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Last week, I said the markets look nervous.
While there is definitely some strength underpinning the post-election rally, and the path of least resistance is up, we're kind of stuck at the moment, waiting as the Trump Train lurches toward inauguration.
Right now, there isn't much to do but sit back, watch some confirmation hearings, and see how this whole thing shakes out.
In the meantime, you have been offering up some great questions and comments on Wall Street Insights & Indictments.
Today, I want to give you the megaphone for a bit, and answer some of your biggest questions and sharpest comments.
Q: Hi Shah, You may well be right, but my "yes, but" brain raises these points:
1) Yes, the Fed "printed" a lot of money, but my understanding is that one of the reasons it was so ineffective is that most of it ended up in bank reserves, and the banks didn't want to lend it.
2) The main impetus of buybacks, i.e. the QE money that did get out there, has ceased, and interest rates are on the rise.
3) There are many ways that things can go very wrong with Trump at the helm. – Noah
A: You're right, Noah. The "printed" money initially all went towards backstopping the big banks. They needed a way to get capital and to get some mortgages off their books, that's what the initial printing was all about. Then it became about making them profitable, making the cost of money zero so they could buy Treasuries, mark them up, and sell them to the Fed for a profit, over and over. Banks couldn't lend even if they had demand, which they didn't. When demand reappeared, slowly, they were reluctant to lend at such low rates. Eventually they were made profitable again so they could lend.
Quantitative easing money didn't go to buybacks. It was how the Fed kept rates at zero and flushed up the banks. Because money has been so cheap, companies could borrow to buy back shares. Because there hasn't been much growth or product demand to speak of, they haven't had to invest in plant and equipment and used cash and borrowing for buybacks. Rising interest rates, unless they spike, won't change the buyback story much. It's still the quickest way to improve earnings (financial engineering).
There are lots of things that can go wrong with Donald Trump at the helm. There's no question about that. But I'm optimistic he'll balance his campaign rhetoric with prudent compromises, hopefully advocated by his cabinet.
Q: Good commentary Shah – your forecast sounds bullish, maybe too bullish in the next little while. We're near 20k on the Dow and a tab under $20 trillion in debt (good round #s for correction?). And look at the huge ratio gap between the 10-yr and s&p. I too think a Trump Presidency will be great for our markets, but I …
About the Author
Shah Gilani is the Event Trading Specialist for Money Map Press. He provides specific trading recommendations in Capital Wave Forecast, where he predicts gigantic "waves" of money forming and shows you how to play them for the biggest gains. In Zenith Trading Circle Shah reveals the worst companies in the markets - right from his coveted Bankruptcy Almanac - and how readers can trade them over and over again for huge gains. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.