John Rubino over at Dollar Collapse – Tue 17 Mar, 2020

A Global Recession Is Upon Us But How Long And How Devastating Will It Be?

With cities and economies around the world shutting down it seems to be a guarantee that a recession is upon us and potentially already here. John Rubino joins me to discuss some of the more major factors we need to consider. These include the possible length and long term impacts for sectors and countries when we finally turn the corner and business can start operating again.

Click here to visit John’s site – Dollar Collapse.

Beware the Yield Curve

This post Beware the Yield Curve appeared first on Daily Reckoning.

If you’re a regular Daily Reckoning reader, you’ve probably heard of the “yield curve,” and an “inverted yield curve.” A yield curve inversion is a classic recession warning signal. This is a very powerful indicator because it has preceded every recession of the last 60 years.

That means an inverted yield curve has preceded recession on seven out of seven occasions for the past 60 years. Only once did it give a false positive, and that was in the mid-1960s.

And when recessions hit, stocks are vulnerable to crashes. An inverted yield curve has provided warning of every major stock market “event” of the past 40 years.

That’s why several different measurements of the yield curve are important to monitor. The most-cited yield curve calculation is the 10-year U.S. Treasury yield minus the 2-year U.S. Treasury yield.

But a market crash is not an immediate reaction to a yield curve inversion. During the last two major bear markets, for example, the worst of the selling didn’t start until a few years after the yield curve hit zero or negative. So when you hear that the yield curve has inverted, it doesn’t mean you have to run out and sell all your stocks. It can be a very long time before it shows up in the stock market.

But you should watch the Fed. During these bear markets, the selling of stocks coincided with a panicked series of rate cuts from the Fed.

If investors become risk averse and fear an imminent recession, Fed rate cuts cannot stop investors from selling stocks and de-risking their portfolios. It’s important to realize that Fed interest rate policy can only exert control over the stock market if investors maintain a strong appetite for risk.

The message from a different measure of the yield curve — like the 10-year Treasury yield minus the 3-month Treasury yield — is similar. Incidentally, the Fed places more importance on this part of the bell curve than the 10-year/2-year part of the curve.

The change in this yield curve, shown in the green line below, has been substantial thus far in 2020:

IMG 1

If these two yield curves remain near zero (or below zero) for an extended period of time, then the machinery of bank credit creation can grind to a halt. That’s why anytime the yield curve gets too depressed, the Fed tends to react by cutting short-term rates. Lower short-term rates in turn “re-steepen” the yield curve. In other words, it’s an attempt to restore the normal shape of the yield curve.

It’s no wonder the fed funds futures market has boosted its probability of a 25 basis point Fed rate cut at the June 2020 meeting from about 15% to 37% in just the past few weeks.

Far ahead of this move in the futures market, my colleague Jim Rickards predicted that the Fed would cut rates 25 basis points at the June meeting in an effort to re-steepen the yield curve. If the Fed doesn’t cut rates soon, then the supply of bank loans is likely to tighten in the months ahead.

Having described these trends, we need to ask: How does the yield curve affect the real economy?

During credit booms, banks are happy to make new loans because the interest rate on loans generally exceeds the cost of funding those loans (through deposits and the like). And when banks create those loans on the asset side of their balance sheet, they simultaneously create new money supply on the liability side of their balance sheet.

A growing money supply usually means there’s plenty of money flowing through the economy. As this money flows from consumers to producers, it can be used to service outstanding debts that have been made in the past.

U.S. government deficits and Fed balance sheet expansions also add to the money supply, but most of today’s money supply (the so-called “M2” supply) was loaned into existence by the banking system.

As banks’ “net interest margins” compress, they tend to get pickier about what loans they make. And as loan growth slows, money supply growth slows.

The yield curve foreshadows the trend in future bank profit margins, and it doesn’t look bullish.

If banks aren’t earning decent profit margins on new loans, that’s a problem for a highly indebted economy with many borrowers that must constantly refinance their loans.

Within a matter of months, loan defaults can spike. When defaults get bad enough to threaten the banking system, the Fed panics and cuts rates. We haven’t seen many defaults in recent bank earnings reports, but there are concerning trends in credit card defaults.

