I don’t pretend to know where the tariffs will end up. I think the higher they go and the more goods they cover, the worse it will be for the American and global economy. What I do expect is a whole lot more give and take before all the dust settles.
Long-time readers know that the market can handle bad news, but it really hates uncertainty. And right now, there is a lot more uncertainty than “normal,” whatever normal is…
I actually want to love the tariff idea. It appeals to me and I want to think it will work. The problem is that history is very clear that it will not. In fact, history says emphatically that it is a terrible idea.
The economy works best when the government leaves it alone. Our economy cannot afford our government. Trying to get people in other countries to pay for our government’s reckless spending is a recipe for disaster.
At best, tariffs will be inflationary. At worst, they will cause a depression.
“In a nation that was proud of hard work, strong families, close-knit communities, and our faith in God, too many of us now tend to worship self-indulgence and consumption. Human identity is no longer defined by what one does, but by what one owns. But we’ve discovered that owning things and consuming things does not satisfy our longing for meaning. We’ve learned that piling up material goods cannot fill the emptiness of lives which have no confidence or purpose.”
-Jimmy Carter, 1979
Two days after the election, the Fed concluded its November meeting and decided to cut interest rates by another 0.25%. That moved the low end of their “policy rate” from 4.75% to 4.50%. This is the second consecutive meeting in which the Fed has cut the rate. The last time they met, they actually cut it by 0.50%. Remember, the policy rate, or the Fed Funds rate, is the rate that banks charge each other for overnight loans. So, while you might think that “interest rates” have fallen since the Fed began its most recent campaign to reduce interest rates, you’d be wrong.
As always, there are reasons to be bullish and optimistic - mostly momentum. And there are reasons to be bearish - pretty much every fundamental measure I can think of.
I remain fundamentally bearish but aggressively long the stock market (yes, I can be both at the same time). If the momentum continues, we will do well and if the rally fades our stops will get us out before the market drops too far, at least in our active strategies.
“On average, everyone who marries will end up with a marginally attractive spouse of normal intelligence. Therefore, you're probably wasting your time trying to find a beautiful and intelligent person to marry you. In theory, that might be good advice. But was that your dating strategy? If you had dated any dog that would have you, would you have married the spouse you wanted?
In short... when it comes to a lot of important things in our lives, getting better-than-average results is a worthy goal…”
"For the past year or more, the so-called Magnificent Seven stocks have driven the vast majority of the S&P 500’s return.
That said, Tesla has started the year down about 25% and the talking heads have begun referring to the rest of the group as… wait for it… The Magnificent Six… I couldn’t make it up if I tried.
What changed for Tesla? Nothing, really. I think the market has just gradually noticed how overpriced the stock was and from there market “gravity” took care of the rest, as it always eventually does.
Of course, this could never happen to the other members of the “Mag 7…” That was sarcasm if you didn’t pick it up…"
Happy New Year and welcome to 2024!
As one more trip around the sun has been completed, the markets seem to be laser focused on the Fed cutting interest rates this year. What the markets seemingly fail to realize is that when beg for rate cuts what they are implicitly asking for is a big drop in the markets along with a big spike in unemployment. That’s normally what brings about those rate cuts.
The Fed wouldn’t be cutting rates and thereby punishing savers in a strong economy. It wouldn’t need to.
Warren Buffet is still probably the best investor alive and perhaps the best who ever lived. He is 93 years old now, and has uttered countless quotable phrases, the most famous of which is probably to “be fearful when others are greedy and be greedy when others are fearful.”
So, what if I told you that after closing positions in some pretty big and well-known companies like United Parcel Service (UPS), Proctor & Gamble (PG), Johnson & Johnson (JNJ), and General Motors (GM), Mr. Buffet is sitting on more cash than ever before… and as they say, “ever” is a long time.
The S&P 500 was down 5.08% in September and down 6.96% from the intraday high at the end of July. In October, the index has bounced back a little, but I am seeing a series of lower highs develop. For now, the index has bounced off its 200-day moving average, which is to be expected. But if it bounces to another lower high, we could be in for a period of sideways consolidation for a while, or an outright drop below the 200-day moving average, which would be a very bearish signal that could send markets back to the lows for the year. There is also always a chance that the market will breakout to a new high and rally into the end of the year even in the face of higher interest rates, all-time high credit card balances, dwindling savings, high inflation, etc…
There was a time when nobody cared about monthly Consumer Price Index (CPI) data. In fact, that time covered the vast majority of my career in the financial services industry. I look forward to the day that people go back to not caring. For now, CPI data is promoted as the “big data release” of the week by basically every financial outlet on the planet, and those promotions continue to generate clicks. Since we are stuck with it, let’s look at what’s important rather than what grabs the public’s attention.
