Aside from making me happy, why do such harm to your aging eyes? Because all the crapola I am reading these days says that the Fed must raise interest rates to head off an impending disastrous bout of ghastly inflation. Interesting dilemma -- the Fed's policy to head off inflation seems more upsetting to our economy than the actual inflation. Its like buying an automatic weapon to keep your neighbor out of your backyard and then shooting yourself in the foot.
There's nothing wrong with the Fed wanting to raise interest rates to restore normalcy to rates. There is also nothing wrong with trying to lose weight. But that doesn't mean you go on a diet right after a major medical procedure. Give yourself a few days to recover -- then go on the diet.
I wrote a brilliant piece for this blog back on June 16, 2015. In the post I made the point that most recessions followed after the Fed tightened policy and raised rates following increases in the inflation rate. So it is not silly to wonder what will happen if the Fed continues on this path of fighting an inflation acceleration that isn't even there.
One more point. President Trump criticized the Fed but for the wrong reasons. If the Fed is the golfer with no short game then Trump is the golfer who hits the ball a very long way but one cannot predict on which fairway it will land. If Trump thinks the main reasons the stock market is tanking has to do with minuscule increases in the Federal Funds Rate then he is truly ignorant of economics.
I hope you got everything you wanted for Christmas.
I think (not often) that Trump is angry with the FED not because of WHAT they did, but rather HOW they did it. The very thought of increased rates scares the nickles out of investors, large-scale funds, Wall St pundits, etc., and everyone else not as smart as we. This whole FED thing was done at a time when the FED knew it would cause wide spread panic; therefor doing it a bit later and quieter might have been gladly accepted. This makes Trump look bad, not that he needs more help.
ReplyDeleteConsider that this whole bru-ha-ha may be a convenient cover for many that are frightened that the new Democrat House can have far reaching effects on Federal (and other) budgets negating any gains the Trump administration may have made. Political Financial Spite, if there is such a thing.
Hi John,
DeleteThanks for the comment. I wish I was on a stool next to you at the Office right now. I respectfully disagree with you on three counts. First, this latest increase by the Fed is part of a multi-step program to bring normalcy to money and interest rates. There was no real reason to hold off on this latest increase. Second, rising interest rates are hardly ever a bad sign in a strong economy as they are simply part of an overall benign picture. Third people have come to have a more dismal view of the economy mostly because of things not related to the Fed's policy like the trade war, problems in China, Japan, and Europe, a very stupid government full of extremists, and so on. In short, the Fed did not rattle the markets. The world and Mr Trump did.
Dear LSD. Being a binge watcher of biz newz TV I see the market reacting in real time to comments, events, whatever, etc. It certainly moves on Jay Powell’s remarks and Fed actions so I don’t think Trump is too far off a straight shot down the fairway when he criticizes rate hikes. I watched the market react to China trade/tariff issues, Brexit predictions, uncertain U.S. politics, and Alexa malapropisms—only the former reflects DJT’s fingerprints. I speculate he has a reasonably good grasp of economics and knows—but doesn’t acknowledge—his China trade/tariff positions affect the market. I also speculate (2) because those positions are a principled campaign ingredient he believes their effect on the market will be short-term and therefore not to kick the hornets’ nest by acknowledging. I also speculate (3) he believes market gyrations reflect institutional investors with much moola in the market covering their short-term asses, minimizing losses, and selling to get end-of-year tax write-offs and that algorithms make trades so fast humans who would otherwise not panic/sell can’t keep up. All of this contrary to conventional economic fundamentals which should support a stronger stock market.
ReplyDeleteSanta didn’t come through with all I wanted but my good buddy finny frendz got me the most-wanted gift on my list—the Golden Girls ‘Rose’ Chi Pet decorative planter. Life is good.
As usual, the Tuna stirs the water. But on this one we definitely do not agree. I think Trump is trying to deflect blame from his own policies to those of the Fed. The markets will behave as the market behaves -- heaving and hoeing. No problem there. But this time Trump carries a lot of the blame. I have mostly defended his policies that I thought were good for growth. But lately he seems to care more about his supporters than the country. I didn't like it when Obama favored certain groups and I don't like it when Trump does the same. I don't give a damn abut campaign promises. What I care about is sensible policy. Trade, debt, the Wall, defense, and more are hurting us. The Fed is nothing in this picture.
DeleteI heard that Peter was eyeing your Rose so you better what out. He's pretty sneaky.
Splish splash!
DeleteMaybe it's as simple as examining Trump affiliated trading activity before and/or after each tweet/policy pronouncement.
ReplyDeleteNothing is simple with Trump!:-) How you doin?
DeleteCould not agree more.
DeleteTo Larry's critics: the Fed doesn't raise interest rates. It raises one interest rate, the Federal Funds rate, which may or may not raise other rates. As it happens, the interest rate on the 10 Year US Treasury has been falling. The 10 year is the most liquid rate. It was 3.91% on 11/08/2018 it closed at 2.716% today. For the Wharton Grad (our President) and his adherents, 3.9% is higher than 2.716%. So "interest rates" have really nothing to do with stock market volatility over the past month.
ReplyDeleteThanks Mr. Yachts. Your help is much appreciated.
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