This credit cycle has lasted an extraordinarily long time because the Fed kept emergency-style monetary policy in place from 2008 up until it started timidly hiking rates in December 2015.

Super-easy policy has allowed an epic boom in credit — especially in corporate bonds — to hit unprecedented heights. The burden of bank debts and bond debts is as big as ever, so the U.S. economy has become less tolerant of a flat yield curve over time.

Many investors have been waiting to sell stocks and de-risk portfolios until six or 12 months past the point of yield curve inversion. Such investors are confident that we’re in the equivalent of 1999 or 2006 in the cycle, so they expected one last “melt-up.”

The sharp rebound in stocks since December 2018 certainly looks like a melt-up, despite the latest concerns about the coronavirus, which have affected the stock market. But the market’s still at or near record highs, depending on the day.

Maybe the market has more room to run. But most stocks have risen long past the point of being supported by valuations and are dependent on more and more new buyers entering the market to continue rallying.

But with each economic cycle, the heavily indebted U.S. economy clearly has less tolerance for tight monetary policy, yield curve inversion and slowing money supply growth.

Corporate profits have been getting squeezed for several quarters, but investors largely have not cared. They only care that the Fed reversed its policy course rapidly in 2019, switching to radical easing.

Could another 25 basis point cut in mid-2020 rekindle another wave of speculation?

Perhaps. But the next Fed rate cut would likely be in response to deteriorating credit conditions. And stocks rarely rise under such conditions.

So this is the time to be careful.

Regards,

Dan Amoss
for The Daily Reckoning

The post Beware the Yield Curve appeared first on Daily Reckoning.

Beware the Yield Curve

This post Beware the Yield Curve appeared first on Daily Reckoning.

If you’re a regular Daily Reckoning reader, you’ve probably heard of the “yield curve,” and an “inverted yield curve.” A yield curve inversion is a classic recession warning signal. This is a very powerful indicator because it has preceded every recession of the last 60 years.

That means an inverted yield curve has preceded recession on seven out of seven occasions for the past 60 years. Only once did it give a false positive, and that was in the mid-1960s.

And when recessions hit, stocks are vulnerable to crashes. An inverted yield curve has provided warning of every major stock market “event” of the past 40 years.

That’s why several different measurements of the yield curve are important to monitor. The most-cited yield curve calculation is the 10-year U.S. Treasury yield minus the 2-year U.S. Treasury yield.

But a market crash is not an immediate reaction to a yield curve inversion. During the last two major bear markets, for example, the worst of the selling didn’t start until a few years after the yield curve hit zero or negative. So when you hear that the yield curve has inverted, it doesn’t mean you have to run out and sell all your stocks. It can be a very long time before it shows up in the stock market.

But you should watch the Fed. During these bear markets, the selling of stocks coincided with a panicked series of rate cuts from the Fed.

If investors become risk averse and fear an imminent recession, Fed rate cuts cannot stop investors from selling stocks and de-risking their portfolios. It’s important to realize that Fed interest rate policy can only exert control over the stock market if investors maintain a strong appetite for risk.

The message from a different measure of the yield curve — like the 10-year Treasury yield minus the 3-month Treasury yield — is similar. Incidentally, the Fed places more importance on this part of the bell curve than the 10-year/2-year part of the curve.

The change in this yield curve, shown in the green line below, has been substantial thus far in 2020:

IMG 1

If these two yield curves remain near zero (or below zero) for an extended period of time, then the machinery of bank credit creation can grind to a halt. That’s why anytime the yield curve gets too depressed, the Fed tends to react by cutting short-term rates. Lower short-term rates in turn “re-steepen” the yield curve. In other words, it’s an attempt to restore the normal shape of the yield curve.

It’s no wonder the fed funds futures market has boosted its probability of a 25 basis point Fed rate cut at the June 2020 meeting from about 15% to 37% in just the past few weeks.

Far ahead of this move in the futures market, my colleague Jim Rickards predicted that the Fed would cut rates 25 basis points at the June meeting in an effort to re-steepen the yield curve. If the Fed doesn’t cut rates soon, then the supply of bank loans is likely to tighten in the months ahead.

Having described these trends, we need to ask: How does the yield curve affect the real economy?

