Fed Signals Half Speed Ahead
OK, the number is out!
The Fed just raised interest rates by 25 basis points, taking the cost of overnight money for the big banks to a 1.50%-1.75% range.
The boiling frog analogy comes to mind. Keep raising the temperature so slowly you don't notice it until your portfolio eventually gets cooked.
I believe we have two years of quarter point rises ahead of us like clockwork. This will invert the yield curve in a year, meaning that short term interest rates will exceed the 10-year US Treasury bond, now at 2.87%.
A bear market in stocks ALWAYS follows in six to 12 months. So, make hay while the sun shines, because this bull is rapidly becoming a short-dated option, with only a year or more life left to it.
How could I be wrong? Inflation accelerates, forcing our august central banks to raise rates in one shot by 50 basis points instead of the expected 25.
That would really set the cat among the pigeons, and trigger our next Dow 1,000 point down day.
My long-term economic forecast is still holding water that the benefits of the tax cuts will be entirely offset by rising interest rates and costs, keeping GDP growth at 2.5%...and then to zero.
The unfolding global trade war may also take down global growth and bring forward the next bear market and recession by months, if not a full year. Watch those headlines!
At the end of the day, we will be left with zero economic growth (a recession), higher interest rates, and A LOT more debt, both at the personal and the national level, and naturally exploding deficits everywhere.
That certainly is how the foreign exchange market is reading it, which completely savaged the greenback today. The dollar (UUP) got slaughtered against the Euro (FXE) and the Japanese Yen (FXY). Bonds actually rose on the news, which is why I'm out of that market.
It all works for me, as there will be more trading opportunities playing out in this scenario than pimples at a high school prom.
The biggest imbalance in the current tax policy is allowing multinationals to bring trillions of dollars home by paying minimal tax.
The overwhelming majority of these are big technology companies, meaning that the money is coming back here in the San Francisco Bay Area, causing local asset prices to explode.
I just received a letter from a local real estate broker telling me that the value of my home has risen by 27% in the past year to $5 million, and that now is the best time in history TO SELL!
They may be right.
