Equities Are Up
 

Equities are up in the face of a BAD jobs number, indicating a slowing economy. Which portends a FED interest rate cut. How can that be? What perverse Alice In Wonderland logic is at work here?

The answer is simple, the world is living under the Dictatorship of the FED and other Central Banks since the FED launched QE3 in September 2012. Equity action this week once again proved the validity of that reality.

THE Sp500 will once again test its old high of 2945. Once it crashed through 2800 it was cocked and loaded. As usual the only caveat is if a Black Swan event occurs.

What is not to understand about this equation?

FED isn't going to drop rates. The economy isn't slowing.

The jobs report is very good if you are invested in the stock market mid/long term. Simple questions for you.

What is the unemployment rate? Did it go up? Why not?

What does this do for interest rates?

Will this combination drive the market up or down today? Why?

Then:

What caused this? Fear of the President's proposed tariffs?

What happens when there are lower interest rates and there is a trade deal/no tariffs...and Mexico starts helping with the border? Does the market shoot up significantly or down? Does this combination help or hurt the President's chances of reelection?

The market is so oversold due to bad "fake news" that value play is inevitable.

If this scenario is not planned, one could not have done better.

This smells of the pure essence of Jabberwocky.

Dunno if the fed dropped the overnight rate, but bond rates are down. Currently, the 5 years pays 1.85%, the 10 year 2.08%. Not sure on the jobs report, but I'll assume Tabs is accurate.

I don't see them dropping rates because inflation is still pretty much nonexistent. I don't see a one month low report making the FED panic and it shouldn't make anyone else panic either. Demand is still good from what I've been seeing in business.

I've read reports of car manufacturers cutting back on production due to unsold inventory. One close to home example is when I posted some months ago of dealerships asking and getting additional dealer markups of $5-7K for the new '19 Bullitt Mustang. Today? Hundreds of them being offered across the land for $4-5K under sticker.

(edit) If you're totally into equities, I'd suggest a little asset reallocation in the interest of safety.

Just saw and article about a very strong used car market. Probably has something to do with new costs going up. My good friend just bought a 2019 F150 ecoboost for about 40K. I saw a 2016 with about 40,000 miles for around 27K. I had to ask him "are you nuts!?"

75k when 180k were expected. And the 3 month rate is...2.3%..more interest for 3 months than 10 years of risk...hmmmm

Powell says, "The FED will be closely monitoring the economy and will take the appropriate action. " That is comforting to know.

"1.75% by years end for the 10 year" some think it will push all time lows in the 1.3% range.

It is rather perverse to think that bad economic tidings drive the sp higher. That is Alice In Wonderland. So the question becomes what is wrong with this picture? What fuels that rational and makes it operative?

With inflation low they could afford to drop rates,. They don't want to drop rates when inflation is high.

I do agree that they won't react to one months data set.

The reaction to this month is nothing more than an educated hedge on, well, nothing.

June, that's what you want to look at. July even more so.

Nothing to see now, move along.

Yeah, I could have worded that better.

Very good question Tabs. My answer is that I dunno... It must go a bit beyond because interest rates are low, so people have nowhere but equities to pour money into.

I am looking at the REACTION to the bad news and not the news itself.

Who cares about the reaction? People are ****ing morons. Why would you care how morons react?

Those bond rates are set by market expectations and not by the Fed.

Buyers are concerned about global economic health so more money tends to move to bonds and out of more risky holdings. When more money chases bonds the price is higher which translates to a lower yield.

Basically, bond buyers are concerned about economic growth and are trying to lock in long term rates that they think will be lower moving forward.

Yes it is the only game in town...but it is the FED guarantee that opens the door and allows it to happen.

The guarantee is that they will do what it takes to keep the economy afloat. Cut rates print money.

Everything else is just meaning less noise. A blip on the screen.

I am talking about the "fking morons" who have their hands on the lever, the ones who run your life.

The bond market is concerned about a looming recession.

More money is going long term which is driving down yield. Less money is going into short term which drives up yield. If you can't sell your short term bond because of lack of demand you have to accept less for the bond which drives down yield.

They are going long to lock in a perceived a higher long term yield vs an expected future lower yield due to expected future fed rate cuts.

Personally, I think they are correct.

Also, a lower/higher yield does not necessarily mean that we are printing more or less money.

This means the Institutional guys are REAL Worried about the economy. Which in a normal world would dampen Equities...but that is not the case..money is flowing into Equities.

The FED REASSURES investors with their guaranteed activism. It is providing a monetary safety net. Since 2012 except for part of 18.That gives the investors license to move money into equities..so that many pension funds can remain solvent. The risk of equities becomes acceptable with the FED guarantee

Take awAy that FED guarantee and equities tank like in December. Which was a normal world response to the real .economic conditions.

The rational behind the machinations is to keep the lights on and the economy turning. Otherwise.......

Using rates has been happening for forever. It is nothing new. Bonds are signalling the risk of recession. Stock buyers aren't so sure but they still expect decent earnings over the next 6 months.

Lower rates does not mean we are printing more money or increasing debt.

I can see a recession this year with a rate cut later in the year.

With the FED monetary safety net we have a fake economy..

Raising or lowering fed lending rates does not make a fake economy.

Increasing debt as a % of gdp does.

What happened to Equities when the FED announced Oe3 in Sept 2012....Equities went up up up...

What happened to Equities when the FED changed policy to a Neutral stance and were reducing liquidity by reducing their balance sheet in 2018. Equities cracked and by years end were collapsing...in the face of that great Trump economy..which should not have happened if the economy was so good an rock solid.

