WASHINGTON, September 12, 2016 – Major U.S. stock market averages resumed their nasty decline at Monday morning’s 9:30 a.m. EDT opening bell, but gradually reversed direction. As of the noon hour, the DJI stand at approximately 18,160 points, up 75.16. The broader-based S&P 500 is up 12.04 points, standing at 2,140, while the tech-heavy NASDAQ has rejoined it up-channel, currently trading at 4,723.69, up approximately 40 points as all three averages continue to bob and weave.
This will likely be another volatile up-and-down week as the Fed’s publicity loving blabbermouth execs continue to fight a public interest rate battle with interest rate doves likely to counter the interest rate hawks. That said, it was the unexpected 180 degree hawkish commentary Friday by Boston Fed President Eric Rosengren, long regarded as a perma-dove, that savagely clobbered stocks during end-of-week trading that sent the DJI down nearly 400 points in convincingly heavy trading.
Nerves continued during this morning’s market drop. But sentiment has improved—for now—as another Fed governor, Lael Brainard, reputedly a close pal of Fed Chair Janet Yellen and a noted dove—is scheduled to deliver remarks today. It’s possible that the usual suspects already have copies of her comments, which are expected to soften the impact of Rosengren’s remarks considerably. However, if for some reason, Brainard suddenly comes out as a hawk… well, if you’re an investor, the Maven hopes your house has functional storm shutters.
2 p.m. UPDATE via CNBC:
“Economic progress continues in the U.S., but its central bank would be wise to continue keeping policy loose, Fed Governor Lael Brainard said in a closely watched speech Monday.
“Amid market concerns that the Fed was about to resume its rate-hiking cycle, Brainard instead offered cautionary tones against moving too fast. In particular, she remains concerned about the impact that global difficulties will have on the U.S. economy.
“Still-muted inflation and uncertain developments ahead ‘counsels prudence in the removal of policy accommodation,’ Brainard said, according to prepared remarks she was to deliver to The Chicago Council on Global Affairs. ‘I believe this approach has served us well in recent months, helping to support continued gains in employment and progress on inflation.’
“Chances of a rate hike at the Fed’s next meeting immediately slumped after news of Brainard’s speech broke.”
In still more Fed bafflegab today, Minneapolis Fed President Neel Kashkari decided to mimic nonpartisan left-wing Supreme Court Justice Ruth Ginsberg’s ill-fated spring attack on Republican Presidential candidate Donald Trump by trashing The Donald’s criticism of Fed policies over the weekend. According to CNBC, Kashkari
“…rejected Donald Trump’s charges that politics influence the Federal Reserve’s monetary policy.
“‘Politics simply does not come up,’ the Republican Fed governor told CNBC’s ‘Squawk Box’ on Monday. ‘We look at the economic data and … everyone around the table is committed to achieving our dual mandate’ of employment and inflation.
Minutes earlier, Trump told CNBC the Fed is refraining from raising rates due to pressure from President Barack Obama.
“‘The interest rates are kept down by President Obama,’ the GOP presidential candidate said. ‘I have no doubt that that’s the reason they are being kept down.’
“While Kashkari said he avoids commenting on short-term monetary policy decisions, he said he is paying close attention to inflation.”
So, we have yet another “nonpartisan” attack on Trump from a supposedly nonpartisan Federal government entity. Worse, it’s coming from Kashkari, a nominal Republican who actually voted for Obama in 2008 even as he served a major role in the Bush Administration helping oversee the newly launched and amazingly complex (and controversial) TARP bailout program.
It’s a known fact, at least inside the Beltway, that the Fed traditionally does little if anything to damage the reputation of an incumbent President, perhaps instinctively fearing the consequences of such an action, particularly in the final months of a lame-duck President’s term.
During that brief period, an outgoing President can, and often does, effect significant yet often controversial executive orders, bureaucratic changes and presidential pardons, secure in the knowledge that there’s nothing anyone can do about them. Worse from a practical standpoint, there are zero political consequences to the soon-to-be-ex-President’s own career for taking such actions, since he’s already on the way out. (And look for Obama to do precisely these kinds of maneuvers after the November elections, no matter which way they may go.)
But, with regard to Kashkari’s remarks, they’re ingenuous at best.
This is an administration that has consistently destroyed and intimidated its real or imagined enemies for the past eight years; that ignored or stonewalled virtually all Freedom of Information Act inquiries it didn’t like; that has insulted and likely compromised the Supreme Court’s independent status (re: its asininely Byzantine Obamacare ruling, among others); that has utterly politicized the “Justice” Department under a pair of race-obsessed attorneys general; and that has immobilized the once-pristine FBI, somehow forcing this agency to back off from prosecuting Hillary Clinton for using the State Department as the HQ of her 2016 political campaign.
So why would someone high up in this administration not strongly suggest to key plants in the Fed that the central bankers lay off any interest rate increases until such time as the consequences are likely to fall on his successor? Like, maybe, December? Try again, Neel.
Even as we type today’s column, stock market averages continue to race ahead, with the widely followed Dow now topping +100 points. Either that advance copy of Brainard’s remarks has gone down well with The Boyz (the bigwigs who always manage to get secret embargoed copies of this stuff so they can trade on the news), or the headline-happy high-frequency trading (HTF) supercomputers are setting the rubes up for a massive, prearranged short sale. Who knows?
The Maven sits here trading his accounts on one of the latest, astonishingly fast big-screen iMacs available. But even this machine and the top-tier speed of a Verizon FiOS network connection can’t come close to beating the HFTs. Anyhow, we’ll see.
At least thus far, not panicking out of several wobbly positions on Friday appears to have been the right move for us here. Most of our positions that were taken out to the woodshed Friday are attempting to recover today. The accounts over all are still in profit territory, but things look a bit less impressive than they did at COB Thursday.
Our Allergan preferred (symbol: AGN/PRA) is back on track today in the plus column, although we plan to hold this relatively soon-to-mature preferred until its March 1, 2018 redemption date, having bought our position in bits and pieces after Allergan common stock (AGN) went over the cliff when the Feds threw a red flag on Allergan’s planned Irish-inversion merger with drug giant Pfizer (PFE).
Trading now at roughly $842 per share, we continue to be amazed at AGN/PRA’s still steep discount from its redemption value ($1,000) so close to its redemption date. Perhaps there are some things the Maven will never understand, but there it is. We’re tempted to buy more—the price is still reasonable in our opinion—but our position is already too large for the size of the account, and one simply must stay diversified in this market.
Silver is getting hurt yet again Monday, almost certainly due to interest rate scares, which traditionally dampen the value of precious metals in the market. But we’ll hold on at least for now and perhaps buy tiny bits more via a thinly traded (but for us, commission free) ETF, symbol SIVR, which actually holds appropriate amounts of silver in Swiss vaults to back the value of the ETF—something that some precious metal ETFs do not require.
We’re tempted to nibble on other stuff, but until the interest rate question is answered—for now—this is a very hard market to bet on, so we’ll confine ourselves to a bit of window dressing until volatility tamps down.