
The combination of a fairly certain bump in the Fed funds rate this week and weakening commodity prices (oil in particular) are giving me a deja-vu moment. I almost titled this post “Here we go again.” It was just a bit over a year ago, after the first increase in interest rates in 9 years and in the face of plummeting oil and commodity prices, that the calls for a market rout were coming in loud and clear. The pundits were screaming that those weak prices were a sign of global economic weakness and that the end of the great bull market was at hand. This viewpoint was bolstered by the fact that corporate earnings were declining–a direct result of a strong dollar and the impact of plummeting commodity prices on earnings in the energy and mining industries. Here is a little example from the media panic of last January–“Janet, you’ve really stepped in it this time.” Of course, it was a great buying opportunity with the S&P closing January 19, 2016 at 1906.9.
Many of the same people who were questioning the market over a year ago are back with the same concerns. They worry that the economy is sputtering and that falling energy and other commodity prices are but one indication.
They’re Ba’ack!

Yup, even the perennial victim of my scorn and derision, Randall Forsyth, piped up on the issue this week Up and Down Wall Street (“Is the Federal Reserve Using Overheated Data?”–3/13/2013-You need a subscription).
Mr. Forsyth writes:
“Junk bonds had to contend not only with rising interest rates, but also with falling energy prices, as crude cracked below $50 a barrel. Many high-yield issuers are in the energy business and last year’s slide in oil and other commodities hammered their bonds. In addition to oil and metals such as copper, gold also took a hit, with the SPDR Gold Trust (GLD) off 2.4% on the week.
All of which suggests that the commodity markets are looking at something other than the inflation seen in lagging measures such as the CPI. That also makes for an incongruent backdrop for the Fed to be hiking rates.”
Hmmm, could it be slowing global economic activity, disinflation, a looming RECESSION?
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Barron’s Kopin Tan (Streetwise–3/13/2017) chimed in with, “Does Oil’s Slide Signal Weakening Growth?”
Again, Tan raises the possibility that the Fed may be raising rates in the face of an eminent recession (being currently signaled by falling oil prices).
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Then there is Peter Schiff, a real bomb thrower, perpetual U.S. equity bear, perpetual gold bull (actually once right in his gold call). I’m going to let the CNBC video “Dangerously close to a recession, and a rate hike will make problem worse: Schiff,” speak for itself.
I cannot believe that CNBC would give Schiff, a non-credible pundit, any air time at all. It seems to legitimize his constantly fearful, misguided point of view. It cheapens even more the network’s already tarnished reputation.
A Message to all of the above: IT’S OVERSUPPLY STUPID, NOT DEMAND!
NOW, FOR SOMETHING COMPLETELY DIFFERENT
Here is where we deviate to the opinion of someone who, by my experience, knows what he is talking about, the founder of $16 billion dollar Appaloosa Asset Management, David Tepper. Tepper’s view is the educated opinion of a money manager who has had a consistent and constructive call on this bull market.
” ‘I don’t think the market’s cheap, but it’s hard to go short with economic backdrop’, says Appaloosa’s David Tepper” (CNBC–3/8/2017)
It is important to note that Tepper, unlike our first three commentators, is very constructive on the economic outlook (both here and abroad). Despite not being to0 keen about current valuation, he’s long equities and short bonds. Tepper’s entire interview can be seen on the this link. It is worth your time.
ERGO, despite boat loads of commentary to the contrary, I am having a really having a tough time seeing the double-edges on that Sword of Damocles, recession and exacerbating interest rate increases, suspended over the current bull market.
What’s your take?
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