- The recent shift in Fed rhetoric … does it really mark a policy shift?
- Market history update
- Bad News Sells!
Randall Forsyth, Barron’s editorial writer and chief contributor to the “Up and Down Wall Street” column, is a modern day “Mikey.” You all remember Mikey? He was a 3 or 4-year-old toddler featured with what appeared to be his two older brothers in a Life Cereal commercial that first appeared in 1972 (apologies to my readers who are not old people). Mikey’s main claim to fame as a potential cereal tester (according to his brothers) was that “he hates everything.” Ergo, if Mikey liked it, the new, “supposed to be good for you,” cereal was fit for human consumption and the two older brothers would eat it. Lo and behold, “he liked it!” (link to the ad)
Market (and Mikey) History Update
Our latter day Mikey doesn’t “hate” everything. He is merely unhappy with everything the market and economy presents him. He finds nothing to like about the current market or economy and has been in that mode since my first publication of kortsessions.com in February of 2013. That’s six years of being critical of a market that has doubled in price (currently within 4.7% of its record all-time high) with an economy that has produced record employment and, at current writing, a 4% unemployment rate. Here is a sampling from February, 2014, “January Goes Off Script.” My counterpoint at the time was titled “What planet does Randall Forsyth come from?” It posited that Forsyth had missed the bigger picture and the message given by the market that we had definitively broken out of a 13-year trading range to new all-time highs on the S&P 500, and that we could easily be embarking on a new secular bull market a la 1982 to 2000, 10-bagger on that index. It is worth noting that in my “What planet” post the 10-year U.S. Treasury note was trading at a 2.66% yield. Today’s quote is 2.654%. The more things change, the more they stay the same. This includes Mr. Forsyth’s view of the world.
“The Eerie Calm in Global Markets”
This was the title of Mr. Forsyth’s weekly commentary. When you click on the link it takes you to “Central Banks Worldwide Are lifting Stocks. Is The Stability Masking Trouble Ahead.” (You need a Barron’s or WSJ subscription to view) I have said it appears to be human nature to run to bad news. Bad news sells. That is why I used Forsyth’s title for todays’s post. I’m trolling for eyeballs. It is okay to read this stuff for perspective and counterpoint as long as you don’t take it too seriously because, if you do or did, you would have missed out on much of a wonderful bull market. On top of that you would be living in constant fear … not a good thing.
Forsyth points out ” … the Federal Reserve and virtually every other central bank on the planet appear to be keenly watching asset prices, given their increasingly tight connection to the real economy. That may not have been their stated intent, but that has been the effect of a marked shift away from restraint this year.” He then points out the strong levitation in stock price since the removal of hawkish commentary by our Fed. Despite the continuing strength in earnings and the economy (fundamentals), it is all about the money. He finishes with dollop of things we should be worried about:
“The nonchalance toward risk oddly has as its backdrop any number of potentially market-moving events. Fed Chairman Jerome Powell is due to testify before Congress on policy and the economic outlook, starting with the Senate Banking Committee on Tuesday and the House Financial Services panel on Wednesday. President Donald Trump also heads to Vietnam to meet North Korea Supreme Leader Kim Jong-un during the week.
The March 1 deadline to work out a trade deal arrives on Friday but is likely to be extended. Also looming is the expected report from special counsel Robert Mueller III’s investigation on Russian influence on the 2016 election. And in case you’ve forgotten, the March 29 deadline for Brexit also looms.”
I think you can see what I mean when I say FEAR SELLS. Randall Forsyth has been at Barron’s since 1982! He is obviously a great producer.
A little counterpoint — a change in Fed Policy?
In the case of the U.S. Fed moving to very hawkish rhetoric as the new Fed Chairman Powell took on his new job, my sense is that regardless of the tough talk, the Fed was always going to be data dependent in their decision process. So, maybe we’ve gone from too ‘hawkish’ to too ‘dovish’ in terms of Fed speak, in the final analysis it is going to be ‘data dependent.’ Ergo, there has been no change in Fed policy … just inexperienced and clumsy Fed speak. Remember that we came off a 0 to .25% Fed fund rate to 2.5%, gradually over the past few years. Also, over the last 12 to 18 month the Fed has quietly reduced its balance sheet by 500 to 600 billion dollars, no harm, no foul. We are within 5% of the S&P 500’s all-time high.
As it pertains to the rest of the world’s central banks stimulating their economies, while they are stimulating (they all started later than the US … especially Europe) as opposed to slowly withdrawing that stimulus, I’m certain the US experience coming out of Quantitative Easing (QE) will not be lost on them … slow and steady as she goes.
Bottom line; The Secular Bull Market continues intact with Mikey Forsyth continuing to give credence to the proposition that the media is not your friend when making investment decisions, not in 2014, not now, not ever.
What’s your take.
P.S. I’ve been less frequent in my posting lately because of a lack of media frenzy material to comment on … not much to talk about. Regardless, I am definitely still engaged in the process. Thank you for your continued readership.
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