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Fed Policy

Jul 08 2021

Are High Prices A Form Of “Tightening?”

  • Jul 8, 2021

It’s certain that today’s cyclical bout of inflation will prove “transitory,” if only because the word itself is practically meaningless. Our time on earth will also prove transitory, and so too will the current stock market mania—to the shock of most of the nearly 20 million “investors” on the Robinhood platform.

Jun 05 2021

Ulterior Fed Motives?

  • Jun 5, 2021

In an echo of last decade, the Fed has come under fire for keeping crisis-based monetary policies in place well after a crisis has subsided. Predictably, the Fed rationalizes its uber-accommodation by citing the slowest-to-recover data series from a set of figures that already suffer from an inherent lag (labor market indicators).

Jun 05 2021

We’re The Government And We’re Here To Help

  • Jun 5, 2021

Our trusted civil servants must have found a list of our old Economic/Interest Rates/Inflation components and began to “discontinue” those once invaluable to us and other Fed watchers. It’s a hindrance, but we still have the one that is most correlated to stock prices and it’s free: The ever-expanding balance sheet.

Jun 05 2021

Time To Start Thinking About “Thinking About…”

  • Jun 5, 2021

The COVID collapse showed the Fed could abandon its clunky forward guidance and make the appropriate “pivot” when the facts changed. Now that facts have changed for the better, the Fed is right back to the rigid and dogmatic approach that characterized Fed-speak for almost all of the last economic expansion.

Jun 05 2021

What Should Quants Count?

  • Jun 5, 2021

On May 25th, Fed Chair Jerome Powell promised to pull back emergency support “very gradually over time and with great transparency.”

“Very gradually?” No one doubts that. But “with great transparency?” Not a chance...

Mar 05 2021

More On The “Rate-of-Change” In Rates…

  • Mar 5, 2021

The liquidity and interest-rate backdrop for stocks has been favorable to such an extreme that we’ve cautioned any minor diminution in this condition could trip up the stock market. On that score, the monetary aggregates and the Fed’s balance sheet don’t pose much concern. On the other hand...

Mar 05 2021

Ruminations On The Fed, Past And Present

  • Mar 5, 2021

If the “Maestro’s” image was dinged from being the “original bubble-blower,” imagine what will happen to Jay Powell’s if stock valuations mean-revert alongside interest rates and inflation over the next few years.

Feb 05 2021

Early-Cycle “Overheat?”

  • Feb 5, 2021

Equities continue to benefit from an odd combination of faith and doubt in the Federal Reserve: Faith that the “Fed put” under financial markets is struck closer to the price of the “underlying” than ever before, and doubt that limitless liquidity will trigger a dangerous rise in consumer prices. In all fairness, this glass half full assessment is hardly a theoretical one, but one based on years of empirical evidence. 

Dec 05 2020

A 40-Year Inflationary Echo

  • Dec 5, 2020

When measured by the gains in stocks, gold, and house prices, there has been just one other occasion in which asset inflation was as “broad” as today—late 1980. But the differences in underlying fundamentals between then and now couldn’t be more stark. 

Dec 05 2020

A “Fed” Conundrum

  • Dec 5, 2020

“Don’t fight the Fed” has been great advice for stock market investors over the last nine months. For 2021, that won’t cut it. It should be: “Don’t believe the Fed.”

Nov 06 2020

Liquidity: As Good As It Gets?

  • Nov 6, 2020

Stock market manias thrive on buzzwords, and if there’s a single one that captured the essence of the late 1990s’ boom it was “productivity.” In today’s version, our top candidate is “liquidity”—and we doubt anyone would argue.

Oct 07 2020

Inflation In The Wrong Places?

  • Oct 7, 2020

Long before policymakers’ extreme response to the COVID collapse, we feared that the Fed’s interventions were suppressing important signals from the stock and bond markets. But we now suspect that hyper-expansionary policies are suppressing price signals from the “real” economy as well.

