As I’ve written for many months now, the one thing that I said the Federal Reserve could do to prevent a stock market crash and economic recession in 2019 is to immediately stop raising rates. It’s not so much about trade wars as the corporate America mouthpiece CNBC would have you think. It’s mostly about interest rates and today’s market action proved that.
The one thing that the Federal Reserve could do to prevent a stock market crash, they did today in a speech from Jerome Powell. Here is what Powell said that caused the stock market to soar higher today.
The health of the economy gradually but steadily improved, and about three years ago the FOMC judged that the interests of households and businesses, of savers and borrowers, were no longer best served by such extraordinarily low rates. We therefore began to raise our policy rate gradually toward levels that are more normal in a healthy economy. Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy–that is, neither speeding up nor slowing down growth. My FOMC colleagues and I, as well as many private-sector economists, are forecasting continued solid growth, low unemployment, and inflation near 2 percent.
Unbelievable flip-flop from Powell. He went from one interest rate hike in December 2018, and 3 to 4 more hikes in 2019, to we are just below the neutral rate. Wow! Powell is actually wrong. As I said earlier this year, March 2018 should have been the last rate hike. That was when we were at the neutral rate. When Powell hiked in June 2018, the home construction ETF had just had a Burial Cross a month before that in May 2018. The June 2018 rate hike caused the economy to contract at a very fast clip. That was how I knew we had already hit the neutral rate.
President Trump was absolutely correct to criticize the Fed for hiking too far, too fast. That’s not an opinion, that’s a fact based on objective economic data and empirical stock market data. Only people who have an agenda of knocking Republicans out of power don’t see that.
TODAY’S MARKET ACTION PROVES THAT PRESIDENT TRUMP AND I WERE RIGHT ABOUT THE FED HIKING BEYOND THE NEUTRAL RATE IN EARLY 2018 THAT CAUSED THE ECONOMY AND MARKET TO TURN DOWN.
GM’s laying off workers. But again, corporate America channels like CNBC are extremely dishonest. Instead of attacking GM for spending $10 billion on share buybacks since 2015 which is more than double what it would cost to keep American jobs, CNBC attacks the President’s tariffs against China. President Trump is right to be angry with GM. He headed up an effort to save GM billions in taxes and instead of GM using that money for the good of the country, GM instead used that money to engage in share buybacks to push up the stock of its officers.
Folks I’m telling you, I like Bernie Sanders Bill to limit stock buybacks. These greedy corporations have no love of country and instead want a one-world order and world without borders so they can more easily exploit cross border labor and trade. In a world where such greedy monsters exist, the government has to step in and start micro-managing these corporations. Don’t want government regulation? Then do the right thing and help support the U.S. and the hard working men and women who are citizens of this great country.
Many large corporations like GM do not want President Trump to succeed. They are therefore willing to take the money saved from tax cuts and spend it on share buybacks instead of creating jobs for American citizens. Think that’s an opinion? Think again. In the 2018 mid-terms, corporate officers at GM gave the Democratic Congressional Campaign Committee $15,936 while giving only $5,365 to the National Republican Congressional Committee. But it gets worse. If you look at individual races in the Senate, the amount given to Democrats over Republicans is shocking.
|Committee||Total||Democrats||Republicans||From Individuals||From PACs|
In the 2016 Presidential election, GM gave $86,616 to Hillary Clinton for President. Guess how much they gave to President Trump? Nothing because Trump didn’t take money from corporate America and that’s really the source of why corporate America attacks the President on a daily basis. They don’t like President Trump because they can’t control him. This is the first President we have ever had that did not take money from corporate America so corporate America has to convince the people of this country that Trump is bad and to not vote for him again before the next election. Remember folks, if you want to know motivation, just follow the money.
With the Fed’s dovish move today, the big question is if the market continues going up from here. There is still technical damage to overcome but a huge move like yesterday creates a FOMO trade.
If Fed speak continues to favor the doves, and we get a pause in rate hikes, I think we get a rally into the end of the year. Until that happens though, Powell’s speech that caused a big one-day pop in markets is not going to reverse the downtrend.