Brain dead Fed: Clueless rate hike view slaughters stocks
WASHINGTON. The out-of-touch economists, bankers and other elite morons currently running the US Federal Reserve Bank dealt a death blow to anyone involved in the stock market Wednesday afternoon. That’s when this brain dead Fed issued a clueless December statement announcing their latest expected 0.25 percent interest rate hike. Worse, looking ahead to 2019, Fed’s Open Market Committee (FOMC) indicated little interest in moderating their ruinous drive to wreck the Trump expansion that favors America’s forgotten middle class.
Market averages plunge on Wednesday
The Dow Jones Industrial Average, which, anticipating a modestly dovish prognostication, had gained some 350 points earlier in the day wobbled and attempted to steady. But then, investors and high-speed machines despaired. The Dow promptly plunged over 500 points in a New York minute. The other major averages took similar cliff dives.
Bonds and preferred stocks, which had been gaining on the day in expectation that the Fed’s hostile interest rate policy would moderate, likewise got hit with a vicious selling binge. A rising interest rate environment causes existing bonds and other fixed income investments like preferred stocks to drop in price. These investments must compete with newly issued instruments bearing current, higher interest rates or dividends that correlate with the Fed’s current policies.
As we used to tell our investment classes years ago, “Just remember: When interest rates go up, bond prices go down. And when interest rates go down, bond prices go up.”
Prognostications by a brain dead Fed: Cause and effect
As Thursday looms, we find ourselves enmeshed in the “interest rates go up” part of this maxim. Bonds and preferreds were actually gaining in price Wednesday morning. Discounting an already telegraphed interest rate increase, investors in these securities thought the FOMC might sober up and hold the line for now on pushing further hikes in 2019.
True, the brain dead Fed did roll back current expectations of three rate hikes in 2019 to (perhaps) two. But they didn’t promise anything more. They almost pointedly failed to notice the home sales collapse that began earlier this year, not the savage beating that stocks (and middle class 401[k]s) have enduring in the ongoing post-Labor Day stock market collapse. That’s what caused bonds and preferred stocks to tank.
In short, after the central bank’s 2 p.m. ET pronouncements, stocks did a 180 and commenced another sickening, full-scale retreat, virtually declaring that all market gains in 2018 were hereby canceled.
Stock market mood has changed utterly
When stocks get hit hard nearly every day as they have been this fall, optimism becomes pessimism. Consumers stop spending, stores can’t move merchandise, layoffs commence (see also: General Motors). Gloom descends upon an increasingly restless electorate. Everyone smells recession, even if one has not yet appeared.
When the country begins to feelrecessionary, recessions tend to happen. It’s starting to feel that way right now. Hence the market continues to plunge. Stocks have a reliable history of predicting economic events anywhere from three to nine months ahead of time. Judging from current market performance, Mr. Market seems to be predicting a coming recession beginning somewhere June and September of 2019.
If a recession actually gets underway, the media and their fellow Democrats will blame it on Trump’s tariff regime. But the killer app that’s engineering this potential recession will have only Jerome Powell and his brain dead Fed. Everything was working until they decided it wasn’t.
The price of fighting non-existent inflation
There is no inflation. Notwithstanding the #Resistance, life has been good for most Americans under our new president. The country’s middle class was finally feeling that maybe they weren’t going the way of the buffalo in the 19thcentury. Average Americans were beginning to get back to even from the depths of 2008 and throughout the eight gruesome, redistributionist years of the Obama presidency.
But in a few short months, the brain dead Fed has systematically dealt a death blow to our long awaited and long deserved national middle class recovery. What they’re doing is not wrong, per se. But they’re doing it way too fast.
With interest rates rapidly increasing, new and previously-owned home sales have already come to a halt. Consumption gets hit next. Layoffs will follow.
Don’t forget that balance sheet “runoff”
But there’s more. Our brain dead Fed is picking up its pace on dumping its massive, Obama Era inventory of bonds. That takes money out of the system, acting as a further, negative influence on consumer lending. The Fed could actually have cut back on its interest rate-hiking regime at this point. These balance sheet moves – the selling of the Fed’s bond inventory – could easily wrong any non-existent inflation out of the system without shutting the system down for average Americans.
Previous Fed leaders were rightly faulted for keeping interest rates low for too long. Hoping to reverse that mistake, they’re making precisely the opposite mistake. They’re killing the recovery just when most US citizens were finally catching up.
An anti-Trump conspiracy by the Fed?
It’s idiotic mistakes like this that kill economies and throw people out of work. This lends credence to the growing feeling in Deplorable land, that this brain dead Fed might also be helping the Deep State crush the Trump presidency by pinning a recession on him. Just in time for the start of Campaign 2020.
Don’t buy this “conspiracy theory?” Fine. But given the absolute and crystal clear intent of the Deep State to render the Trump presidency “inoperable,” the more susceptible the American public is to believing this scenario.
Wednesday’s toll on Wall Street
Back on Wall Street, Wednesday’s 4 p.m. closing bell put a price on the Fed’s latest act of fiscal imbecility. The Dow closed at 2323.25, off a painful 352.59 points for a one-day loss of 1.5 percent. The broader-based S&P 500 also closed at 2506.94, down 29.22 points on the day for a 1.54 percent loss.
The tech-heavy NASDAQ, which, like the other two averages had been nicely up earlier in the day, got hammered the hardest, percentage-wise. The NAZZ closed at 6636.82, down a catastrophic 147.08 points for a nearly 2.2 percent loss on the day. Thanks, Fed. This didn’t have to happen.
Futures are mildly up Thursday morning. But this fall, futures only predict the market’s opening moves. The rest of each trading day has become a dangerous crap shoot.
Is cash now king?
As investing guru David Tepper observed on CNBC, cash is an investment, too. And cash might be our best investment right now, given the Fed’s absolute determination to crush the life out of the once-exciting Trump economic recovery.