So, on a day when a lot could have happened, investors and the markets had little to no reaction to Trump’s speech at the Economic Club of NY. In what could have been an opportunity to discuss the ongoing trade war and where the country is in terms of real progress, turned into Trump bashing Fed Chair Jay Powell about interest rates. He asked why we still have positive rates vs. negative rates like so many other parts of the world. It was, as many people will say, a wasted opportunity. By the end of the day, the Dow closed unchanged, the S&P added 4 points, the Nasdaq added 21 points and the Russell advanced by less than 1 point.
He then went onto say that stocks and the indexes would all be 25% higher if the FED did what he wanted. Of course they would, it’s the same argument. Artificially low rates do force money out of the banks and into the markets, but is this really what we want? Do we want stocks to go higher because “there is nowhere else to go” or because the economy is so strong that investments in stocks make sense? There is a difference, and the concern (and we have seen it) is what happens when the FED or any other central banks begin to normalize and raise rates? Markets come under pressure as it reprices risk based on the “cost of money.” If investors do NOT agree with normalization, then they bash the FED, accusing the committee of being out of touch, etc. All you have to do is go back and look at the fourth quarter of 2018…
And by the way, what have negative rates done for Japan? The ECB? Germany? Not a lot, considering those economies have had negative rates for a long time. All we hear is how fragile those economies remain. Germany, the biggest member of the EU, has been on the “verge” of a major recession for years now. Economic data remains weak, unemployment remains high, manufacturing is weak, and negative rates have done little to assist with this. But, they have done a lot to force markets higher, creating a sense that “it’s all good,” but is it? All this while the US economy continues to improve (with positive rates) – note – historic low unemployment, strong wage growth, near zero inflation, continuous job creation, rising home prices, and stable economic macro data, factors that are not present in countries that have gone negative. Why, I ask, is he pushing so hard to go negative?
Today Fed Chair Jay Powell goes to the hill to address the JT Economic Committee of Congress. He is expected to discuss the future path of rates and the current state of the economy, something that has most likely not changed since his last press conference in late October when they cut rates for the third time this year. He made it very clear at that time that the FED was now on HOLD and that the bar for further rate reductions was raised. And the market has done what? GONE UP! Investors apparently now agree that we are in the right place and that lower rates would not be an improvement.
Yesterday, I noted that the indexes have all advanced since that move. As we managed our way through third quarter earnings season, we heard so many in the C-Suite express confidence in the future. So it appears that rates are in the right place.
Today also begins the very public process of the Presidential Impeachment hearings, almost guaranteeing that the House will vote to impeach while the Senate will vote no. This will be a repeat performance of the Clinton Impeachment, and as they say “payback is a bitch.” Now it is the Democrats turn to manage that process. Today’s performance will include Bill Taylor, Envoy to the Ukraine, George Kent, State Dept Official, Democrat Adam Schiff, and Republican Devin Nunes. By week’s end, congress will go on the thanksgiving recess and elected officials will return home to take the temperature of their constituents. So stay tuned.
So now, many are wondering what the impeachment hearings mean for the markets? Let me be clear, it means NOTHING for the markets. The markets are not reacting to all the noise about impeachment because it doesn’t matter to the markets. Nothing is going to change. It’s all about the drama that the Democrats are trying to create going into the Presidential election cycle. Recall the Clinton era tagline that was used against President George Bush in 1992: “It’s about the economy, Stupid.” That is what it is about, the economy! So news about the economy and earnings and improving macro data (or weakening data) is what MOVES markets. Geo-political events and impeachments create a sideshow, but do not in the long run price stocks.
Larry Kudlow, Director of the National Economic Council, announced that he is working on Tax Cuts 2.0 to further assist an improving economy and what is a direct hit on the Democrats platform to raise rates. I mean, does either side even consider reduction of waste? Have they even discussed waste? Do they not think there is any waste in the system? Or is it just about “soaking the rich?” I mean, at some point, it’s exhausting to hear them NOT consider any reform type of policies.
Global markets were lower overnight, in what is a continued churn: trade, trade, and trade… While the industry will be tuned to both the hearings and the Powell speech, it is the Powell speech that will drive the moves. And if he re-iterates his stance, then don’t expect the market to do much. But if he somehow suggests that his view is different today than it was three weeks ago, then watch as the market reacts.
US futures are down. Dow is off by 103 points, the S&Ps are shedding 11 points, the Nasdaq is lower by 45 points, and the Russell is down by 11 points. Economic data today includes CPI and Real Average Weekly Earnings. If those reports come in as expected, then do not expect much in terms of movement. We remain in the 3050/3100 range on the S&P. We would have to get something unknown to happen to get the market to make a significant move in either direction.
Take good care.
Italian Wedding Soup
It’s Thanksgiving – Today’s recipe is for the first course – in case you do not want the raviolis.
This soup is full of veggies and tiny veal meatballs and is a family favorite.
For this you will need:
For the meatballs:
1 lb ground veal, fresh bread crumbs, minced garlic (2 cloves), chopped fresh parsley leaves, freshly grated Pecorino Romano, freshly grated Parmesan, milk, 1 extra-large egg, lightly beaten, S&P.
For the soup:
Olive oil, minced onion, diced carrots cut into ¼ inch pieces, diced celery (2 stalks), cut into ¼ inch pieces, chicken stock (canned is ok – but homemade is better), 1/2 cup dry white wine, 1 cup of tubetini (small pasta) fresh baby spinach, washed and trimmed.
Preheat the oven to 350 degrees.
For the meatballs, place the ground veal, bread crumbs, garlic, parsley, Pecorino, Parmesan, milk, egg, and S&P in a bowl and combine. With a teaspoon, drop 1 to 1 ¼-inch meatballs onto a sheet pan lined with parchment paper. (You should have about 40 meatballs. They don’t have to be perfectly round.) Bake for 30 minutes, until cooked and lightly browned. Set aside.
In the meantime, for the soup, heat the olive oil over medium-low heat in a large heavy-bottomed soup pot. Add the onion, carrots, and celery and sauté until softened, 5 to 6 minutes, stirring occasionally.
Add the chicken stock and wine and bring to a boil. Add the pasta to the simmering broth and cook for 6 to 8 minutes, until the pasta is aldente.
Next – add the meatballs to the soup and simmer for 1 minute. Taste for S&P. Stir in the fresh spinach and cook for 1 minute, until the spinach is just wilted. Ladle into soup bowls and sprinkle each serving with extra grated Parmesan. A nice piece of garlic bread on the bottom of the bowl is always a favorite.