During credit booms, banks are happy to make new loans because the interest rate on loans generally exceeds the cost of funding those loans (through deposits and the like). And when banks create those loans on the asset side of their balance sheet, they simultaneously create new money supply on the liability side of their balance sheet.

A growing money supply usually means there’s plenty of money flowing through the economy. As this money flows from consumers to producers, it can be used to service outstanding debts that have been made in the past.

U.S. government deficits and Fed balance sheet expansions also add to the money supply, but most of today’s money supply (the so-called “M2” supply) was loaned into existence by the banking system.

As banks’ “net interest margins” compress, they tend to get pickier about what loans they make. And as loan growth slows, money supply growth slows.

The yield curve foreshadows the trend in future bank profit margins, and it doesn’t look bullish.

If banks aren’t earning decent profit margins on new loans, that’s a problem for a highly indebted economy with many borrowers that must constantly refinance their loans.

Within a matter of months, loan defaults can spike. When defaults get bad enough to threaten the banking system, the Fed panics and cuts rates. We haven’t seen many defaults in recent bank earnings reports, but there are concerning trends in credit card defaults.

This credit cycle has lasted an extraordinarily long time because the Fed kept emergency-style monetary policy in place from 2008 up until it started timidly hiking rates in December 2015.

Super-easy policy has allowed an epic boom in credit — especially in corporate bonds — to hit unprecedented heights. The burden of bank debts and bond debts is as big as ever, so the U.S. economy has become less tolerant of a flat yield curve over time.

Many investors have been waiting to sell stocks and de-risk portfolios until six or 12 months past the point of yield curve inversion. Such investors are confident that we’re in the equivalent of 1999 or 2006 in the cycle, so they expected one last “melt-up.”

The sharp rebound in stocks since December 2018 certainly looks like a melt-up, despite the latest concerns about the coronavirus, which have affected the stock market. But the market’s still at or near record highs, depending on the day.

Maybe the market has more room to run. But most stocks have risen long past the point of being supported by valuations and are dependent on more and more new buyers entering the market to continue rallying.

But with each economic cycle, the heavily indebted U.S. economy clearly has less tolerance for tight monetary policy, yield curve inversion and slowing money supply growth.

Corporate profits have been getting squeezed for several quarters, but investors largely have not cared. They only care that the Fed reversed its policy course rapidly in 2019, switching to radical easing.

Could another 25 basis point cut in mid-2020 rekindle another wave of speculation?

Perhaps. But the next Fed rate cut would likely be in response to deteriorating credit conditions. And stocks rarely rise under such conditions.

So this is the time to be careful.

Regards,

Dan Amoss
for The Daily Reckoning

The post Beware the Yield Curve appeared first on Daily Reckoning.

Jerome Powell Confesses

This post Jerome Powell Confesses appeared first on Daily Reckoning.

Heaven forfend — angels and ministers of grace defend us! — the chairman of the Federal Reserve has confessed the truth.

We write from our back today, floored, still unable to recover from the blow.

For yesterday the chairman ripped the central banker’s mask from his face, and let them have it straight in the eye… and right from the shoulder.

What mighty and stupendous truth did he uncage yesterday?

Patience, dear reader, patience. You must first suffer under today’s market notes…

Can’t Shake the Coronavirus

The stock market traded at record heights today. But the coronavirus struck again this afternoon. CNBC in summary:

Equities fell sharply to start off Thursday’s session after China said it confirmed 15,152 new cases and 254 additional deaths. That brings the country’s total death toll to 1,367 as the number of people infected jumped to nearly 60,000, according to the Chinese government.

The Dow Jones ended up losing 128 points by closing whistle, to 29,423.

The S&P lost five points on the day; the Nasdaq, 14.

Gold, meantime, gained $7.30 today to close at $1,579.20.

But to return to today’s thumping question…

What sublime truth did Jerome Powell let out yesterday?

Powell’s Monetary Policy Report to the Congress

Here is the setting:

The Dirksen Senate Office Building 538, Washington, D.C. The Banking Committee of the United States Senate is in session.

Addressing the committee is the Hon. Jerome H. Powell, chairman of the Board of Governors of the Federal Reserve System.

