So did they deliver?
Well, in the post-meeting statement, Yellen & Co. sounded a fairly optimistic note about strength in the domestic economy. They said that “labor market conditions improved further even as economic growth slowed late last year” and that “household spending and business fixed investment have been increasing at moderate rates in recent months, and the housing sector has improved further.”
At the same time, they underscored how “net exports have been soft and inventory investment slowed.” They also noted that inflation continues to miss their 2% target, “partly reflecting declines in energy prices and in prices of non-energy imports.”
Moving on, Fed officials said they believe the economy and labor market will improve modestly and that inflation will rise back toward 2% “in the medium term.” But officials did try to throw a bone to the market by adding they are “closely monitoring global economic and financial developments” and “assessing their implications for the labor market and inflation, and for the balance of risks to the outlook.”
My overall read: The Fed was somewhat dovish, but not dovish enough to satisfy investors. Specifically, policymakers didn’t single out the dollar and try to push back against its ascent. That helped contribute to a late-day meltdown in stocks, with the Dow Industrials dropping 222 points and technology stocks getting hit particularly hard.
But frankly, this is all very short-term stuff. My longer-term problem with this ongoing interaction/co-dependence between capital markets and central bankers is this: The emperor has no clothes!
If dovish comments from central bankers worked for the real economy, we wouldn’t be hanging on their every word. The economy would only need to hear one speech — and then we’d be off to the races.
If QE worked for the real economy, we wouldn’t need fresh doses of it every few months. The economy would surge, eliminating the need for more and more treatments.
|Janet Yellen was dovish – but probably not dovish enough for some investors.|
If ultra-low or even negative interest rates worked for the real economy, we wouldn’t need cut after cut from the world’s central bankers. And let’s be honest: They aren’t even working in the financial markets anymore. New cuts generate a couple of hours or days of “risk on” gains … then we roll right back over.
Central bankers said all along that easy monetary policies were designed to build bridges to a better future and better global economy. But they’ve turned out to be bridges to nowhere. That’s why meetings like today’s … or last week’s European Central Bank meeting … or the Bank of Japan meeting that’s right around the corner … are no longer spurring huge, multi-week or multi-month rallies.
|“Meetings like today’s are no longer spurring huge, multi-week or multi-month rallies.”|
My advice: Stay focused on underlying corporate fundamentals, credit market trends, and global economic data, NOT central bank talk. They’re all signaling tough times ahead, and that’s why selling into rallies is the best course of action in my view.
What do you think about today’s Fed meeting? Do you think what the Fed did and said will support markets? Or is central bank talk and action wholly ineffective at this point? Is there anything policymakers can (or should) do to stabilize markets or the global economy? Let me hear about it below.
What does the recent carnage in financial stocks mean for the market as a whole … and how is it impacting your investing strategy? You had some ideas on that overnight, so let’s get right to them.
Reader Gordon said: “Banks are pulling in their horns on easy lending. Losses are building up. Some loan insurance companies are going under, or are on the ropes. Banks are now coming under pressure in the markets as Christmas is over and the hangover is here.
“If the banks pull out the rug entirely from easy lending, things could get ugly fast. Banks do not care about the economy — only making a buck.”
Reader Chuck B. said: “David Stockman, President Reagan’s former budget director, pointed out a belief elsewhere that the world economy is going to begin to shrink, for the first time since the 1930s. He says there is just ‘too much wealth out there.’ He blames it on central banks’ creation of money.
“He says that has pulled demand from the future, and that there are just too many ‘things’ – too many gadgets, too many autos, too many big houses, too many skyscrapers in China. He might have mentioned too much debt, and now society has to begin paying the bill.”
Reader Joe added: “Unfortunately, banks and the government have trained people to confuse credit with money. When people get a new credit line, they feel good. They spend it like money, same as our government does.
“The only difference is, Washington prints it. People may have to pay it back. The real mess is just in the beginning stages.”
Finally, Reader Al McN. said: “I think you nailed it in this article Mike. Debt is the problem, which no one has been willing to face since 2000, period. It’s the reason we had huge growth in oil (i.e. cheap money).
“But now all this cheap money has created too much capacity globally – hence, the commodity crisis. Plus, the world is mired in debt so deep every central banker has tried to figure out how to avoid facing the problem.”
Thanks for the feedback. The credit/lending environment is absolutely crucial to the performance of markets and the economy going forward. So anything that suggests banks are pulling in their horns further is going to have repercussions for growth, asset prices, and more.
I believe central banks have worn out their welcome, and are largely impotent when it comes to promoting even more out-of-control lending than we already had over the past half-decade. So we should all continue to buckle down in anticipation of tougher times.
Anything else you’d like to add, but haven’t shared yet? Then use the discussion section below as your outlet.
The law of large numbers (and the lousy performance of several world economies) has caught up to technology giant Apple (AAPL). Sales of everything from the iPhone to the iPad to the Mac missed forecasts in the most recent quarter, and the firm projected an outright sales decline in the current quarter – the first drop since 2003.
Apple officials blamed weak economies in Brazil, Canada, Japan, Russia, and China, and the strong dollar. Lackluster uptake of its iPhone 6S and 6S Plus models was also to blame, since they don’t offer much more in terms of features than previous phone models.
Speaking of earnings and overseas weakness, both United Technologies (UTX) and Boeing (BA) reported lackluster results. The strong dollar and disappointing demand hampered sales and earnings. That offset some of the positive feelings generated by more encouraging news from bellwethers Procter & Gamble (PG) and 3M (MMM) yesterday.
Large European banks continue to report massive losses, the latest being Royal Bank of Scotland Group PLC (RBS). The bank is still 73%-owned by the U.K. government as a consequence of a credit-crisis bailout. It faces 2.5 billion British pounds worth of costs for mortgage-related settlements, a pension deficit, and a settlement related to sales of unnecessary insurance. It also wrote down the value of its private bank by 498 million pounds.
Let me know in the comment section.
Until next time,