|Dow||+14.84 to 16,921.46|
|S&P 500||+2.50 to 1,959.48|
|Nasdaq||-3.51 to 4,359.33|
|10-YR Yield||+.009 to 2.622%|
|Gold||+$45.60 to $1,318.30|
|Crude Oil||+$.64 to $106.62|
I’ve never been a big fan of the circus. Maybe it’s because I’m afraid of clowns … and I have yet to see a circus without a gaggle of them parading around.
But you can’t help but marvel at the high-wire acts. Here you have a handful of acrobats who can somehow walk across a wire no wider than your finger … and manage not to plunge to the ground! And they do so surrounded by hundreds or thousands of spectators cheering at the top of their lungs!
What brings this up? The stock market, that’s what.
Yesterday’s Federal Reserve meeting prompted yet another melt up in the major stock indices. The Dow, S&P 500 and Nasdaq Composite all took off like a rocket late in the day, in part because the Fed’s Janet Yellen said she didn’t see compelling evidence of a stock market bubble.
Meanwhile, the VIX index of volatility that I’ve been talking about sank to a fresh low dating all the way back to early 2007.
Some investors believe this is the start of a massive, summer melt up that carries stocks much higher. In that line of thinking, the Fed’s top policymakers have shown they simply don’t care as much as other less-powerful colleagues about the surge in complacency.
They don’t care about the explosion in inflation. They don’t care about the stronger growth figures we’re seeing. And they don’t care about anything else. They’re hell-bent on printing us into the biggest equity bubble in history, so you should buy any and all stocks!
But a contrary narrative is also out there. The shorthand version? What the heck is the Fed smoking??
|The Fed Chair’s remarks yesterday prompted yet another melt up in the major stock indices.|
It’s not just the Consumer Price Index. It’s virtually every indicator of inflation on the planet that’s getting hotter. At the same time, the job market is improving rapidly and the economy is rebounding strongly from its first-quarter stumble.
“The Fed’s low-rate pledges aren’t worth the paper they’re printed on.”
This view got a big boost from economic data released not 24 hours after Fed Chairman Janet Yellen took the microphone in Washington. Specifically, we learned that initial jobless claims dropped 6,000 to 312,000 in the most recent week. Continuing jobless claims also dropped, falling to the lowest since October 2007. Overall, American payrolls are on track to grow more in 2014 than in any other year since 1999.
Meanwhile, the Philadelphia Fed manufacturing index surged to 17.8 in June from 15.4 in May. Not only was that well above expectations, it was also the best level since September 2013. The inflation reading embedded in the report — the prices paid sub-index — surged to 35 from 23. That was the highest reading going all the way back to the summer of 2011.
Sooooooo the obvious question is, “Why are interest rates pegged at record lows again?” It simply doesn’t make sense. And that means the Fed’s low-rate pledges aren’t worth the paper they’re printed on. Policymakers will be forced to slash QE and raise interest rates sooner, rather than later. That, in turn, could lead to a melt down in stocks since they’re completely addicted to a never-ending flood of easy money.
I talked about my view on the Fed and where we could be heading yesterday. Now I’m interested in finding out where you come down on this debate.
Do you believe in the melt up or melt down scenarios? Is it possible to find a middle ground? What investing strategy makes the most sense to you in this environment? Share your thoughts in the comment section by going here.
|OUR READERS SPEAK|
In the wake of yesterday’s Fed meeting, where Yellen said all the evidence of rising prices was just “noise,” many of you begged to differ.
Reader Anthony G.said bluntly that “This Fed is behind the curve. The keystrokes and printing presses of this Fed have created skyscrapers, bridges, and roads to nowhere. This artificial prosperity will melt down.”
And Reader Geraldina said it’s so obvious, even her grandson can figure it out. She said: “Everything is downsized in food and prices are raised. It used to be that you could cover a slice of bread with a square of cheese. Not anymore. You need a square and a half.
“My grandson said the other day: ‘That’s ok Grandma, I’ll just eat all the bread around it first then eat the best part with the cheese after.’ Even kids notice! They are smarter than the folks in Washington.”
But Reader Larry Mc D. said rates simply can’t go up given all the debt weighing down on our economy. His take: “The Fed understands only too well that every percentage point it raises rates means $175 billion added to the annual deficit due to increased interest payments … Returning rates to historical levels would devastate the fragile economy, bankrupt the country and destroy Main Street. The Fed will continue to print money and hold down rates a la Japan because the alternative in not acceptable.”
Well, my position should be fairly clear to you. The Fed may not want to raise rates. But it is going to have to given the inflation and growth outlook for the U.S. and elsewhere. But as always, I’d love to hear more of your opinions and thoughts at the website. Click here to add your two cents!
|OTHER DEVELOPMENTS OF THE DAY|
What the world needs now is not love sweet love. It’s another smartphone — this time from Amazon.com. So after viewing this video and reading about it, what do you think? Worth the money? Better or worse than the iPhone or competing phones from Samsung? Let me know.
Don’t look now — but gold is ripping higher after a long respite. It jumped to and through $1,300 an ounce today, signaling a return of inflation (That’s my read, anyway). My colleague Larry Edelson has been all over this move lately, and if you want to hear more about where he thinks it’s headed, click here.
Inflation in food costs are hitting all of us (with the possible exception of Janet Yellen, who says prices are just “noise”! LOL). But it seems to be working out pretty well for companies like grocery chain Kroger (Weiss Ratings: KR, A-).
The stock popped nicely after the company beat earnings-per-share estimates by 4 cents. Revenue surged 10 percent to around $33 billion, helped along by the firm’s acquisition of Harris Teeter.
Meanwhile, a company with an ever-so-slightly different ticker was on the losing end of today’s markets. KBR Inc. (Weiss Ratings: KBR, C) shares tanked after the engineering and construction firm missed financial targets in the first quarter.
Reminder: You can let me know what you think by putting your comments here.
Until next time,