The Wolf Arrives Wednesday

Posted On Jul 29, 2019 By Dave Gonigam

Not again: “Get Ready for the World Economy’s Biggest Week of 2019,” trumpets Bloomberg.

Every few months, Bloomberg puts out a headline like this. In fact there was a nearly identical one in June of last year, packed with a laundry list of supposedly market-moving, earth-shaking events.

Aside from maybe the first meeting between Donald Trump and North Korea’s Kim Jong Un, nobody remembers a thing about that week now. Heh…

But much like the boy who cried wolf, Bloomberg might be onto something for once.

U.S.-China trade talks are resuming. The monthly job numbers are due on Friday. But the big story, the real action, will be at the Federal Reserve.

On Wednesday the Fed will cut its benchmark fed funds rate for the first time since the Panic of 2008.

Thus, in recent days we’ve been treated to a spate of headlines saying a recession and a bear market will be only months away once the Fed makes its move.

That’s the logical fallacy of “recency bias” at work.

In August 2007, the Fed performed its first rate cut in more than four years. Two months later the stock market peaked, and by December the “Great Recession” was underway. But there’s no guarantee of a similar scenario this time. Follow along with this chart as we explain…

New Rate Cut Chart

In early 2001, the Fed cut rates for the first time in more than two years. Yes, that year’s mild recession was underway soon after, but the stock market had topped out nearly a year previous.

Or how about July 1990? The Fed embarked on rate cuts for the first time in 18 months, but the 1990–91 recession was already underway. The stock market peaked around the same time, but it was only a brief 20% dip before a return to all-time highs in early ’91.

And that’s it for your sample set: There’ve been only three recessions since the Fed started targeting the fed funds rate in 1982. And as you can see, there were plenty of times during the ’80s and ’90s the Fed began cutting rates and no recession followed.

With the S&P 500 and Nasdaq notching all-time highs on Friday, Fed Chairman Jerome Powell is petrified of a bear market. He’ll do everything in his power to prevent it.

Last fall, the Fed was in the midst of a relentless rate-raising cycle. Powell was dead-set on “normalizing” interest rates. And why not? As you can see from the chart, they’re still nowhere near “normal.” Powell wanted rates high enough so he could cut them again to combat the next recession whenever it arrived.

What’s more, Powell was likewise determined to shrink the Fed’s bloated balance sheet — a process that has a similar effect to raising rates. He even said the Fed had put that process on “autopilot.”

But the stock market had a cow. Wall Street was keen for more of that easy-money heroin that had juiced the market’s huge gains from 2009–2015.

The market topped out in early October and came this close to a 20% drop — the technical definition of a “bear market” — by Christmas Eve.

Shortly after New Year’s Day, Powell changed his tune — promising the Fed would be “patient” with any more rate increases. And the balance sheet reductions will end in September — way ahead of schedule.

Sums up our ex-investment banker Nomi Prins: “Powell was initially determined to ‘normalize’ rates and stayed on course until the end of last year. But then markets came within a hair of falling into a bear market and Powell finally got religion.”

So now what? Nomi says Powell will succeed in staving off a new bear market for at least several more months.

“Markets are finding support,” she says, “from the same phenomenon that powered them to record heights last year: stock buybacks.”

Last year set a record for companies repurchasing their shares. “While they will probably not match the same figure this year, buybacks are still a major force driving markets higher.

“And amidst escalating trade wars and all the other concerns facing today’s markets, executing buybacks makes the most sense for the companies that have the cash to engage in them. If companies are concerned about growth slowdowns in the future, there is good reason to use their excess cash for buybacks.”

Sure, it would be better if companies used their piles of cash to build new factories, beef up research and development, etc. (We made this same lament last week.) “Buybacks are not connected to organic growth,” says Nomi, “and are detached from the foundation of any economy.

“But buybacks could keep the ball rolling a while longer. And I expect they will. One day it’ll come to an end. But not just yet.”

[Ed. note: Another week, another sterling trade in Nomi’s new premium advisory — this time a 69% gainer. That’s on top of the 214% the previous week.

There were seven earlier trades during a beta-test period. All of them generated at least double-digit winners — all in the space of one trading day.

And that’s not even the most mind-blowing part of these trades. Nomi explains when you follow this link. (Please note the link will go dead at midnight tonight.)]

Markets are treading water as a new week begins. Likely the same story tomorrow, too, going into the Fed decision on Wednesday.

At this stage there’s little drama about the main event — a quarter-percentage point cut to the fed funds rate. There’s still an outside chance of a half-percentage point, which could really juice a stock rally this week — unless traders take away the message that a bigger cut is the only way to avoid an imminent recession.

(Isn’t all this head-fake stuff ridiculous? But it’s the world in which we live.)

At any rate, there aren’t many earnings reports on Monday and there are no economic numbers of note. The Dow is up a bit, the S&P and Nasdaq down a bit. Gold is steady-Eddie at $1,420. Likewise with crude at $56.37.

