INVESTOR’S first read.com – Daily edge before the open
Monday September 9, 2019 9:09 a.m.
The market has attracted buyers who are hoping for a Fed rate cut on the 18th and positive developments in October coming out of the US/China trade talks.
Fed Chief Jerome Powell said Friday that the US economy “remains strong”…. “Labor market is in a good place” …..that “the labor market is in a good place.”
If so, why is the Fed cutting its fed funds rate ?
Why would it encourage more borrowing when Politico reports “
High Debt Levels Are Weighing on Economies, adding “Debt Owed by governments, businesses and households around the globe is up nearly 50% since before the financial crisis [2007-2009] to $246.6 trillion.”
If stock prices bear any correlation to earnings, it is worth pointing out that FactSet now projects a decline of 0.4% in S&P 500’s Q2 earnings and a decline of 3.5% in Q3. For CY 2019, it sees earnings rising only 1.9%. What’s more, projections for 2020 have dropped from double digits to earnings growth of 8%, as of this day.
August’s Consumer Sentiment Index dropped below 90, the first time since 2012.
The ISM Manufacturing Index has dropped below the expansion level .
Why then is Fed Chief Powell saying the economy remains strong ?
Why not tell the truth – the economy is sucking wind ?
Granted the market would be going down not up, buy at least investors would not be so quick to rush in at all-time highs.
When will these guys start to tell the truth.
It’s all about preventing a recession/bear market in 2020, a presidential election year. The problem here is, when a recession does hit, the Fed won’t have any means to counter it. That can only mean one thing – an extended recession/bear market.
It’s early September, the restart of US/China trade talks won’t take place for more than a month. As we have seen in the past, a lot can happen between now and then.
Technically, the market has traced out a base in the DJIA 25,600 (S&P500:2,850) area and can run to new all-time highs in face of another Fed rate cut and hype about trade talks.
This does not preclude another leg down after this run, October has tended to punish stocks before the beginning of the historically positive November/April run up in stocks.
Expect the Administration, the Fed and certain prominent individuals on the Street to say anything to convince investors we are not in a recession and facing a bear market. They know a recession in 2020 would decrease chances of a Trump re-election.
Minor Support: DJIA:26,676;S&P 500:2,968;Nasdaq Comp.:8,047
Minor Resistance: DJIA:26,897; S&P 500:2,989; Nasdaq Comp.:8,129
Friday Sept. 6 “Rally Over ??”
Why would anyone want to rush in to the market that is significantly overvalued by historical precedent, selling close to an all-time high with the economy on the threshold of a recession ?
Most likely it is humans being human, not wanting to miss making some fast money, the kind of greed that precedes every bull market top.
Memories tend to be short, especially when those memories are ugly. It’s been 11 years since a bear market was sinking its talons into millions of petrified investors.
If the looming trade talks yield meaningful progress, the market will spike higher. But I think the smart money will be selling into that spike.
I sense that the Trump administration and Fed fear a bear market because it has the potential to be brutal and long-lasting, kind a combo of 1987 (minus 41%) and 2007-2009 (minus 55%).
The ’87 bear was not accompanied by a recession, but was triggered by computerized “program trading” run amok causing a technical breakdown, 20.5% in just one day (Black Monday Oct. 19).
The 2007-2009 bear market was triggered by the implosion of highly leveraged mortgages and credit leading to a recession.
What troubles me most is leverage and a reliance on computer algorithms to do the Street’s thinking and take action .
While there have been bear markets without a recession, there has never been a recession that was not accompanied by a bear market.
Thursday Sept. 5 “The Bubble Is Back ! Will They Ever Learn ?”
NO ! They never will. They never have, not in 2007, 2000, 1998, 1990, 1987, 1983, 1981, 1980, 1976, 1973, 1968, 1966, 1961.
Here we go again, trade war rhetoric, Trump says China wants to make a trade deal… “We’ll see what happens.” Right ! That said just when it seemed the stock market was about to plunge.
But that’s not all. Trump also said Iran wants to talk…they want to make a deal.
Not to be upstaged, the Fed’s Beige Book painted a positive picture even though the US ISM Manufacturing Index slipped below 50 (no growth) in August, its fourth straight month and Consumer Sentiment had its worst drop since 2012.
Maybe this is the time something good will happen, but I warned yesterday to beware of Bear Market Rallies Driven By Fed Comments and Trade War Bullshit.”
Here’s the problem with the “news whipsaw.”
It sucks investors back in the stock market which puts them at risk of getting clobbered if the news fails to turn out positive.
The administration and its soul mate, the Fed, will stop at nothing to head off a recession in 2020, which is fine if they can pull it off.
BUT DO NOT MANIPULATE STOCK PRICES, because people get hurt, big-time if the ploy fails.
Let the market find a level that discounts real and possible positives and negatives.