Sep 18 2020

Inflation: Looking Beyond The CPI

  • Sep 18, 2020

The Fed is hell-bent on generating inflation of 2% or higher in an over-supplied world that we think should probably be experiencing mild deflation. Their success or failure at this mission will be critical for asset allocators. For equity managers who must remain fully invested, however, the more important question might be not whether the Fed can generate higher inflation, but where.

 

Sep 05 2020

An Unwelcome Surprise?

  • Sep 5, 2020

Several measures of U.S. economic “surprises” have soared to all-time highs in the last couple of months, showing that even economic forecasters have finally learned to play the corporate game of  “under-promise then over-deliver.” Mind you, that’s only 30 years after most industrial firms eliminated the role of “staff economist.”

Sep 05 2020

Can Money Growth Trump All Else?

  • Sep 5, 2020

In 2019 and 2020, our regard for time-tested valuation tools resulted in tactical portfolios being underexposed to stocks during a pair of tremendous rallies. Now, the critique is that we don’t appreciate the brilliance of today’s policymakers and their miraculous ability to pivot just when the stocks (and, in the latest case, the economy) need it most.

Sep 05 2020

The Tab For “Freebies” Keeps Escalating

  • Sep 5, 2020

There’s an underlying faith that bureaucrats at the Fed and Treasury will keep good and bad businesses, alike, afloat—and overvalued. We’re still trying to unearth a single historical analog that merits such confidence.

Sep 05 2020

Musings On A Manic Market

  • Sep 5, 2020

Officially, those quick to pronounce the move off March lows as a new bull market have been proven correct with new S&P 500 all-time highs. Fundamentally, though, there’s enormous risk in Large Cap valuations, regardless of where one believes we are in the economic cycle.

Sep 05 2020

Keep Safe

  • Sep 5, 2020

A truly skilled writer would attempt to build up a little suspense before revealing the central theme of this section. But in this makeshift world of sixty-game baseball schedules and seven-inning doubleheaders, who has the time or patience for that?

Sep 05 2020

A New Proposal To The Fed: Buy Bank Stocks!

  • Sep 5, 2020

While most economic numbers have been positive, the fly-in-the-ointment was the latest Senior Loan Officers’ Survey. Banks have tightened their lending standards across the board.

Aug 06 2020

Measuring The Cost Of “Free”

  • Aug 6, 2020

The S&P 500 and NASDAQ have lately traded as if the hybrid “Fed/Treasury put” entails no cost at all. But dollar alternatives—like forex, precious metals, and crypto-currencies—are saying, “Not so fast!”

Aug 06 2020

Free For All?

  • Aug 6, 2020

The weekly covers of The Economist do a pretty good job of capturing the zeitgeist of global financial affairs, but there’s so much packed into every issue (and enough to do around our shop) that sometimes all we see are the covers. But we have to admit we’re disappointed in The Economist for the week ended July 31st. The “Free Money” theme is at least four months too late!

Jul 08 2020

Stimulus Gone Wild!

  • Jul 8, 2020

Market perma-bulls deserve high marks for their persistence, yet, despite all that’s transpired in 2020, their case is exactly the same as six months ago: Extreme stimulus won’t “allow” a significant stock market drop, nor any further economic deterioration.

Jun 12 2020

Keep An Eye On What Your Stocks Will Buy

  • Jun 12, 2020

News that the Bureau of Labor Statistics may have undercounted the May unemployment rate by six percentage points should remind investors of the danger of taking government economic reports too seriously. Regardless of the figure, though, unemployment is no doubt near its peak for the downturn.

Apr 07 2020

NASDAQ Goes “Parabolic?”

  • Apr 7, 2020

From now ’til eternity, bullish market pundits will always be able to argue that the global spread of the coronavirus “caused” the current global recession and bear market. While the pandemic was certainly the final catalyst, these pages had been detailing the emerging cracks for over a year.

Mar 06 2020

Over-Stimulated?

  • Mar 6, 2020

We can’t count the number of times in the last week we’ve heard analysts worry about “what the Fed might know that we don’t.” In the words of John McEnroe, “You cannot be serious!”

Feb 13 2020

The Easy Fed and the “Other” Inequality

  • Feb 13, 2020

Super-easy monetary policy has been blamed for the rise in income and wealth inequality in recent years, and more recently we’d fault the Fed for performance inequality within the stock market.

