People seem confused by this rally. Really a rally on top of a Fed induced (to a very large extent) bull market extending back many years. How can this be, some wonder? Trump is bad news. How could the market tick up, solidly and definitively, in the wake of Trump’s election?
My feeling, and it is only this, and it is sure to contradicted by many a CNBC Squawk Box special guest, is that investors are just relieved that Obama is gone and that America dodged the Hillary bullet.
We still haven’t felt the full wrath of the ghost of 2008. There is still more to pay. Many of us of course already have paid dearly, but the banking system has not paid the way it must. Which means that WE, the non-bankers will pay again.
Keeping powder dry is always smart, if possible. It’s not for many Americans. Which makes any potential crash highly destabilizing. Then add in the current political risk in the USA.
Watch Puerto Rico.
Taxes need to be cut. That is key. That must happen. Deregulation needs to happen. That also is key. The economy needs these things so that it can breathe.
But between Ryancare and the “Russia” dog and pony show perpetuated by a delusional (and wounded) political class in Washington the market is worried about the future.
And then there is the $20 trillion in debt hanging out there because for some reason we find it impossible to cut government.
The stock market is a weird thing.
I was listening to Bloomberg this morning and the pundits were pontificating as to the reason for the recent run up in stocks. Everyone agreed that it had everything to do with Trump, however the core reason for the run up was in dispute. Some said that the market was still factoring some sort of Trump “stimulus” of the classic Keynesian type. Others pooh poohed this idea and said that it was “animal spirits”
The “Trump bump” has been dramatic. There was a collective sigh of relief from investors as they watched Obama fly away on Marine One. Maybe, finally, the economy would be allowed to breathe.
Perhaps to some degree. But David Stockman warns correctly that the debt monster looms over the economy and that the debt monster is hungry. If we see a real move up in interest rates that debt, roughly 20 TRILLION dollars, is going to be much more expensive to finance.
No reason eh? It’s perfectly OK for a central bank to buy the market. Price discovery? Reality? Such things are so passe. So pre-2008.
Remember when people used to talk about this sort of thing in hushed tones? It wasn’t that long ago. Now? Right out in the open. Heck in some places it’s already DONE right out in the open.
Yellen says the Fed is not “ actively considering” any of the radical and destructive ideas she outlines in her speech, but if not why is she mentioning them? These ideas include: printing money to buy assets including stocks, targeting 4% or higher inflation, printing money until nominal GDP hits a certain target (Fed speak for until we get as much inflation as we want).
Also note that when ’08 hit, the Fed bought government supported mortgage securities even though that was illegal at the time.
As we’ve said before, many times, stocks go up and down. But FTSE performance immediately post Brexit is hugely telling.
They didn’t “shake off” Brexit. The markets, to almost everyone’s surprise – including Brexiteers – celebrated the UK’s independence.
There is a sense that the lock down the establishment banks and governments have had on things for years and years has broken down. Markets are taking in the oxygen. It’s real air too, not central bank created life gas.
Markets go up and down (at least they used to) and any future dip will probably be blamed on Brexit by some.
Image: Screengrab from CNBC video
This is called “an excuse.” People wanted to sell, they saw a big fat excuse to sell in Brexit, and so they have. (Some were just sure that Brexit wouldn’t happen and were simply forced to sell.) Smart people are also prudently looking to buy. But one way or another life will go on and the world will adjust. The big banks just got socked and that is a good thing.
Savers, you can forget about opting out of the stock market. If you want any kind of return you will get in the market and you will like it. So what if artificially repressed rates are crushing you? So what? Do you think you matter? Most of you savers will be dead soon anyway. You and your bank CDs. How quaint. Now pony up and buy some more stock grandma. Oh I’m sorry? You think there’s too much risk in the market?
Abenomics, the massive Keynesian experiment spearheaded by the Japanese Prime Minister has failed and now this failure is just becoming obvious.
This stimulus effort having failed some economists (see the attached video) now think that fiscal stimulus is needed. (As opposed to monetary stimulus.)
That ain’t gonna work either but things are getting ugly and the Keynesians are getting desperate.