase in stock prices the past few years is based on real growth and profitability, the rest is accounting games, stock buybacks and outright fraud.

    I am so grateful I don’t need to swim in a pool filled with fecal matter to support my lifestyle.

    • I know CAF, but do we want a country with no govt spending?
      not in my world.
      gov has a proper roll – but making up their own budget? Well not so much

  4. It’s like you and I talked about – too many news and weather channels doing anything to garner an audience.

    That’s why we have newscasters here in Houston that stand in ankle or knee deep water, pointing to a flooded street….and then a car drives by in the background and the axle hubs are not even submerged…

    I wish there was a way to show the green screen that weather channel and CNN love to use and make it show up on the TV. Then people would have an idea of how often they get duped by slick video compositing. And the only reason for this is to “make news”; make it look like a guy is somewhere he isn’t so they don’t have to pay travel expenses for the camera crew.

    I saw the same video of a hurricane on two channels, but the guy supposedly “on scene” was different – yet the exact same background footage…

    It is so tiresome trying to separate the unending bullsh%t and lies from tiny kernels of truth that watching news is painful. And then there is the non-stop talking head circus, telling people what this means and that indicates. It’s sad, but even the Weather Channel has gone full retard doing this stuff.

    If it is truly news, I tend to hear about it from other people – like when there is a rapist loose or there was a real serious earthquake. Watching TV one would think the world is ending – daily…

  5. ”Don’t take offense, but that neighborhood has too many white people. They bring down the test scores in the schools.”
    I think you’re on to something? It’s this damn integration, isn’t it?? ;-))

  6. Hmm after that rant the only thing that can be said is your family has my sympathy has to be hard to live with a man that walks on water..

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