Wednesday Sept. 4 “Beware: Bear Market Rallies Driven By Fed Comments and Trade War Bullshit”
Early futures trading indicates the market will open higher. News of progress on US/China trade would crank the market up, as would statements by the Fed about another cut in interest rates.
We are in a global slowdown which will be labeled recession looking back around year-end.
Lower rates are not going to do it. Senseless rhetoric won’t either. Expect the debt laden consumers and businesses to walk away in coming months. Government debt does not allow for additional spending. Everyone needs to step back and re-load.
The Street is hanging tough, does not want a bear market, or thinks the damage to the economy and stock market will be limited.
Where they are going wrong here is, just when it looks like the economy and market will survive with minimal damage, things get worse, then get worse after that, a string of endless negatives that changes a 12% correction into a 35% – 45% bear market.
Just one recession warning sign, the ISM Manufacturing Index and the New Orders Index slipped below 50 (no growth) in August, the fourth straight decline. A survey of purchasing managers, the index encompasses inventories, employment, production, supplier deliveries, exports, imports, and prices.
US Consumer Sentiment dropped below 90 in August, the biggest monthly drop since 2012.
To make matters worse, Bridgewater Associates Ray Dalio is warning the Fed no longer has the tools to reverse economic downturns even if it cuts its fed funds rate for the second time September 18. Printing money and buying assets has a limited impact, according to Dalio, founder of the world’s largest hedge fund and consistently successful at managing money.
The Fed did a great job in helping the country survive a total meltdown in the 2008-2009 Great Recession/Bear market, but overstayed the recovery trying to micro-manage the economy and stock market. Now they are a financial eunuch with limited impact.
FYI: Oftentimes the market will run in reverse to the day’s trend between 2:45 and 3:20. Be careful not to get sucked in. For lack of a better name, I have call it the “mid-afternoon counter move.”
Tuesday Sept. 3 “Overvalued Stocks + Trade War Escalation + Recession = Nasty Crunch”
November 29, 2018 Investors first read blog, “Fed’s Powell Jumps in Trump’s Swamp.” I criticized Powell for caving to Trump who demanding it cut interest rates to head off a plunging stock market.
Powell, acquiesced, saying “There is no preset policy path, adding, “We do not see dangerous excesses in the stock market…that no major asset class is significantly inflated.” Really ?
The stock market rallied sharply sucking sideline sitters in only to have them hammered by a 13-day, 16% free fall.
January 11, 2019 blog: “Fed Chief Powell Says: No Recession 2019” – WRONG ! It Has Already Started !,” I blogged.
Again the stock market soared giving investors a false sense of security. I think the Fed loves the power to move markets. They don’t like heat, too many egos.
I have never thought the Fed understood market action, the back and forth jousting as investors duke it out to arrive at a value that discounts positives and negatives, real and perceived. They have a “balance your checkbook mentality” where everything has to make sense. In the real world, it doesn’t.
What is happening in America is all so crazy, so phony. The end cannot be pretty. We are living in a world where lies from the very top are the new normal.
The stock market has been propped up artificially by rhetoric and a “Street” that cannot accept the fact the party is over – last call.
Maybe I have experienced too many bear markets (13 in all) always seeking answers, the truth, but this one really sucks. It reeks of arrogance and naivete.
The stock market is one place you cannot afford to be deluded, because score is kept every day and eventually some of the BIG players will Get it, bail out – others follow.
You see, so many decisions are based on computer algos, and they cannot possibly be programmed to factor in the gross dysfunction of our government, the lies, and disrespect for the rule of law.
While the price of a stock is determined by any number of yardsticks, at the end of the day (or bear market) it is a matter of opinion based human emotions of fear and greed and these are open ended at extremes.
When the bear calls, it will be straight down as all those algos self-destruct.
Oh, one other point – as interest rates plummet and bond prices soar, what happens to the panicky buyers of long bonds when interest rates rebound ?
The value of their bond portfolio plunges, of course.
What No One on Wall Street Wants to Hear
>We are in the late innings of an economic expansion, so a recession is a good bet. The current expansion started in June 2009, has lasted 120 months, the longest in history, twice as long as the average length of 11 cycles since 1945.
> Of the 10 recessions since 1950, the average time between the low point in the unemployment rate and the start of a recession was just 3.8 months. The unemployment rate is 3.6% which was hit in May. Technically, we won’t know when the start of the current recession is official for months after the fact, since that conclusion is reached by the Nat’l Bureau of Economic Research (NBER) and they consider host of economic indicators.
>Bear markets lead the beginning of recessions by 3 to 12 months. The current bull market at 123 months is 4 times the average of the last 15 bulls going back to 1957
>Nine out of the last 10 recessions have occurred with a Republican in the White House.
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Investor’s first read, is a Game-On Analysis, LLC publication for which George Brooks is sole owner, manager and writer. Neither Game-On Analysis, LLC, nor George Brooks is registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. References to specific securities should not be construed as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment in keeping with their tolerance for risk.