He is a man heavy with duties to the American republic…

He is delivering the semiannual Monetary Policy Report to the Congress, in fulfillment of his obligations under the Humphrey-Hawkins Full Employment Act of 1978.

It is late morning. Committee members fight valiantly to maintain consciousness, but sleep has vanquished several.

Chins rest upon chests, rising gently at longish intervals… as if buoys bobbing in lazy ocean swells.

Faint snores can be heard above Mr. Powell’s hypnotic droning.

One dreaming senator — we had best keep his identity dark — mutters something about “your sexy lips” and a name other than his wife’s.

A swift elbow from an adjacent senator nudges him awake.

But then — of a sudden — the truth came roaring from the chairman’s mouth like fire from the mouth of a cannon…

The Truth!

Out it came, knocking us flat in the process:

“Low rates are not really a choice anymore; they are a fact of reality.”

Low rates are not really a choice anymore; they are a fact of reality.

No more talk of “normalization.” No more whim-wham about “the outlook.” No more “monitoring conditions.”

Instead, low interest rates are no longer a choice. They are a “fact of reality.”

Poor Alan Greenspan would be spinning in his grave today — if only he had a grave to spin in. Old Alan yet lives and breathes.

But does Powell not realize that a central banker’s job is to dodge, to weave, to talk… but not say?

We can only speculate that the fellow was overtaken by a temporary delirium, a transient psychosis.

But Mr. Powell’s uncharacteristic outburst of honesty gives powerful, almost invincible confirmation of our deep belief…

Our belief that the Federal Reserve can never increase interest rates by any meaningful measure.

Higher Rates Would Collapse the Walls of Jericho

High interest rates — even historically normal interest rates — would bring down the very walls of Jericho.

The entire financial and economic system would come thundering down.

Please observe the chart below. It reveals that United States private financial assets — the stock market, essentially — presently rise to an obscene 5.6 times United States GDP.

And so it puts all existing records in the shade:

IMG 1

Shriek the doom mongers of Zero Hedge:

“Any sizable drop in the stock market would lead to an almost instantaneous depression.”

We fear they are correct.

The stock market and the decade-long economic “recovery” center upon ultra-low interest rates.

A meaningful rate increase means debt service becomes an impossible burden — a crushing burden.

But returning to Chairman Powell…

“We Will Have Less Room to Cut”

Our unlikely Job was not done yesterday. He confessed another truth:

“We will have less room to cut.”

The federal funds rate presently squats between 1.5% and 1.75%. But as we have noted often, the central bank requires rates between 4% and 5% to push back recession.

Should recession invade the United States tomorrow, the Federal Reserve would enter the combat at half-strength… or less.

Thus it plans to send additional quantitative easing and “forward guidance” hurtling against the onrushing enemy.

“We will use those tools,” Mr. Powell pledged yesterday. “I believe we will use them aggressively.”

We have no doubt they will. But we are not convinced they will irritate or bother the enemy.

The Federal Reserve’s balance sheet already stretches to emergency wartime levels. And each expansion packs less wallop than the previous.

How much remains?

The Point of Diminishing Returns

Even Powell’s deputy commander — Vice Chairman Richard Clarida — recognizes the limits:

The law of diminishing returns is a very powerful force in economics, and so we have to be concerned that it may also apply to quantitative easing.

What then of “forward guidance?” Is it formidable?

No, argues our own Jim Rickards. It is a mere popgun, firing a blank cartridge:

Forward guidance lacks credibility because the Fed’s forecast record is abysmal. I’ve counted at least 13 times when the Fed flip-flopped on policy because they couldn’t get the forecast right.

Thus the forked counterattack of quantitative easing and forward guidance may prove blunt in both prongs.

But might our central bank house another weapon to punch back? Yes, it might…

The Fed Looks to the Past

The chairman and his fellows may blow the dust off another anti-recession weapon — a weapon it has not employed in 69 years.

Reveals The Wall Street Journal:

As part of their contingency planning for the next recession, Federal Reserve officials are looking at a stimulus scheme the U.S. last used during and after World War II.

But what could it be?

From 1942 until 1951, the Fed capped yields on Treasury securities — first on short-term bills and later on longer-term bonds — to help finance war spending and the recovery.

