Have the four horsemen of the stockalypse been completely tamed? The US stock market says YES. The Dow Jones Industrial Average sits at 25,888, just below its all-time set on October 3, 2018. While the booming stock market says that the US economy is great, Chicken Little (spoiler alert) sees more pain ahead.
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| The US stock market is happy |
On October 8, 2018, I wrote about the four horseman of the stockalpyse:
1. The Fed Raises Rates
2. Democrat Party control of the House of Representatives
3. Trade Wars, particularly with China
4. The Market Raises Rates
This post updates these four issues. Here is a summary of the stock market and these related posts.
This post updates these four issues. Here is a summary of the stock market and these related posts.
1. The Fed Raises Rates - 2019 update: Easy money ahead
In the first post, I wrote, 'The Fed will switch from raising rates to lowering interest rates if something bad happens to the stock market. Under current Fed policy, "heads the speculator wins, tails the Fed uses your money to bail out the speculator." '
As predicted, after raising rates, the Fed did capitulate as soon as the stock market fell in late 2018. Now the Fed promises to keep interest rates as low as necessary to support the stock market.
Furthermore, the Fed has changed its policy with regard to the printing of money to buy government debt. During the financial crisis, the Fed electronically 'printed' $3+ trillion dollars use that money to pay for Government deficit spending.
At one point, the Fed promised to reverse some of that printing. Now the Fed has capitulated and will not reverse its printing money to pay for government bills. Saint Augustine wrote, "Give me chastity and continence, but not yet." Jay Powell and the Fed say they will return to sound monetary policy, but not yet.
In 2018, President Trump was critical of the Fed. Now that the Fed has agreed to easy money forever, Chairman Powell is back in good graces with the President and the stock market. Recently, President Trump and Fed Chair Powell had dinner together. (President Trump asked, 'What's for dinner?' Fed Chair Powell replied, 'Free money until you are re-elected.' Champagne and laughter followed.)
2. Democrat Party control of the House
Nancy Pelosi is the Speaker of the House. There is now a conflict between the Democrat party control of the house and Republican party control of the Senate and Presidency. In 2018, this conflict produced the Federal Government shutdown.
Will there be persistent conflict between Speaker Pelosi and President Trump? Yes, is the short answer. Significant elements of both parties support increased spending so it is possible that there could be agreement for a larger budget and deficit. With the 2020 election coming next year, however, I believe that conflict will persist to try to win the 2020 election.
3. Trade Wars
In the first post, I wrote, 'The Fed will switch from raising rates to lowering interest rates if something bad happens to the stock market. Under current Fed policy, "heads the speculator wins, tails the Fed uses your money to bail out the speculator." '
As predicted, after raising rates, the Fed did capitulate as soon as the stock market fell in late 2018. Now the Fed promises to keep interest rates as low as necessary to support the stock market.
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| Give me chastity and continence, but not yet." - Jay Powell |
Furthermore, the Fed has changed its policy with regard to the printing of money to buy government debt. During the financial crisis, the Fed electronically 'printed' $3+ trillion dollars use that money to pay for Government deficit spending.
At one point, the Fed promised to reverse some of that printing. Now the Fed has capitulated and will not reverse its printing money to pay for government bills. Saint Augustine wrote, "Give me chastity and continence, but not yet." Jay Powell and the Fed say they will return to sound monetary policy, but not yet.
In 2018, President Trump was critical of the Fed. Now that the Fed has agreed to easy money forever, Chairman Powell is back in good graces with the President and the stock market. Recently, President Trump and Fed Chair Powell had dinner together. (President Trump asked, 'What's for dinner?' Fed Chair Powell replied, 'Free money until you are re-elected.' Champagne and laughter followed.)
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| Fed Chairman Powell has no backbone. |
2. Democrat Party control of the House
Will there be persistent conflict between Speaker Pelosi and President Trump? Yes, is the short answer. Significant elements of both parties support increased spending so it is possible that there could be agreement for a larger budget and deficit. With the 2020 election coming next year, however, I believe that conflict will persist to try to win the 2020 election.
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| President Trump and Speaker Pelosi will have many more battles |
3. Trade Wars
In my original post, I predicted that China would win the trade war with the US. The logic is simple. President Trump has an election next year. President Xi has an election -- never. China has a history of persistent pursuit of a long-term strategy with a willingness to endure any amount of pain in the short-term to gain long-term advantage.
Recall that China and the US fought an actual shooting war in Korea in the early 1950s. China's official statement on its casualties lists over 200,000 dead and missing Chinese soldiers in the Korean War. According to David Halberstam, author of the Pulitzer prize winning "The Coldest Winter," the Chinese entered the Korean war, in part, to cast off the humiliations of the colonial era.
We have not seen the final deal of the China-US 2019 trade deal. If China was willing to have its people die in Korea to advance its strategic agenda, it seems *extremely* unlikely that China will make any significant concessions because of tariffs.
4. The Market Raises Rates
The Fed has stopped raising rates and promises and an endless future of easy money. However, ultimately the Fed will be humiliated by the market. More on this to come.
March 19, 2019
Dow Jones Industrial Average: 25,888
Recall that China and the US fought an actual shooting war in Korea in the early 1950s. China's official statement on its casualties lists over 200,000 dead and missing Chinese soldiers in the Korean War. According to David Halberstam, author of the Pulitzer prize winning "The Coldest Winter," the Chinese entered the Korean war, in part, to cast off the humiliations of the colonial era.
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| The Colonial Powers occupied Beijing in 1900 |
We have not seen the final deal of the China-US 2019 trade deal. If China was willing to have its people die in Korea to advance its strategic agenda, it seems *extremely* unlikely that China will make any significant concessions because of tariffs.
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| President Trump needs votes, President Xi does not |
4. The Market Raises Rates
The Fed has stopped raising rates and promises and an endless future of easy money. However, ultimately the Fed will be humiliated by the market. More on this to come.
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| Jay Powell has the same powers as the man behind the curtain |
March 19, 2019
Dow Jones Industrial Average: 25,888
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