WASHINGTON – I’m back in town after spending a few frigid days visiting friends in my old hometown of Cleveland, Ohio. Still a shadow of the industrial giant city it once was, the former “Mistake on the Lake” continues to show signs that it’s firmly on the comeback trail. Meanwhile, Mr Market continues to tread water in Wednesday action. The culprits? Continuing confusion over the Fed, the upcoming UK election, and the always-tantalizing China trade issue continues to roil US stocks.
Incoming: The latest Oracular pronouncement from the Fed
The Fed problem will get solved, at least temporarily, just a half an hour from the time I’m writing this article. In other words, at 2 p.m. ET, we’ll get the official monthly opining from the Fed oracle, although the media and the Powers That Be have likely had this always-hot item in advance. CNBC notes the currently accepted Fed wisdom.
“The Fed is largely expected to keep rates unchanged. But Fed Chairman Jerome Powell is also expected to signal the central bank will take appropriate measures to keep liquidity high and overnight lending rates steady to end the year.”
In other words, the betting among the pundits and financial sages is that nothing will happen on interest rates. But, on the other hand, the Fed may make a few remarks on what it plans to do with an ongoing liquidity problem the nation’s banks have been dealing with since around the September time frame. This phenomenon tends to disturb US stocks.
What the Fed already knows
The Fed knows full well that it’s embarked on an underground version of that old Fed favorite, quantitative easing. Aka, QE. Version 4, if you’re keeping count. In other words, the nation’s central bank is back to buying bonds again, like they did throughout most of the Obama administration.
The weird thing about this whole exercise is that, unlike the 1970s and very early 1980s, neither the nation nor the Fed seem to be able to get even a hint of inflation cranked up, despite their own efforts and despite the strenuous, stimulative and highly effective business-friendly tax breaks and associated tactics emphasized by the Trump administration.
It’s my learned opinion that America’s middle class – decimated, on purpose, under the Obama administration – is still trying to claw its way back to pre-2008 parity with its former self. They’re spending more freely, but still refuse to go overboard on accumulating the kind of debt that nearly killed them during the Great Recession. Thus, consumer buying power, while quite robust these days, is still not making a dent in the supply and demand equation, which would actually drive inflation higher. And which, to some extent, the Fed actually wants, as it’s the only way we’ll even get close to digging out of America’s current level of Federal debt.
This is certainly one area that weighs on today’s markets, as it has been doing for several days now instead of giving us the final, joyous installment of 2019’s halting Santa Claus Rally. Just another problem for US stocks.
Back to the People’s Republic of China
In addition to the impeachment asininity on the Hill, the China trade issue also hangs over the economy’s metaphorical head. Resolution is always coming, coming, coming crows the media. But then, it never comes.
Part of the problem is that, given Hong-Kong, the Muslim re-education concentration camps, and Beijing’s incorrigible kleptomaniac Communist government, the Chinese are currently in turmoil. Which makes the leadership cautious about meeting America at least half way on a number of issues. That’s because no one in the China government combine wants to be seen as “weak” on the US. And also because no one in China wants to abandon the considerable advantages they’ve gained by ruthlessly stealing American technology and trade secrets.
In fact, the wholesale, long-term theft of American technology has long been part of China’s ongoing version of a MAGA program. Or perhaps, we should re-label it, MCGA, for “Make China Great Again.” At the cost of crushing the entire world economically, of course. US technology companies and stocks continue to get hit by China’s outright thievery.
China still resists the Trump administration’s just demands to protect America’s intellectual property
It’s politics as much as economics that continues to block the plans of China to dominate the known world and perhaps outer space as well. Trump has constantly surprised and frustrated the Communist leadership in China by refusing to back down on US demands. That’s something they expected and something they’re never seen in a US president before. And even more mind-boggling, Trump is doing it even as the seditious Democrats try to throw him out of office for committing no visible crime except beating them at every term.
We’ll see how things turn out this weekend, when another batch of tariffs rain down on the Chi-coms. (Maybe.) I’d bet on some kind of fake but accurate deal before the deadline. Trump holds off on the new tariffs. Then the Chinese back and fill and refuse to actually sign what they agreed to. It’s the communist way.
Will US stocks then panic, rally, or just fool around? Hard to tell. So we wait and see.
The US economy refuses to roll over, despite the punditocracy’s urgings
Meanwhile, the US economy is giving us glimpses of something truly strange. This country may just be able to cut the Chinese out of the US trade loop almost entirely, while still humming along and doing trade with the rest of the known world. Who knew?
Brexit, new elections to set UK on glide path to the future?
Also on the international scene, we have tomorrow’s (Thursday’s) big election in the UK. Up until about 5 minutes ago, UK polls generally had Boris Johnson and his Tories winning big and gaining absolute control over Parliament, meaning that the Brexit – hard of soft – will finally happen in January 2020. But wait! Today’s polls show Johnson’s victory margin shrunk down to nothing but the status quo.
You never know how to evaluate the UK polls. They did even worse on the original Brexit vote than even US pollsters did on the 2016 election. On both sides of the Atlantic, polling organizations have typically overestimated – often grossly – the voting power of various lefty constituencies. They do this at least in part due to their own lefty biases. But they also over-poll lefties as a way to discourage conservative voters from going to the polls. And in this, in both the US and the UK, they’ve failed pretty consistently.
Brexit hits UK stocks
This, in turn, frustrates investors desiring at least a small piece of the international action. I find this particularly true for UK issues like Vodaphone (VOD). Despite its high yield, investors continue to pound VOD no matter whether its current initiatives fail or succeed. Buyers seem to have evaporated. This proves in many ways to be the reason why buyers are scarce for UK stocks.
This all makes it difficult to believe any polling results coming from the UK this week in particular. All the “cognoscenti” are betting against Johnson and betting that they’ll finally negate the Brexit vote and resume the status quo. It’s similar to why Democrats here just won’t give up on impeaching president Trump. In neither country can the elites accept, or even stomach, the popular voting majority.
Anyhow, we’ll see how the Johnson-Brexit vote turns out sometime tomorrow, December 12.
Summing up whatever we can sum up
To sum it all up, if you take the Fed, China, and the UK situation, you can see why a confused Mr Market remains stuck in neutral as we approach this afternoon’s Fed info dump.
If the current situation changes dramatically, we’ll insert an update at the end of today’s column some time after the market closes at 4 p.m. ET.
Otherwise, we’ll be back tomorrow with even more brilliant insights on stocks and bonds and life in general.
– Headline image: Like these three monkeys, Mr Market just can’t make up his mind about what not to do. Image via Pixabay, CC 0.0 license, free for public use.