Placing caps on Treasury yields. That is the anti-recession weapon under consideration.

This scheme involves intricacies far too subtle and delicate for our dull understanding.

We therefore enlist the Journal to help penetrate the mystery:

Yield caps would be a cousin to QE. In QE, the Fed committed to purchasing fixed amounts of long-term securities. With yield caps, by contrast, the Fed would commit to purchase unlimited amounts at a particular maturity to peg rates at the target.

The goals of either approach are similar: drive down longer-term interest rates to encourage new spending and investment by households and businesses…

Some officials think capping yields could deliver the same amount of stimulus while acquiring fewer securities than they did through their bond-buying programs from 2012 until 2014, when the Fed purchased more than $1.6 trillion in Treasury and mortgage securities.

Do you understand it now? Below you will find our email address. Please contact us at your earliest convenience. For we do not understand it.

Breaking the Invisible Hand of Capitalism

Yet of this we are certain:

Capping Treasury yields — whatever it is — represents a further warfare upon the free and open market, further violence against transparency and honesty.

It seizes Adam Smith’s invisible hand of capitalism… and snaps another finger in two. Few remain as is.

What is it then but a gloved admission — that all previous central bank offensives have failed in their aims?

That is, a concession that they have failed to yield a healthy, prosperous and sustainable economy.

Ten years of them and victory remains as elusive as ever before.

Yet to paraphrase the good Chairman Powell, they are now facts of reality. And they will remain facts of reality… until they are proven fictions of reality.

But this much we will say for the chairman:

He is finally honest about it…

Regards,

Brian Maher
Managing editor, The Daily Reckoning

The post Jerome Powell Confesses appeared first on Daily Reckoning.

“If There’s a Recession, Don’t Worry”

This post “If There’s a Recession, Don’t Worry” appeared first on Daily Reckoning.

“Pride goeth before destruction,” warns the Book of Proverbs… “and a haughty spirit before a fall.”

The Federal Reserve might keep this biblical reproach close by…

For as one Federal Reserve magnifico boasted recently — pridefully and haughtily:

“If there’s a recession, don’t worry.”

Don’t worry, that is, because “the Fed is very powerful.”

This information we gathered through our vast web of spies…

Dispatch From a Banking Conference in Puerto Rico

The Federal Reserve hosted a recent banking conference on the Caribbean island of Puerto Rico.

Old Daily Reckoning hand and “sovereign man” Simon Black dispatched an agent to listen in… who wired back the transcript.

Says Simon, via his man in San Juan:

One very senior Fed official… told the audience, “If there’s a recession, don’t worry,” because “the Fed is very powerful” and has all the tools it needs to support the economy.

To which instruments of power does this grandee refer?

We have no specific information. But interest rates cannot be among them…

The Fed Has Limited “Strategic Depth” to Fight Recession

History argues the Federal Reserve requires rates of 4% or 5% to vanquish a recessionary foe.

Only these elevated rates give it the “space” to slash rates sufficiently — to zero if necessary.

But today’s federal funds rate ranges only between 1.50% and 1.75%.

Thus the central bank’s last trench line — the zero bound — lies dangerously close in back of it.

That is, the Federal Reserve presently lacks the strategic depth to mount a successful rate-based defense… and wear down the enemy in its protracted meat grinder.

Should the enemy puncture the Fed’s shallow defenses, the vast rear is currently open to it. And recession would have the entire economy in siege.

What weapons, then, might remain in the Federal Reserve’s arsenal?

Additional quantitative easing? Perhaps “forward guidance”? They are on hand, yes.

But what about negative interest rates, previously confined to the drawing board? Why make the zero bound your last line of defense?

Why not stretch the barbed wire behind it, lay down mines… and dig additional trenches in negative territory?

Negative rates would deepen and stiffen the defense, their boosters argue.

Three Full Percentage Points!

Former Federal Reserve Field Marshal Ben Bernanke insists these are formidable anti-recession armaments. He sets great store by them, in fact.

Quantitative easing, forward guidance and negative interest rates — combine them one with the other, says this strategic genius…

And they equal three full percentage points of rate cuts. Three full percentage points!

By his lights then, today’s federal funds rate is not as low as 1.50% — but as high as 4.75%.

