When Smart Men Do Stupid Things Pt.2

When Smart Men Do Stupid Things Pt.2

Would someone please take the microphone away from Federal Reserve Chairman Jerome Powell? I think he is lost and can’t find his way home. He’s clearly a brilliant guy. You don’t rise to that position with enormous intelligence. However, he seems to be lacking in street smarts. Come on man, get a clue!

Once again he took a very positive thing and killed it. In case you missed it, the Fed lowered interest rates by a quarter point in their monthly meeting last week. All he had to do was come out and say the Fed saw a reason to lower rates, and that they stand ready to act again to whatever action is required. Take the win and bow.

Unfortunately he just cannot take “yes” for an answer. No, he felt it necessary to say that the committee does not see this as a series of rate decreases, and called it a “mid-cycle adjustment”. Those two words killed the confidence of investors, slamming the markets soon after.

If you remember back in December, he massively blundered by announcing that the Fed was planning on raising rates 3 times in 2019, even though the global economy was slowing down. The markets took about two seconds to absorb this information before plummeting. He reversed himself a few weeks later which is what started the stock market rally in December.

Yet again, Powell tried to take his word back by stating this in the press conference:

“Let me be clear: What I said was it’s not the beginning of a long series of rate cuts.” “I didn’t say it’s just one or anything like that. When you think about rate-cutting cycles, they go on for a long time and the committee’s not seeing that. Not seeing us in that place. You would do that if you saw real economic weakness and you thought that the federal funds rate needed to be cut a lot. That’s not what we’re seeing.”

So the reality of the situation is very positive. The Fed actually is on the ball, even if they look like Reverend Jim in Taxi or Cramer in Seinfeld. The economy is in good shape, but with the slight threat of slowing down. Therefore, they acted conclusively by lowering rates before an actual recession showed its ugly face.

According to Fundstrat, the good news is that: “Going back to 1971,  the first rate cut, when the economy isn’t in a recession, leads to a stock market rally 100% of the time”.

Since Powell’s words, there has been a bit of a selloff. Part of it stems from the President  tweeting out that there will be increased sanctions on China. However, I think that the market just needed a catalyst for a breather and we’re getting a little well needed correction from it.

Although I am quite positive for the stock market, especially with earnings coming in so much better than expected, we cannot throw caution to the wind. It’s going to be more volatile and therefore dangerous through the rest of the year. Retirement investors need to be very careful.

Quite simply, be the expert or hire one. If you would like a free 2nd opinion on your portfolio and or your overall retirement master plan, just give us a call for a free no obligation consultation today.

“Invest for need, not for greed!™”

Cheers -Keith

916-925-8900

Smart Money Newsletter

Written By: Keith Springer

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