I was online with some of my team members last Wednesday while the Fed was announcing a 25-basis-point cut to the Fed funds target rate.
As usual, the conversation was lighthearted, but I got thought-provoking questions: What did I think about the fact that central banks all around the world were pumping stimulus into their economies at essentially the same time? Are we getting set up for a global smackdown as some of the market preppers are suggesting?
I was online with some of my team members last Wednesday while the Fed was announcing a 25-basis-point cut to the Fed funds target rate.
As usual, the conversation was lighthearted, but I got thought-provoking questions: What did I think about the fact that central banks all around the world were pumping stimulus into their economies at essentially the same time? Are we getting set up for a global smackdown as some of the market preppers are suggesting?
Stocks are sitting at or near record highs, so, naturally, Jerome Powell's Federal Reserve is expected to do its part with another 25-basis-point rate cut this afternoon at 2 p.m.
After all, the stock market is up - the Fed's unofficial, unsanctioned signal to open the cheap-money taps a little wider.
If the Fed moves as markets are "expecting" (read: demanding), this'll be the third reduction in the Fed funds target rate since July, totaling 75 basis points in all, just as it did in 1995 and 1998.
The Fed would be cutting against a backdrop of sky-high stock valuations, decelerating economic growth and job gains, a deepening manufacturing recession, and a political situation that threatens to boil over into full-blown constitutional crisis at any minute.
So this is a really dicey time for investors, but there are some opportunities for savvy folks who understand how to play the Fed against Wall Street - and Wall Street against economic reality.
Let's talk about what to do... Full Story
The printing presses have barely cooled from the Federal Reserve's post-crisis $4.5 trillion quantitative easing binge. 2014 seems like a long time ago, but $4.5 trillion is still a lot of money, and that debt is still actively wreaking havoc down in the bedrock of the economy.
Unbelievably, they're firing up the printing presses yet again down in the bowels of the Marriner S. Eccles Federal Reserve Board Building.
This time, they're engaging in a $60 billion monthly bailout of the Treasury market, specifically in the short-duration (six months or less) T-bill space.
That's $60 billion a month, folks. Annualized, this money-printing adds up to another $720 billion in fiat money creation and nosebleed-level deficit financing.
This reeks of pure desperation - panic mode at the Fed. But for savvy investors, there are three unique, easy ways to cash in on the chaos.
Predicting what the Federal Reserve will do at any of its regular meetings has turned into a cottage industry.
But honestly, no one can. Money Morning Quantitative Specialist Chris Johnson can't.
But that hasn't stopped him from devising a strategy to profit from the Fed's mixed signals.
The central bank's latest move came Wednesday, with an interest rate cut of 25 basis points.
And even with President Trump breathing down their necks, the tone is hesitant with regard to future cuts.
As investors anxiously await tomorrow’s speech from the Federal Reserve Chair, the Fed rate cut threatens a recession.
Chief Investment Strategist Keith Fitz-Gerald answers investors’ questions on the current stock market climate, and giving two stock picks that are trading at fantastic prices…
See this video to get Keith’s insider opinion about what will happen next…
Everyone was waiting with bated breath to see how China would retaliate to the White House’s latest tariffs threat.
Well, we got it – the Chinese are making moves to devalue the yuan to its lowest level in a decade, sending stock prices, bond yields, oil prices, and overall optimism crashing through the floor.
But here’s one thing to note: Investors aren’t scared of the right things right now.
It’s really no surprise that stocks aren’t doing much of anything right now.
Sure, there’s the typical summer slowdown, but even with a Fed rate cut two days away and earnings season in full swing, it’s fairly quiet.
This is because the market has already priced in the rate cut and investors are giving it a 100% chance.
So Shah’s here to fill you in on what’s really happening and why…
For the market to work, bad ideas need to fail, and stocks need to go up and down - also known as volatility - for anyone to make any money.
Unfortunately, what's happening right now is regulators and big players tipping the scales and rigging the markets.
And the net effect of all this is strange - and dangerous.
The market was expecting nothing from the Fed, and it got nothing from the Fed.
That's more or less exactly what the market wanted.
That didn't stop stocks, which had been rallying nicely, from taking a morning breather ahead of Chair Jerome Powell's announcement. I guess investors wanted to hear it right from the horse's mouth, to make sure that the "nothing" they were counting on was actually official and actually nothing.
The Fed-investor love fest, which has been ongoing throughout the 10-year bull market, is obscuring an alarming truth...
The central bank is caught between a rock and a hard place... and a hard place... and a rock... and another rock - all very pointy and sharp.
That's no exaggeration, and I'll tell you what I mean in a second.
The upcoming 2020 federal election is promising a bevy of "goodies" such as free health care and college, guaranteed jobs, universal basic incomes, and the "Green New Deal."
But these can only be achieved through something called modern monetary theory, or MMT.
Market noise is never-ending - as are worries over and questions about the market.
What to buy? What to sell? What to hold? What will the Fed do? Where are markets headed? When will the next recession hit? Why? Why?
What should I do?
In this increasingly volatile market, nervous investors still look to prompt-reading advisors and pundits who work within the safe and stupefied confines of mainstream consensus.