That is… the Federal Reserve presently enjoys nearly all the strategic depth required to fight back recession.

We suppose these are the weapons our anonymous central banker has in mind — those that render the central bank “very powerful.”

But we are not half so convinced. We see not an impregnable defense… but a Maginot Line, vulnerable to a superior strategy.

We envision a flanking attack, with enemy armor snaking its way through the Ardennes, bypassing the forts.

We further envision a thrust through the Moselle Valley… and into the defenseless economic interior.

The Fed’s Weak Defenses

Place no faith in the Federal Reserve’s Maginot Line, argues Jim Rickards:

Here’s the actual record…

QE2 and QE3 did not stimulate the economy at all; this has been the weakest economic expansion in U.S. history. All QE did was create asset bubbles in stocks, bonds and real estate that have yet to deflate (if we’re lucky) or crash (if we’re not).

Meanwhile, negative interest rates do not encourage people to spend as Bernanke expects. Instead, people save more to make up for what the bank is confiscating as “negative” interest. That hurts growth and pushes the Fed even further away from its inflation target.

What about “forward guidance”?

Forward guidance lacks credibility because the Fed’s forecast record is abysmal. I’ve counted at least 13 times when the Fed flip-flopped on policy because they couldn’t get the forecast right.

So every single one of Bernanke’s claims is dubious. There’s just no realistic basis to argue that these combined policies are equal to three percentage points of additional rate cuts.

Fighting the Last War

Generals prepare to fight the last war, it is often argued. We suppose central bankers prepare to fight the last crisis.

Meantime, the relentless enemy is preparing to wage the next recession. It learns, it adapts. It originates new tactics, new weapons… new strategies.

It bypasses Maginot Lines.

And so we expect the next recession to catch our hidebound central bankers unaware… facing straight ahead while the tanks roll in from their flank.

But we expect a new war plan to emerge from the next recession, once all existing defenses are flat.

The New Wonder Weapon

At its center will be the wonder weapon of Modern Monetary Theory, or MMT.

Up it will go in its Enola Gay… and the fiscal authorities will unload it high above Main Street.

Cash will come raining down upon the unsuspecting residents below, like so much confetti.

They will then vanish into stores, into restaurants, into theaters to disgorge their newfound bounty.

The secondhand recipients of this bounty will proceed to exchange it for autos, boats and houses.

The third-hand recipients will in turn send the money on its way, fanning out in greater circles yet.

The entire economy would soon be on the jump… and recession thrown headlong into rout, permanent and humiliating rout.

But this super-weapon packs greater wallop yet…

Everything for Everyone

It can furnish the wherewithal for a “Green New Deal,” universal health care, free college for all… and guaranteed employment.

If John is unemployed, if Jane cannot meet tuition, if Joe lacks health care… then simply print the money to make them whole.

Send it marching off for duty in the general economy, where it will make all shortages good.

MMT says unemployment, for example, is direct evidence that money is overtight.

Print enough and you have the problem licked.

But didn’t the government print money like bedlamites after the financial crisis? How can money possibly be tight?

Ah, but QE’s trillions were funneled off into credit markets, where they liquified the financial system.

They did not enter the Main Street economy. That is why inflation never got its start.

But with MMT, the money goes straight from the print press to the Treasury.

It can then be spent into public circulation — on a New Deal, for example. Green, red, blue, purple or pink… the choice is yours.

Or for free college, universal Medicare… jobs for all.

But you raise an objection. MMT is a cooking recipe for massive inflation, you say… even hyperinflation.

Inflation? No Problem

Yes, but the MMT crowd has anticipated your objection and meets you head on.

They actually agree with you. They agree MMT could cause a general inflation, possibly even a hyperinflation.

In fact, inflation is the one limiting factor they recognize, the one potential monkey wrench jamming the gears.

But they have the solution: taxation.

If inflation begins to bubble, to gurgle, the government can simply drain the excess dollars out of the system.

Under MMT the economy is the tub. Taxation is the drain.

Under the theory, in fact, stifling inflation is taxation’s central purpose. It is not to raise revenue.

“Ignoring It Would Be Foolish”

Is the theory crackpot? Yes, we are convinced it is.