 

Feb 07 2020

Central Planning Makes A Comeback

  • Feb 7, 2020

Bulls who fashion themselves as contrarians argue that the public is nowhere near as infatuated with the stock market as they were in the late 1990s. It may come as a shock to our readers, but we agree with them.

Feb 07 2020

Liquidity Overflow!

  • Feb 7, 2020

Based largely on the bearish trends in our monetary and liquidity measures, we were correctly negative on stocks throughout most of 2018. It’s therefore especially painful for us that 2019’s market rebound has been credited almost entirely to the “pivot” in most of those measures.

Feb 07 2020

The Alternate Ending?

  • Feb 7, 2020

After last year’s spectacularly successful pivot following the December 2018 plunge, the thinking is that future rate hikes are the bull market’s only threat. Perhaps that will be the case; the belief is certainly well-supported by postwar U.S. economic history, but it also reveals a shocking lapse in short-term memory.

Jan 08 2020

Waiting For The Stimulus To Trickle Down...

  • Jan 8, 2020

Last year the Federal Reserve dumped historic stimulus onto a full-employment economy and an already richly-valued stock market. The stock market obviously loved it.

Nov 07 2019

Monetary Musings

  • Nov 7, 2019

Among six major monetary gauges, five are now graded bullish, compared with just three a few months ago, and zero at the end of 2018.

Oct 05 2019

Making Money In The Money-Losers

  • Oct 5, 2019

Despite an economy operating “beyond” full employment for the past seven quarters, more than one-fourth of the companies in the Leuthold 3000 universe are losing money on a 12-month trailing basis. The Fed has subsidized what’s truly become irresponsible behavior.

Aug 07 2019

The Fed Subsidy Is Wearing Off

  • Aug 7, 2019

Earnings results for the second quarter have so far "beaten" expectations (as they always seem to), but that hasn’t changed the calculus for Small Cap companies. About one-third of them have negative earnings over the last twelve months.

Aug 06 2019

When A Cut Is Not Enough

  • Aug 6, 2019

The recent rate cut managed to bring policy uncertainty back into the market by two seemingly harmless words—”mid-cycle adjustment.”

May 07 2019

Tariff Man Tampers With Toppy Market

  • May 7, 2019

Beware of those who write about stock market history, especially when they speak of cause and effect. The truth is that the “why” can never be known.

May 06 2019

Signs Of Spring For Financials

  • May 6, 2019

Signs of spring are popping up everywhere in the Financials sector. S&P Financials was easily the top- performing sector in April and several sub-industries have been bubbling higher in our Group Selection discipline.

Apr 05 2019

On The Cutting Edge—End Of Fed Hikes?

  • Apr 5, 2019

The Fed not only signaled no rate hike for the rest of 2019, but also committed to unwinding its balance-sheet reduction program, starting in May and ending in September. The market took it one step further and priced in a rate cut in the second half of 2019.

Mar 29 2019

The Cycle Is Over If Confidence Fades Further

  • Mar 29, 2019

The “Expectations” component of the Consumer Confidence survey has been wobbly in the last few months, but the latest report, released on Tuesday, showed the first meaningful hit to consumers’ “Present Situation” since the stock market first began to struggle 14 months ago (Chart 1).

Mar 01 2019

Assessing The Cyclical Risks

  • Mar 1, 2019

With all the excitement over the Fed’s shift in rhetoric and the excellent subsequent market action, there’s a danger of losing sight of the broader cyclical backdrop for U.S. stocks. Remember, the economy is still operating beyond government estimates of its full-employment potential, and it’s not as if the Fed has actually eased policy—as it did successfully at a similar late-cycle juncture in the fall of 1998 and (ultimately unsuccessfully) in the summer of 2007.

Feb 07 2019

It Wasn’t Powell Who Panicked

  • Feb 7, 2019

The Fed’s “Christmas capitulation” seems to get most of the credit for the stock market rebound, but we’re not exactly sure how, or even if, the Fed capitulated at all.