Market timers and market predictors, too, are everywhere; they always have been and always will be. Some are bulls; some are bears.
Investors are seeking answers - and instant, calming solutions. These "experts" and "systems" are offering just that - most of which is the same.
"Markets rise and fall," the experts say as a chorus, "just be diversified - hold stocks and bonds - and carry on. The economy is strong, employment is high, inflation is low, and the markets will stay the steady course over time."
This all may feel and sound comforting, but so does dope. Their advice might seem to "make good sense," but the data (i.e. objective facts) as to the economy, employment, inflation, and the strength of stocks and bonds suggest otherwise.
So we need simple, blunt guidance. And we need to know how to protect ourselves.
Fortunately, the answer is right in front of us, which is to say, right behind us...
Looking for yield? Be careful what you ask for...
Every slick Wall Street operator is hawking junk bonds and leveraged loans as the ultimate drug for yield-starved investors - those seeking "juicy returns" in an otherwise risk-saturated bond market.
What they'll find is suicide by credit overdose.
I'm not surprised we've come to this point.
Now, those who know me know I'm not a big fan of the U.S. Federal Reserve. Acting as Wall Street's un-official "drug pusher" for decades, it went hog wild post-2008, dispensing low-rate, cheap, and always freshly printed money at grotesque levels.
As a result, today's "stimulus-addicted/Fed-supported" securities markets - thoroughly embroiled in bubbles - have crossed the Rubicon of debt and are now limping toward their own suicide, as you'll see.
But it doesn't have to get you.
You may have seen this news too.
If you, like me, are a member of the Antife (Anti Fed), you may be cursing the day. "Curses!" you shout. "There goes the Fed again! Losing taxpayer money! Our money!"
My friend, Professor Anthony Sanders, finance professor at George Mason University, pointed out to us on Dec. 12 that the Fed just reported it has $66 billion of mark-to-market losses on its balance sheet. Horror of horrors!
My reaction?
Well woop de doo. The Fed doesn't mark to market for a reason. It never sells anything. It will never be forced to sell anything.
The Fed does not need capital to operate. It can – and does – conjure money in and out of existence at will. And eventually, as its bond holdings mature, it always gets paid. Or at least so far, it has always gotten paid. So, marking to market is a nice philosophical exercise, but in practical terms, it's meaningless. It has no impact on the market. It never will have an impact on the market. It should play no role in your thinking about investing or trading.
But boy, are there plenty of reasons to pay attention to the Fed's balance sheet, which is what I do a large part of my work time. I do it so that you don't have to, and mostly because I have come to believe, over 55 years of following markets, that while it might not be the only thing that matters, it sure as hell beats whatever comes second.
First, let's look at this mark-to-market business.
Here's what is critical for you to know...
The Fed started shrinking its balance sheet in October 2017. It euphemistically named the program "balance sheet normalization." I call it "bloodletting," in honor of the medieval medical treatment for disease.
The Fed's Quantitative Easing (QE) program had caused asset markets, including stocks, bonds, housing, and commercial real estate, to become bloated and diseased as prices inflated relentlessly. They floated higher on a sea of the Fed's newly conjured money.
The Fed pumped that money directly into the accounts of the big shots who make the markets, known as "Primary Dealers." The Primary Dealers are appointed by the Fed to be its exclusive correspondents in the execution of monetary policy. They're also responsible for absorbing a significant portion of the Treasury's issuance of new bonds, notes, and bills. They mark that paper up and sell it to investors.
The Fed expanded the money supply by buying securities – U.S. Treasuries, Agencies, and Mortgage-Backed Securities (MBS) – directly from those Primary Dealers.
The dealers used the money to buy Treasury securities from the U.S. government. Since they are trading firms, they also used the cash to buy other bonds, as well as stocks, and occasionally exotic derivatives. Those cash injections helped to ignite and promote animal spirits among hedge funds and other massive leverage speculators, along with more conservative investment institutions. We saw the effect in the long-running big bull market. The policy of QE ultimately carried stock prices to extremes of valuation only seen at modern major market tops.
The Fed stopped QE in late 2014, but the stock market continued its bull run. That was partly because the Fed was still pumping a little money into dealer accounts through its MBS replacement purchase program.
More importantly, in late 2014, the European Central Bank (ECB) started buying all manner of European government and corporate bonds hand over fist in a QE program that essentially took the hand off from the Fed when the Fed left the field. The same big banks that are Fed Primary Dealers also operate in cahoots with the ECB. That's how money printed in Europe by the ECB can instantly show up on Wall Street and in U.S. markets. That helped to keep stock prices inflated and rising.
But the Fed went into reverse in October 2017, and the ECB also tapered its buying and will go to zero purchases this month. Its balance sheet will also begin to shrink. More money will leave the worldwide pool of market liquidity, which is just a fancy way of saying money available for investment.
Our Liquidity Specialist shows you in detail how the Fed is continuing to shrink its balance sheet and how the economy is in danger of being superficially strong.
Find out what this means for you and how you can stay safe in a market going dry...
