|Dow||+24.88 to 17,156.85|
|S&P 500||+2.59 to 2,001.57|
|Nasdaq||+9.43 to 4,562.19|
|10-Yr Yield||+0.01 to 2.60%|
|Gold||-$13.50 to $1,226.60|
|Crude Oil||-$0.74 to $91.76|
Forget Sunday Funday. It’s Fed-day Wednesday! That means we were just served up another healthy dollop of “wisdom” and monetary policy guidance from on high in Washington.
So what did the Fed say?
First, the Fed slashed the QE bond buying program again — to just $15 billion from $25 billion. And the Fed said that, barring some catastrophe, it would eliminate QE entirely at its Oct. 28-29 meeting.
Second, it did not eliminate the “considerable time” expression of how long rates would stay low after QE ends, nor did it eliminate a phrase saying there is still “significant underutilization of labor resources.” But …
Third, the Fed definitely talked up the economy. The post-meeting statement cited a “moderate” economic expansion, and noted that labor market conditions “improved somewhat further.” It also talked about decent household and business spending, and said that the Fed “currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions.”
Fourth, Two Fed policymakers dissented this time — Dallas Fed President Richard Fisher and Philadelphia Fed President Charles Plosser. Fisher cited risks of financial market excess and the improved economy, while Plosser said he doesn’t want the time-dependent talk in there anymore.
Fifth, the Fed released a whole separate statement called “policy normalization principles and plans.” The Fed claims it’s not a prescription of what it will do. It is just a “Well, if we do hike rates at some point, this is HOW we’ll do it.”
But does anyone really take that seriously? I sure don’t! You don’t plan for something you don’t actually intend to do … and soon. I won’t bore you with all the inside baseball stuff in the statement. But it basically says the Fed will hike the benchmark federal funds rate and gradually wind down its massive portfolio of bonds over time – once it decides to tighten policy.
Bottom line: The Fed has now clearly charted its course to the land of higher interest rates! That further validates my predictions of more than a year ago. Specifically …
That the record-low interest rates we saw in 2012-13 will probably be the lowest I will EVER see in my lifetime … and that we are likely facing the biggest interest-rate turnaround/reversal in more than 30 years. The last major turnaround was in late 1981, when 10-year Treasury yields topped out at more than 15 percent!
The move higher won’t be in a straight line. There will be corrections like we had earlier this year. Those corrections will bring out bond bulls, who will try to suck in more of your money. But I believe they will ultimately prove to be dead wrong.
Meanwhile, I think there’s another point to make here: That the Fed and its Wall Street lapdogs are increasingly grasping at straws!
|“The Fed and its Wall Street lapdogs are increasingly grasping at straws!”|
Highly paid Wall Street economists have been reduced to arguing about the meaning of the word “tapering.” Supposedly high-minded, mainstream financial journalists have spent weeks debating whether two lousy words in the entire English language – “considerable period” – would remain in this or future Fed statements. It’s absolutely nuts!
Frankly, these men and women need to put down the canapés, descend from their Ivory Towers, and realize that what’s going on in America has virtually nothing to do with the Fed. The average man on the street could care less whether the average Fed policymaker thinks rates will be 2 percent or 2.10 percent two years down the road.
He just wants to get a bigger paycheck at work. He wants to put food on his table without spending all of his dough thanks to runaway inflation. And he wants to earn a decent yield on his CD – something higher than 0.005 percent!
|All eyes were on Fed chief Janet Yellen.|
That will not happen if the Fed stays at the center of the investment universe, or if it keeps rates pegged at zero.
So just like me, I believe you should be cheering the fact the Fed is saying “Bon Voyage” and setting sail to the land of higher interest rates! Its efforts stopped helping the economy a long, long time ago, and now it needs to get the heck out of the way and let Americans get back to business!
What do you think? Are we paying too much attention to Fed Chairman Janet Yellen and her cronies? Did anything they say today change your view of the markets or the economy? Is it other policymakers who need to do something to help with growth? Or is there anything the Fed can still do?