But desperate times invite desperate measures. And when recession rolls on through the Federal Reserve’s defenses… desperate measures we will see.

We cannot say when of course. Nonetheless…

“[It] is coming,” warns analyst Kevin Muir. “Ignoring it would be foolish.”

Yet these are foolish times…  inhabited by foolish people.

Do you require proof?

Simply recall the recent counsel of a senior Federal Reserve official:

“If there’s a recession, don’t worry.”

Regards,

Brian Maher
Managing editor The Daily Reckoning

The post “If There’s a Recession, Don’t Worry” appeared first on Daily Reckoning.

Allison Ostrander – Market and Induvidual Stock Comments – Thu 19 Dec, 2019

The FedEx/Amazon News And How To Trade It, Plus Targets For The S&P

Allison Ostrander, Director of Risk Tolerance at Simpler Trading kicks off today with comments on the big down day for FedEx shares on the back of Amazon advising its sellers to avoid using the company for holiday shipments. We also look at the overall health of the US markets for 2020. Politics plays a roll but so does market liquidity.

Click here to follow along with what Allison is trading over at Simpler Trading.

Beware Good News!

This post Beware Good News! appeared first on Daily Reckoning.

Mr. Jerome Powell and his mates sat on their hands today — no rate cut:

The Committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions and inflation near the Committee’s symmetric 2% objective.

Nor does “the Committee” intend to cut rates next year. But what of possible rate hikes?

Only four of 17 members anticipate a quarter-point raise in 2020.

Of course… the Committee hooked the standard disclaimer to their announcement:

The Committee will continue to monitor the implications of incoming information for the economic outlook, including global developments and muted inflation pressures, as it assesses the appropriate path of the target range for the federal funds rate.

The stock market greeted the news with a general shrug of the shoulders. It was, after all, expected.

The Dow Jones gained 29 points on the day. That is, it barely made good yesterday’s 28-point loss.

The S&P scratched out a nine-point gain. The Nasdaq fared best — up 38 points today.

The world jogs on.

But let us take a brief canvas of the overall economic condition…

Stocks presently summit new heights, unemployment presently plumbs old depths, consumer confidence is presently up and away.

Meantime, the Organization for Economic Cooperation and Development (OECD) claims the global economy has swung 180 degrees since October.

That is, the global economy has swung from contraction to recovery since October.

Sample quote:

Stable growth momentum is anticipated in the euro area as a whole, including France and Italy, as well as in Japan and Canada. Signs of stabilizing growth momentum are now also emerging in the United States, Germany and the United Kingdom, where large margins of error remain due to continuing Brexit uncertainty. Among major emerging economies, stable growth momentum remains the assessment for Brazil, Russia and China (for the industrial sector).

Just so.

If October did represent an actually inflection point, investors can prepare for a merry run…

Reports Saxo Bank’s Peter Garnry:

Our business cycle map on country level going back to 1973 suggests that if the turning point came in October, then we are entering the most rewarding period for investors in equities relative to bonds. The average outperformance for equities versus bonds in USD terms has been 9.4% for every recovery phase.

Look close. You can almost see the erring stars returning to their courses… the angels returning to their posts… the Perfections returning to view.

But as we have noted before:

While bad news frightens us… good news terrifies us.

Too many animal spirits are unchained, too many guards go down, too many fools rush in.

Have they forgotten the trade war? Are global debt levels falling? Is a white age of peace suddenly upon us?

And we might remind the chronically hopeful of this capital fact:

Recession is a menace that often arrives unannounced, like an influenza… or an unexpected visit from a mother-in-law.

Periods of seemingly incandescent growth may immediately precede it.

Please consult the following dates. Each reveals the real economic expansion rate — that is, the economic growth rate adjusted for inflation — immediately before a recession’s onset:

  • September 1957:     3.07%
  • May 1960:                2.06%
  • January 1970:          0.32%
  • December 1973:      4.02%
  • January 1980:          1.42%
  • July 1981:                4.33%
  • July 1990:                1.73%
  • March 2001:             2.31%
  • December 2007:      1.97%.

(We doff our cap to Lance Roberts of Real Invest‍ment Advice for providing the data.)

You are immediately seized by a strange and remarkable fact:

Recession has followed hard upon jumping growth rates of 3.07%, 4.02%… and 4.33%.

