Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
Gold Price Confirmation of the Warning - 18th Mar 19
Split Stock Market Warning - 18th Mar 19
Stock Market Trend Analysis 2019 - Video - 18th Mar 19
Best Precious Metals Investment and Trades for 2019 - 18th Mar 19
Hurdles for Gold Stocks - 18th Mar 19
Pento: Coming QE & Low Rates Will Be ‘Rocket Fuel for Gold’ - 18th Mar 19
"This is for Tommy Robinson" Shouts Knife Wielding White Supremacist Terrorist in London - 18th Mar 19
This Is How You Create the Biggest Credit Bubble in History - 17th Mar 19
Crude Oil Bulls - For Whom the Bell Tolls - 17th Mar 19
Gold Mining Stocks Fundamentals - 17th Mar 19
Why Buy a Land Rover - Range Rover vs Huge Tree Branch Falling on its Roof - 17th Mar 19
UKIP Urged to Change Name to BNP 2.0 So BrExit Party Can Fight a 2nd EU Referendum - 17th Mar 19
Tommy Robinson Looks Set to Become New UKIP Leader - 16th Mar 19
Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - 16th Mar 19
Towards the End of a Stocks Bull Market, Short term Timing Becomes Difficult - 16th Mar 19
UKIP Brexit Facebook Groups Reveling in the New Zealand Terror Attacks Blaming Muslim Victims - 16th Mar 19
Gold – US Dollar vs US Dollar Index - 16th Mar 19
Islamophobic Hate Preachers Tommy Robinson and Katie Hopkins have Killed UKIP and Brexit - 16th Mar 19
Countdown to The Precious Metals Gold and Silver Breakout Rally - 15th Mar 19
Shale Oil Splutters: Brent on Track for $70 Target $100 in 2020 - 15th Mar 19
Setting up a Business Just Got Easier - 15th Mar 19
Stock Market Elliott Wave Analysis Trend Forercast - Video - 15th Mar 19
Gold Warning - Here Are the Stunning Implications of Plunging Gold Price - Part 1 - 15th Mar 19
UK Weather SHOCK - Trees Dropping Branches onto Cars in Stormy Winds - Sheffield - 15th Mar 19
Best Time to Trade Forex - 15th Mar 19
Why the Green New Deal Will Send Uranium Price Through the Roof - 14th Mar 19
S&P 500's New Medium-Term High, but Will Stock Market Uptrend Continue? - 14th Mar 19
US Conservatism - 14th Mar 19
Gold in the Age of High-speed Electronic Trading - 14th Mar 19
Britain's Demographic Time Bomb Has Gone Off! - 14th Mar 19
Why Walmart Will Crush Amazon - 14th Mar 19
2019 Economic Predictions - 14th Mar 19
Tax Avoidance Bills Sent to Thousands of Workers - 14th Mar 19
The Exponential Stocks Bull Market Explained - Video - 13th Mar 19
TSP Recession Indicator - Criss-Cross, Flip-Flop and Remembering 1966 - 13th Mar 19
Stock Investors Beware The Signs Of Recession / Deflation - 13th Mar 19
Is the Stock Market Still in a Bear Market? - 13th Mar 19
Stock Market Trend Analysis 2019 - 13th Mar 19
Gold Up-to-Date' COT Report: A Maddening Déjà Vu - 12th Mar 19
Save Fintech? Ban Short Selling. It's Not That Simple - 12th Mar 19
Palladium Blowup Could Expose Scam of Gold & Silver Futures - 12th Mar 19
Next Recession: Concentrating Future Losses & Bringing Them Forward In Time As Profits - 12th Mar 19
The Shift of the Philippine Peso Regime - 12th Mar 19
Theresa May BrExit Back Stab Deal Counting Down to Resignation, Tory Leadership Election - 12th Mar 19
Phase 1 of Stock Market Correction - 11th Mar 19
Long Awaited Stock Market Pullback has Finally Arrived - 11th Mar 19
US Presidential Cycle and the Stock Market - Video - 11th Mar 19
Stock Market Elliott Wave Analysis Trend Forercast - 11th Mar 19
Chinese Economic Data Shakes the Global Stock Markets - 11th Mar 19
The Fed Is Playing a Dangerous Game - 11th Mar 19
The Stock Market Has Called the Fed’s Bluff, What’s Next? - 11th Mar 19
Turkey Holiday Bazaar Extreme Jewelry Price Haggling - Fethiye Market - 11th Mar 19
Are You Ready for the Next Big Move in Gold? - 10th Mar 19
Taylor Wimpey Reports £811m in Profits boosted by Help-to-Buy - 10th Mar 19
SPX Big US Stocks Fundamentals - 10th Mar 19
Yield Curve Inversion and the Stock Market 2019 - Video - 9th Mar 19
Various Stock Market Indicators are Plunging. Run for the Hills! - 9th Mar 19
Unsecured Debt hits £15,400 per UK Household - 9th Mar 19
QE4EVER Stock Market 2019 - 8th Mar 19
The Real New Deal - 8th Mar 19
How High Cost Credit Affects Financially Unstable Families - 8th Mar 19
Gold and Silver Precious Metals Pot Pourri - 8th Mar 19
Stock Market Downward Reversal? Stocks Still Relatively Close to Their Recent Highs - 8th Mar 19
Gold and the Political Theater: Is The Tail Wagging the Dog? - 8th Mar 19
Is Recession Near? - 8th Mar 19
Consumer Behavior: What you need to know to read your Audience - 8th Mar 19
The Exponential Stocks Bull Market - 7th Mar 19
Millennial Home Buyers Not as Active as Boomers Were in US Property Market - 7th Mar 19
KIND Elevates Nut Butter Category with a Wholesome Recipe - 7th Mar 19
Brexit Does Not Stop Bitcoin’s Growth in the UK - 7th Mar 19
How Private Sector Debt Bubble Could Trigger the Next Financial Crisis - 7th Mar 19
What Commodities and Transportation Stocks Telling Us - Part2 - 7th Mar 19
What Comes After a Trillion in Student Debt? - 7th Mar 19
Dear Stocks Bull Market: Happy 10 Year Anniversary! - 7th Mar 19
The Importance of Financial Planning for Companies - 7th Mar 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast March to September 2019

