WASHINGTON, November 19, 2014 – Markets were boringly down Tuesday morning on low volume as traders await the latest Fed pronouncement this afternoon. As always, they’ll be looking for that magic, soothing Bernanke-Yellen mantra “For a considerable period of time.” As in, how long will interest rates stay ridiculously low?
Bulls, corporations that buy back their stock, and, particularly, wealthy one-percenters love this low interest rate environment. It enables them to coin as the profitability of stocks keeps going up and up. Problem is, the “profits” are going up because all that free or low-interest cash is being used to sop up shares, thus increasing profit-per-share while either lowering a stock’s PE ratio or at least keeping it on an even keel.
Why is this bad? Simple. Because profits are being made via accounting rather than using that money to fund research and development of new and/or more competitive products for the world marketplace.
We will ultimately pay the price for this because American companies will start lagging behind other countries whose corporations still invest in R&D. But that’s the nature of the current corrupt environment.
Better yet, for corporate bigwigs and the 1%, it enables them to keep their jobs and increase their own pay packages, including salaries, bonuses and stock options, simply because it “looks” like they’re making more and more money for shareholders. Which they sort of are if you happen to be a shareholder.
In a more vulgar environment, we might call this a “circle jerk.” But mostly we try to keep things clean around here.
Anyhow, this market likely won’t establish direction until after about 2 p.m. EST when the Fed’s Oracle makes the pronouncement. Actually, action could begin starting around 1:45, since the news is always (illegally) leaked earlier to the moneyed cognoscenti so they have time to position their trades before you and moi.
Probably nothing. We did what we said we were going to do in yesterday’s column and we’ll live with that for now. Meanwhile, why head into a trap when we know that others with a lot more $$ than we have will get tipped off on the Fed first.
Also, keep in mind: Ferguson remains in background. The grand jury could release its findings at any moment. Likely rioting—which this administration seems to be doing very little to head off—could torch a downside riot on stocks. That would likely be temporary, but it could be scary as hell.
We’ll keep in touch if anything comes up.