The quote of our co-founder Bill Bonner springs to mind:

“It is always dawnest before the dark.”

Let the record further reflect:

Growth ran 2% or higher immediately prior to five of nine recessions listed.

“At those points in history,” Roberts reminds us, “there was NO indication of a recession ‘anywhere in sight.’”

Once again… here we refer to real growth, which minuses out inflation’s false fireworks.

Now come home…

Third-quarter 2019 GDP came ringing in at 2.1%. And the Federal Reserve projects 2019 will turn in 2.2% growth when the final tally comes in.

What was GDP before the last recession — the Great Recession?

1.97% — a general approximation of the rate presently obtaining.

Shall we enjoy a belly laugh at Ben Bernanke’s expense?

Granted, it is nearly too easy — like guffawing at a justice of the Supreme Court who slips on a banana peel… or whose toupee is carried off by a sudden gust.

But in January 2008 Mr. Bernanke stood proudly before the world and exulted:

“The Federal Reserve is not currently forecasting a recession.”

Below, Jim Rickards shows you why one the Federal Reserve begins intervening in markets, it cannot stop. Where will it take us? Read on.

Regards,

Brian Maher
Managing editor, The Daily Reckoning

The post Beware Good News! appeared first on Daily Reckoning.

Exclusive KE Report Commentary – Mon 18 Nov, 2019

Introducing a new guest Peter Hanks, Analyst at DailyFX – A big Picture Look At The Markets

I am happy to introduce Peter Hanks, Analyst at DailyFx. Peter and I take a look at the big picture for the markets and money flows. This includes trade updates, central banks policy and the moves so far this year in US markets compared to the safe assets. We also look ahead to 2020 and assess the likelihood of a recession as well as the major driving factors for the markets.

Click here to visit the DailyFX website and follow along with what Peter is writing.

Weekend Show – Sat 26 Oct, 2019

Hour 1 – Featuring Jesse Felder, Rick Bensignor, and Matt Geiger

This first hour is full of extended segments with topics ranging from overall US markets health to opportunities in depressed markets, and of course comments on the resource sector. It’s fascinating to see three different types of investors and money managers all have similar outlooks for risk on and risk off assets.

Please feel free to share your thoughts by commenting or emailing me at Fleck@kereport.com.

  • Segment 1 – Jesse Felder, Founder of The Felder Report kicks off the show with an extended conversation starting with a discussion on distinguishing between a bubble and a mania. We then look to some of the sectors that Jesse sees as offering great value for investors.
  • Segment 2 and 3 – Rick Bensignor, Founder of Bensingor Investment Strategies shares his thoughts on the US markets, Emerging Markets, copper, and gold.
  • Segment 4 – Matt Geiger, Managing Partner at MJG Captial focuses on the resource sector. We chat about the weakness in the USD and how that could impact the metals; how he is positioning his fund for tax loss selling season; and what he thinks will finally drive M&A activity in the sector.

Exclusive Company Interviews This Week


Jesse Felder
Rick Bensignor
Matt Geiger

Weekend Show – Sat 12 Oct, 2019

Hour 1 – Recession Fears, Trade War Updates, and Investing Strategies

This weekend you get a full two hours of market and economic commentary. In the first hour I focus on the many predictions of a recession occurring in 2020. We also discuss the trade war developments from this week and how it all relates to overall market direction.

The second hour of the show is focused on resource investing. Be sure to check out that posting under “Hour 2”.

Please let me know what you think of this weekend’s show. I love hearing from all of you and do my best to get back to your emails. My email is Fleck@kereport.com.

  • Segment 1 & 2 – Mike Larson, Editor of The Safe Money Report kicks off the show with his thoughts on a possible 2020 recession. We look to the recent IPO market failures and the comments made by Powell earlier this week.
  • Segment 3 – Chris Temple recaps the market moves at the end of the week on the back of the trade developments. The move to risk on was drastic at the end of the week.
  • Segment 4 – Jeff Christian, Managing Partner at the CPM Group distinguishes between a recession and full on financial collapse that some are predicting. From an investing perspective this is very important for when the large correction hits.

Mike Larson
Chris Temple
Jeff Christian