Maybe The Economy Is Too Good For Investors

Economics / US Economy Mar 03, 2018 - 03:01 PM GMT

By: WMA

Economics

In the early 19th century, London financier Nathan Rothschild said “buy on the sound of cannons, sell on the trumpets”.  The cannons referred to the start of war (valuations are therefore attractive as disorder begins) and the trumpets refer to the peace treaty ending the conflict (at which time timid investors pile back into risky financial assets). Warren Buffet has often reiterated the same idea first enounced by Rothschild saying “buy when there is blood in the streets” (eg, when valuations are very low).  


Friends, there is no blood to be seen in the economy or financial markets, as of yet. Some commentators are still even painting a rosy picture of the economy: the Fed remains friendly, inflation is contained, U.S. corporate tax cuts will boost company earnings, Trump will have the economy growing above trend, etc.  On financial markets, investor sentiment indicators (prior to February’s selling) hit cycle highs. Our own WMA Market Sentiment Indicator hit a multi-year high of 90 (in the Extreme Optimism zone) in January before melting back down to a neutral rating of 65 at of March 2.

As for the economy, despite the longevity of the economic expansion, no one dares to predict a precocious end to cycle. New Fed Chair Jerome Powell who delivered the Fed’s semi-annual testimony to Congress this week, told lawmakers that the next two years will be “good” ones for the economy. If he’s right, he’ll be at the controls when the current U.S. expansion becomes the longest on record. Just given the Fed’s track record of economic forecasts, we’ll be amazed if the next recession does not hit before 2020.

Powell is hoping to pull off an unparalleled soft landing of a U.S. economy with a rock-bottom unemployment rate.  Our problem is reality: history has shown that it is very hard to soft land an economy once you’re below full employment.  The difficulty for the central bank is trying to slow economic growth enough to edge up unemployment but not so much as to trigger a contraction in gross domestic product. It’s going to take some real good policy making and lots of LUCK to avoid a recession before 2020. At 4.1% in January, unemployment is already below Fed officials’ 4.6% estimate of its long-run sustainable rate, according to the median projection of policy makers in December. As shown in the chart below, once unemployment gets below full employment (estimated to be 4.5% - 5.0% unemployment today), it’s hard to being the economy back from the edge. The January jobless reading is the lowest since 2000. Back then, the Fed under Alan Greenspan was raising interest rates to try to bring a red-hot economy off the boil. The tighter credit ended up contributing to a recession the following year as the Nasdaq stock market bubble burst.



To soft land the economy, Powell opened the door to the Fed raising rates four times this year as he acknowledged stronger economic growth may prompt policy makers to rethink their plan for three hikes. His comments sent equity prices skidding and bond yields higher this week.

Indeed, this has an air of déjà vu from the Housing Bubble of 2001-2006, brought on by Greenspan’s decision not to bring rates up quickly after the 2001 recession. Is it possible the Fed has not learned its lessons of the past?  Leaving interest rates below equilibrium levels creates financial market distortions (bubbles) which cause greater pain than the economic woes that Band-Aid policy was attempting to smooth over.

The chart below illustrates the Fed’s policy rate and the path of home prices as measured by the Case-Shiller 20-City Home Price Index. Two years of a below 2% Fed Funds rate dragged 30-year mortgage rates down to 5%, which was low in a non-QE economy. Of course in the end the Fed had to raise rates (too late) to check out-of-control speculation in the housing market, pricking the bubble and setting up the Great Recession.


Conclusion

So where is the economy today?  Not only do we have an economy that is growing at an above-trend pace -- at a time when the labor market is already quite tight -- but the economy will be getting an extra boost in 2018 and 2019 from the recently enacted tax legislation.  Essentially we are getting fiscal stimulus, on top of eight year of continual monetary policy stimulus…all in the ninth year of the expansion. Economist Larry Summers speculated this week that the next recession will be particularly severe, especially if the Fed does not get rates higher before the next recession arrives. Both the Fed and the Federal government (fiscal policy) have fired all of their bullets off during the expansion! Summers introduces a legitimate concern: with rates already low and the tax cuts/spending measures already enacted, what tools do policy makers have left to enact counter-cyclical policy during the next recession? (Please don’t answer more QE). We don’t have an answer, and worse, we don’t believe our policy makers do either.

By Williams Market Analytics

http://www.williamsmarketanalytics.com

We provide insightful market analysis and account management founded upon our very successful systematic, disciplined approach to investing. Our investment analysis revolves around two inputs: company valuation and our  quantitative, market-based indicators. Learn more about our approach and our strategist.

© 2018 Copyright Williams Market Analytics - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules