Haunted by Ghosts of the Old Eastern Bloc

Jerome Powell, the new Chairman of the Federal Reserve, just completed his third week on the job.  He’s hardly had enough time to learn how to operate the office coffee maker, let alone the all-in-one printer.  He still doesn’t know what roach coach menu items induce a heinous gut bomb.

Yet across the planet, folks high and low are already telling him exactly how he should do his job.  What’s more, they’re passing advanced judgement on things that may or may not happen.  For example, the South China Morning Post recently offered the following opinion:

“President Donald Trump may have done Janet Yellen a favour by not giving her a second term as Chairwoman of the Federal Reserve.  Her successor, Jerome Powell, may have inherited a poisoned chalice.  The Fed will have to up the pace of U.S. rate hikes or risk accusations of being behind the curve as markets react to signs of rising inflation.”

When Powell showed up to work on February 5, for his first day on the job, the general consensus was that the Fed would raise the federal funds rate three times this year, at 25 basis points – or 0.25 percent – per increase. Continue reading

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When Budget Deficits Will Really Go Vertical

United States Secretary of Treasury Steven Mnuchin has a sweet gig.  He writes rubber checks to pay the nation’s bills.  Yet, somehow, the rubber checks don’t bounce.  Instead, like magic, they clear.

How this all works, considering the nation’s technically insolvent, we don’t quite understand.  But Mnuchin gets it.  He knows exactly how full faith and credit works – and he knows plenty more.

In fact, Mnuchin’s wife, Louise Linton, says she admires him because “he understands the economy.”  And Mnuchin, no doubt, admires Linton, a Scottish actress 18 years younger, because “she loves SoulCycle Snapchat filters that make people look like puppies and piglets.”  Naturally, Mnuchin gets the importance of puppy and piglet filters and how this bizarre fad fits into the big picture of the economy.

Unlike Mnuchin, we find the economy, and its infinite and dynamic relationships, to be beyond comprehension.  But that doesn’t deter us from attempting to make some sense of it each week.  When it comes to Snapchat filters we know nothing – and we could care less.  Still, who are we to question Snap Inc.’s $24 billion market capitalization? Continue reading

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What Kind of Stock Market Purge Is This?

Down markets, like up markets, are both dazzling and delightful.  The shock and awe of near back-to-back 1,000 point Dow Jones Industrial Average (DJIA) freefalls are, indeed, spectacular.  There are many reasons to revel in it.  Today we shall share a few.

To begin, losing money in a multi-day stock market dump is no fun at all.  We’d rather get our teeth drilled on at the dentist.  Still, there are many positive qualities to a rapid selloff.

For example, the days following a market correction are full of restoration and redemption.  Like the prayer of Saint Francis of Assisi, Tuesday’s 567 point DJIA bounce brought hope where there was despair, light where there was darkness, and joy where there was sadness.  President Trump even acknowledged that his powers over the stock market are less than omnipotent.

From a practical standpoint, a market correction clarifies that we live in a world that is exacting and just, as opposed to a fabricated fantasy.  A stock market purge demonstrates that the central planners haven’t entirely broken the markets.  Markets still go both up and down.  This important detail’s always forgotten at the worst possible time. Continue reading

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How to Buy Low When Everyone Else is Buying High

The common thread running through the collective minds of present U.S. stock market investors goes something like this: A great crash is coming.  But first there will be an epic run-up climaxing with a massive parabolic blow off top.

Hence, to capitalize on the final blow off, investors must let their stock market holdings ride until the precise moment the market peaks – and not a moment more.  That’s when investors should sell their stocks and go to cash.

Certainly, this sounds like a great strategy.  But, practically speaking, how are you supposed to pull it off?  Specifically, how are you supposed to know the exact moment the stock market peaks?

Is the definitive sign of the top when your shoeshine boy offers you a hot stock tip?  Is it when your neighbor tells you about his surefire strategy to juice his returns by shorting the Volatility Index (VIX)?  Is it when your early morning gym acquaintance proudly boasts how he just purchased a luxury pair of Sea Doos using something called a “portfolio line of credit?” Continue reading

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