Which makes that Trump economy nothing but bloviation.

When the FED changed back to monetary activism..why everything became swell again with Equities...hitting new highs.

That is the twin devil..America and the rest of the world is burning the candle at both ends..

Debt is being used to keep the spending party going which keeps the lights on and the economy turning.

The American consumer has been tapped out since the RE crash in 08. So the US govt stepped in..

QE is not the same as an interest rate cut. They were adding money to the economy and then " buying" the excess. If all the increased spending (bond sales) had hit the market the rates would have climbed. More supply than demand would require higher rates to push the sale of the excessive amount of bonds hitting the market. The opposite of what is needed during a recession. Spending was the problem. Not the fed lending rates.

Far different than a simple interest rate cut. You are barking up the wrong tree. Lowering the fed lending rate to match economic realities is not "juicing" the economy.

So what happens when everything in between both of the burning ends of the candle gets burned up and the ends meet?

I do think that when the 10 year Treasury gets below 1% you ought to start paying attention.

I see what is going to happen.

Damn, that has nothing to do with fed lending rates. The fed adjusting lending rates to match economic conditions is not the actual CAUSE.. It is a SYMPTOM.

You are still barking up the wrong tree. Lower rates DO NOT CAUSE INCREASED SPENDING OR ADDITIONAL DEBT LOAD WHICH IS THE PROBLEM.

Until 12/14 the FED was printing..the EU kept at it until at least.12/18. The Chinese state owned banks reduced lending requirements...easy money...thus their form of juicing. They are still doing it..

Without fed juicing us equities went flat in 15..

The other tenent of qe3 was keeping interest rates low until the cows came home..it was a 2 pronged policy. Somebody whispered in the FED'S ear that they couldn't keep printing without unintended blow back. So they Tapered off the printing.


FED policy facilitates or enables the govt to borrow..by keeping interest rates low the govt can borrow more at a lessor cost. With the massive quantities of newly printed it insures plenty of liquidity sloshing around to buy debt.)

The FED provides the liquidity and cheap cost so the govt etc can borrow which then gets recycled through the economy. Thus the lights stay on and the wheels turn.

The irony has been that the global economy so worries everybody in the world that they flock to the high ground safety of usd, equities, bonds re. Which has been a boon to the us.

QE 1, 2, 3, or 99 are not interest rate cuts by the fed. A cut in rates is a symptom of the other underlying factors. It adds zero debt.

Where am I wrong? Just a few hours later, it appears I am prescient.

The locus of power is the FED and other Central Banks. Everything else Trump, tariffs the wall trade deals tax cuts Nancy is all noise.Blips on the screen that get a a few days play. Meaningless.

Without Central Bank activism globally the global economy starts to tank. It has no legs of its own. With that being the case you have a fake economy. An Alice In Wonderland illusion where Equities go up on negative news.

It is a perverse reality that is hard to fathom and harder to swallow. In essence you are standing on quicksand.

This is what you fail to get your head around and you are not alone. It leaves you and others in a state of bewilderment trying to figure out how could that have happened..of course you have to lay the blame somewhere.

Uncertainty....at the top? I'm a tariff man bs....

I'll watch...don't like what the FED has done the past 6 months either...disappointed as a fiscal conservative too :(. Cheap credit forever....WTF Tabby....I dunno?

I'm doin' just fine on the sidelines....watching my POT stock go "up in smoke" though ;)...

Ten year expansion is done for....global recession looms....mebbe...WhoTF knows with the T man in charge...Tax/Tariff/T :(?

The artificially low rates we've had for a LONG time now....absolutely causes additional debt loads, but on cars, houses, corporate debt, etc.
It's not fiscally conservative either imo.

There are none in DC....not in my lifetime :(

Current rates aren't artificially low. Inflation at 2% leads to low interest rates. 2% is in the sweet spot.

^^^ If one is OK with fiscally liberal, easy credit mebbe, NEVER to actually be paid back...but not in my world.

How do ya get out of debt....die?

Higher inflation and interest rates aren't the answer.

The Fed is not setting the 2, 5, or 10 year rates. The bond traders move the rates up or down.

Normal interest rates are desirable...the FED didn't quite get there..another 50 basis...before "tariff man" spoke on Dec. 4th and here we are...

I'm not getting back into equities like before....but the FED has thrown me a curve, and there's not a fiscal conservative to be found in DC...not one. Same with many households too...

I'm looking at stuff maturing....as I planned, but getting a full % point less than just 6 months ago...you bet things are screwed up :(. Because I expected the FED to do the fiscally conservative path they laid out....

But 2.9 gdp growth isn't good enough for some....let's juice it some more....wtf :(???

I have no clue where tariff man takes us....just along for the ride...sober ;)

Seems like the path I have recommended has always put me in the money...while others predicting doom have not done so well.

How do you construe full employment and no decrease in wages or employment to be such negative news? There are more jobs than people to fill them, even after so many have returned to the workforce. Any employable person not working now, chooses that path.

I think my prediction of the deal with Mexico yesterday to be pretty darned good. Note that you did not see that anywhere else. Similarly the decrease is interest rates that I have expected.

One does not make money without risk...and while the "sky is falling" methodology works eventually if you proclaim it long/often enough...as cyclical events will eventually result in some losses.

Slightly lower rates are exactly what is needed and were to be expected. Anyone investing in instruments that are dependent on higher interest rates for return are simply making an error. The jobs number was very helpful...and the Tariffs a stroke of genius.