Fed Chair Jerome Powell kneecaps Mr Market with secret word
WASHINGTON. Wednesday was a pleasant day for traders and investors. At least until around 2:30 p.m. ET. That’s when Federal Reserve Chair Jerome Powell decided once again to needlessly kneecap Mr Market with one very special secret word. And just in time, too, to make our recent, somewhat jocular “Sell in May” comments seem weirdly prescient.
Jerome Powell kills another perfectly good rally
As is typical with any patented Jerome Powell pronunciamento, this one slyly undermined President Trump’s Tuesday message. The President suggested that perhaps the Fed ought to consider cutting interest rates. It made sense, given the nation’s ongoing and still essentially flat rate of inflation. And given the Fed’s demonstrably overeager 2018 interest rate hikes.
As usual, Wall Street’s reaction to Powell’s remarks took a little time to develop. But then, a mildly bullish Wednesday market – particularly in the tech arena, where Apple’s (trading symbol: AAPL) surprising earnings beat delighted traders and lifted all tech boats – came to a screeching halt as stocks suddenly tanked across the board.
This wasn’t a horrendous overreaction to the Fed’s remarks as such things go. But it was a nasty reversal, sending the day’s largely positive drive back down into red-ink territory. All three major averages closed in the red, down roughly a half-percent each. Bond prices strengthened a bit, sneaking prevailing interest rates up a bit. And everyone went home grumpy.
Is it already “Sell in May” time?
CNBC offered a good synopsis of our first “Sell in May” day of the month, which, ironically, occurred on the left’s popular anti-capitalist day of fun, otherwise known as “May Day.”
“Fed Chairman Jerome Powell said in a news conference that recently low inflationary pressures may only be ‘transitory,’ dashing speculation the central bank was at least entertaining the idea of a rate cut because of tame inflation.
“‘The market was pricing in this rate cut. They want a rate cut and this was basically Powell saying, “sorry but we’re not,” said Peter Boockvar, chief investment officer at the Bleakley Advisory Group.
“Treasury yields rebounded on Powell’s comment. The 2-year yield went from a session low of around 2.2% to trade back at 2.27%.
“Powell’s comment and the move in Treasurys came after the Fed voted unanimously to maintain the benchmark rate in a range of 2.25% and 2.5%. On inflation, the central bank said it remained low.”
Then, there’s that matter of Powell’s “secret word”
As is often the case in official Washington, certain seemingly innocent buzzwords – meaningless to the Great Unwashed living between both coasts – are deeply significant to the elite cognoscenti in this town. Today’s Powellism, that magical secret word, was “transitory,” as the Tylers of ZeroHedge duly note.
“Despite his best efforts, Fed Chair Powell managed to spoil the party with his use of one of The Fed’s favorite words – ‘transitory’ – signaling that expectations for rate-cuts predicated on inflation staying low are perhaps not as set in stone as the market believes…
“The Dollar spiked, and bonds, stocks, and gold slipped on the ‘transitory’ comment…”
Transitory. As in, “You still don’t know when we’ll try to sneak those interest rates up again. So be very afraid.” At least that’s the way Mr Market and his machine trading friends interpreted it.
Nice job, Jerome. Another blunder into the easily foreseeable. “Transitory,” indeed. Too bad we didn’t win $100 for guessing that secret word, like all those weird contestants used to do on Groucho Marx’s classic TV game show, “You Bet Your Life.”
Say, before delivering more info on this Bad News Wednesday, let’s take a trip down memory lane. Back in those thrilling days of yesteryear when times seemed infinitely less complicated.
Why do Washington’s elites continue to stifle the little guy?
It’s bad enough that we have to put up with a tin-eared Fed Chair like Jerome Powell. Always sour-faced, he just hates to even seem reasonable to the plebes in Peoria still trying to regain the wealth that Obama and the elites stole from them for 8 years. Gains that the current Fed’s interest rate overreach is arguably stifling. But this communications issue is made even worse by the hair-trigger, headline hunting machines that blast massive sell orders into the server farms run by the major exchanges. All because of a single secret word, the kind of Washingtonspeak Jerome Powell typically delivers.
At the 3:45 p.m. ET mark, bunches of those nasty little “selling imbalance” notices flickered across this columnist’s trading screen. For most stocks we follow, these notices haven’t appeared for days. We hate it when they show up again, usually signaling that Mr Market is shifting to overreactive mode. It’s a hell of a way to have to invest. “Rally killed by Powell secret word. Small investors screwed.”
Mallinckrodt and Allergan: Twin tales of pharma woe
In our own accounts, we dumped the last of our ill-fated Mallinckrodt (MNK) shares for a loss. The pharmaceutical stock has been hammered for days first by the rumor, then by the fact that a class-action drug overpricing case against a recently acquired subsidiary is going to cost the company a few hundred million more in fines and penalties than its board had anticipated. And when the drug in question accounts for the majority of the company’s earnings, well, it’s Katy, bar the door on the sell side of the equation. Time to dump. This puppy’s headed a lot lower before all the shouting dies down.
Elsewhere in the pharma arena, our not-so-beloved Allergan (AGN) mounted one of its rare, multi-point rallies Tuesday. Which inevitably meant it would get hit today. Which it did, once again due to our old friend, headline risk. The company held its annual meeting today and voted down corporate gadfly Appaloosa’s attempt to split the CEO and Chairman positions, taking power away from clearly faltering company CEO and Chair Brent Saunders. Apparently, this wasn’t exactly what investors wanted to hear.
Allergan completed its on-the-rebound merger with Actavis a few years back, after the Obama administration nixed its proposed merger with Pfizer (PFE). Since then, its apparently once and future new CEO, Saunders, has presided over a 50% haircut in this high-priced stock.
Allergan just keeps on digging. Even without the help of Jerome Powell
We’ve owned shares directly or indirectly for over two years, having bought the company’s high-yielding convertible preferred shares, then allowing them to convert to common shares in 2017.
That fall, we ended up enduring the company’s ill-fated attempt to dodge the loss of its patents on longtime best-selling dry-eye drops (Restasis) by putting the patents in the hands of a New York-based American Indian tribe. The idea was to use the tribe’s exemption from certain patent litigation as a way to retain exclusivity for Restasis for a few more lucrative years.
Fortunately or unfortunately, the government, via the court system and the patent office, guillotined that strategy. And that, coupled with the companies apparently faltering new product research and approval outcomes has made owning its stock feel like perpetual Chinese water torture. Or maybe like Dante’s inscription above Hell:
Abandon all hope, ye who enter here
Anyhow, individual investors, largely represented by proxy firms, along with other shareholders, voted for the floundering Saunders and against Appaloosa, whose motives are suspect anyway. Bottom line: No change in Saunders’ status, nor in his much bigger than necessary pay package, which he sure as hell has not earned since he took over.
Is “Sell!” the secret word for Allergan?
Allergan shares fluctuated a bit today before deciding to take back half of Tuesday’s wondrous rally. That’s a depressingly familiar performance these days. If AGN stays true to form, they’ll take back the rest of the Tuesday rally tomorrow. These shares are beginning to look like they belong on “The Walking Dead.”
Of note: due to the controversy surrounding today’s vote, the company scheduled its annual meeting today a week before it reports its latest quarterly earnings. It should be interesting to see if today’s expression of stockholder confidence in current management was well-placed.
We suspect not.
— Headline image: Screen grab of Groucho Marx opining on his old TV show, “You Bet Your Life.” Just say the secret woid… (A legendary clip, via YouTube video)