Uhhh… This seems like a hell of a correction to publish in America’s leading business newspaper…

Corrections & Amplifications

Last week The Wall Street Journal had a dubious “scoop” claiming North Korea had produced 12 nukes since June 2018. It was attributed to analysts at the Defense Intelligence Agency, the Pentagon’s intel arm. Several other outlets, from Business Insider to the New York Post, picked up the story too.

Whoops, turns out the conclusion came not from the DIA but from analysts outside government. Basically they looked at some satellite photos of nuke research sites and drew the most dire conclusion possible.

But as we’ve said before, this is par for the course. Because it’s Donald Trump pursuing a peace agenda on the Korean Peninsula, Big Media is keen to make that pursuit look as if it’s doomed to failure. Ugh…

The proliferation of electric scooters littering America’s urban landscapes has given rise to a new entrepreneurial endeavor…

Boing Boing Chart

It seems many of the people renting e-scooters abandon them on private property. Along comes an outfit that tickets and impounds these vehicles.

Writes Cory Doctorow at Boing Boing: “ScootScoop is a San Diego company founded by repo man John Heinkel and his partner Dan Borelli (a bike-store owner who views scooters as an attempt to muscle out bicycling), who self-financed the firm and now do a brisk business impounding more than 10,000 abandoned scooters. They don’t advertise, relying entirely on word-of-mouth.”

ScootScoop charges a $30 tow fee and $2 a day in impound charges.

Naturally the scooter startups like Bird and Lime — privately held and without a prayer of ever turning a profit to begin with — are upset. They’re suing ScootScoop.

Depositions get underway this week. The irony is not lost on reporter Amy Martin at The Verge: “The same companies that had raised hundreds of millions of dollars working around any local permits or regulations are now demanding protections under the California Vehicle Code, asking a judge to intervene and save their dockless scooters from ScootScoop.”

“This is a great example of why I love Agora Financial,” a reader enthuses after we spotlighted some more glum housing numbers last week — and the befuddlement of the National Association of Realtors’ chief economist.

“Agora is able to see the big picture because it has many contributors who give different perspectives, and some of them are Rickards and Kiyosaki, who already see things on the macro scale.

“This perspective brings up numbers that must be irrelevant to the National Association of Realtors — like home price-to-income ratio, Americans’ ability to pay their mortgage…

“Thanks for all the great content!”

“Whoever the putz is who labeled you a ‘liberal mouthpiece’ is the bloviating jackass,” writes one of our regulars, rising to your editor’s defense after last Friday’s 5.

“A Rachel Madcow impersonator too? Really? Is that all you’ve got?

“Sorry, but this doesn’t sound like a man who carries the pocket Constitution with him. Move on.

“P.S. I sincerely hope William Barr’s and John Durham’s deep histories reflect who their bosses were at the and how badly their hands were tied — more so than their true intentions. I believe we’re about to find out what kind of patriots they are.

“Your background in media production must have provided great insight into this. I’m looking forward to learning more. Everything that happens next may depend on it.

“Keep giving ’em hell! And once again, thanks for the superb job you and your team are doing.”

“As someone who is proudly liberal and consistently reads The 5, I can attest to the fact that Dave Gonigam is not a liberal.

“Very entertaining to have you conflated with Rachel Maddow, Dave!”

The 5: Staggering, isn’t it? I say upfront in the issue last Wednesday that “Russian collusion” is bogus… I revisit the shocking abuse of federal power that was Ruby Ridge and the aftermath… and I spotlight the free-spending budget deal (which passed the House with far more votes from Democrats than Republicans) that will accelerate the road to fiscal perdition.

But no, apparently I’m a “liberal” because I also call Sean Hannity a blowhard… describe Iran-Contra as something other than a noble effort to support “freedom fighters”… and revisit CIA torture and murder in the early post-Sept. 11 years.

And it continued after Friday’s mailbag. “Support our president with respect,” wrote one reader. “Support our president more,” said another. “See you leaning more against this administration with just about everything.”

And there’ve been liberals who’ve written in now and then calling us “Trump apologists” or whatever.

Why are y’all so eager to line up on one side or another and denounce any deviation from your party line as borderline treasonous? And why are you so invested in viewing this one guy as either a savior figure or the devil incarnate?

Best regards,

David Gonigam

Dave Gonigam
The 5 Min. Forecast

P.S. This is as good a time as any to repeat what we said last week about not letting politics drive your investing decisions.

Certainly that’s the case with Nomi Prins, spotlighted earlier in today’s 5. (As we said last week, she flummoxes TV interviewers who can’t figure out her political leanings even when she says super-provocative things!)

Recently Nomi took the wraps off an entirely new kind of trading strategy — a secret project in the works for months, aimed at doubling your money in a single trading day.

The first trade out of the gate generated 214%. The second one, 69%. And that’s in addition to seven beta-testing trades that were all at least double-digit winners.

However, there’s a finite limit on the number of new readers she can take in — so we’re closing down access till further notice at midnight tonight. Click here and let Nomi walk you through how these revolutionary trades work.


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