Do you believe, like me, that the Fed is now charting a course to higher interest rates? If so, (or if not) why? Don’t hold those thoughts in! Let ’em out at the Money and Markets comments section below.
|Our Readers Speak|
Since there is a ton going on this week, it’s only natural that you had many varied responses to the key market drivers I discussed on Monday.
In response to my discussion of a renewed fight against ISIS, Reader Terry C. said: “Until Arab countries contribute the major share of troops on the ground, it will be foreign armies attacking the Middle East population. We have trained many of those nations and they have the money to support their forces. If they won’t fight then we should not contribute one American nor supply any additional money.”
Terry, getting bogged down in yet another Mideast conflict will definitely cost us dearly in terms of American lives and treasure. That’s why the Obama administration is bending over backward to say that we won’t need to use ground troops (even as his own generals appear to be contradicting him)!
I guess the only question is, is it worth it? Will it prevent the fight from coming to our own shores? ISIS clearly wants to strike at the U.S., and has implied it could do so on our own territory. Share your thoughts at the website in the comments below.
As for homeownership, Reader Howard said that isn’t the REAL American Dream. His view: “I thought the American dream used to be owning your own business. But too much red tape, poorly targeted taxation and growing bureaucracy are stifling start ups.
“We need to promote developing small business, future employment growth and sensible investment structures with predictable positive returns. To stand back and be held up while the Fed mucks around and destroys wealth creation and retirement incomes is a tragedy.”
You’re spot on there Howard. The Fed’s efforts are doing more harm than good these days, and it just needs to get the heck out of the way! Let the rest of Washington tackle things that could actually help the economy, including the ridiculous tax code and insane amounts of red tape!
Finally, with regards to the key vote in Europe, Reader Robert C. said: “If Scotland breaks away from England, it will have a negative effect on the British pound. The Brits have made it clear that Scotland will have to have its own currency or adopt the euro.
“The other problems are: How will Scotland and England divide the profits of North Sea oil? What about debt apportionment? There are only 5 million people in Scotland. I believe from an economic standpoint that Scotland would be better off in the United Kingdom.”
Robert, I think your analysis is on target. A secession vote for Scotland could have severe economic consequences, particularly in the short term.
I personally hope Scotland stays in the U.K., and believe it probably will. But ultimately, it comes down to whether Scottish voters believe they’ll get more out of seceding than they’ll lose by doing so. At least we won’t have to wait long to find out – results are due to start coming in very early Friday morning. Go to the Money and Markets website tomorrow, where full details of the vote and its aftermath will be reported in our Trending Nationally news section.
Any other thoughts you’d like to add – to these or other topics? Go to the comment area below.
|Other Developments of the Day|
- Steel has been one of my favorite sectors, because these companies are “stealth” beneficiaries of the domestic energy boom. They have access to cheap, reliable, plentiful natural gas and other energy products to power their furnaces and factories, and that gives them a leg up on foreign producers.
- Sure enough, Nucor (NUE, Weiss Ratings: B) and U.S. Steel (X, Weiss Ratings: C-) just preannounced better-than-expected earnings … helping send their shares to fresh multi-year highs. I trust you’re enjoying your share of those profits!
Inflation is dead … at least according to government statisticians! The Consumer Price Index dipped 0.2 percent in August, while the core index flat-lined. And if Washington bureaucrats think the CPI accurately reflects what’s happening in the lives of every day Americans, I have a bridge to sell ’em!
The reviews of Apple’s new iPhone 6 and iPhone 6 Plus are coming in. Most are positive from what I can see. Here is USA Today’s take and here is one from the Wall Street Journal.
The National Football League is rapidly sinking in popularity, stuck somewhere between ambulance-chasing lawyers and members of Congress. So to try and save face, the NFL and the Minnesota Vikings reversed course and banned star running back Adrian Peterson from playing while his child abuse case winds its way through the judicial system.
Reminder: You can let me know what you think by putting your comments below.
Until next time,