Yellen or Warsh? Next Fed chair perplexes Friday stock trade

Bond prices sink, banks catch a bid as potential for more hawkish Fed interest rate stance is seen to increase. Energy prices stable to down. Warsh in the lead.

The Federal Reserve
The Federal Reserve. (U.S. government photo, public domain)

WASHINGTON, September 29, 2017 – According to a number of sources, President Trump has met with former Federal Reserve Governor Kevin Warsh, presumably to discuss his possible appointment to succeed Janet Yellen as the next Fed chair when her current term expires in February 2018. Treasury Secretary Steve Mnuchin was also said to be in on the meeting.

Back office betting has gone back and forth on the developing Yellen vs. Warsh “contest,” and current betting favors Warsh.

But in D.C.-Land, you never know.

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It wasn’t that long ago that White House economic advisor Gary Cohn was a lead-pipe cinch to get the post. But after his idiotic virtue-signaling episode that made the President look bad during the Charlottesville debacle, Cohn’s chances for the Fed chair flatlined. Which is good, since he’s a wealthy left wing Democrat anyway.

But, as we inch back toward today’s always politicized stock market action, this backstory does pertain. Warsh is viewed as something of a hawk as opposed to the far more cautious and tentative Yellen. His appointment would presumably assure a continual tightening of interest rates.

In addition, a Warsh nomination would telegraph Fed (and perhaps White House) support for moves to loosen the overly stringent (and costly) rules promulgated by the ill-advised Dodd-Frank legislation as well. This has once again heartened the banking sector, which took a drubbing earlier this month.

Not surprisingly, financials are modestly up today after taking in Friday’s Fed news and speculation. In sympathy, bond yields have jumped again today, meaning bonds prices have declined.

The Dow Jones Industrials are currently (as of 1:00 p.m. ET Friday) off 16.21 points, a minor 0.07 percent drop, while the broader based S&P 500 and the tech-heavy NASDAQ averages are up 0.29 percent and 0.67 percent respectively.

The latter average is likely being helped a bit by a 52 cent rally in shares of Apple (AAPL). That Dow and NASDAQ standout has been hammered for two weeks running by negative and unconfirmed rumors regarding the company’s new iPhone models.

Currently standing at nearly $154 per share, give or take, Apple shares still have a way to go before regaining the $160+ per share high they hit before the company’s annual product introduction extravaganza in mid-September.

Crude oil, both Brent and WTI, are off a few pennies, but WTI still remains above that magic $50 bbl. number, so oils are wobbly but steady today. Everything else is here and there, reflecting the typical end-of-month, end-of-quarter portfolio shuffling and illegal (but never prosecuted) hedge fund and mutual fund window-dressing activities that always take place on the last trading day of a month and/or quarter.

Monday, or perhaps Tuesday, will tell us whether the market’s weird but typical August-September bearishness is over. That would be welcome, as the ongoing sell-off in various sectors has been bizarrely masked by periodic new highs in widely followed averages.

Right now, it’s all a mystery to this writer. But perhaps we’ll get some clues as to Mr. Market’s next move as October trading begins next Monday.


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