Markets Quietly Awaiting the Fed

All the markets are awaiting the decision on interest rates from the FOMC next Wednesday. We believe the Fed Chair has backed himself into the corner (with his testimony to congress) and that while lower rates are unnecessary (in my opinion) they will lower the Fed Funds rate by 1/4%.

Purely on a domestic basis the economic numbers continue to look fairly strong. Obviously on a more global basis economies are weakening and Europe remains a never ending basket case – I don’t see that changing for the better anytime soon

Of course when I write on the lowering of the Fed Funds rate I am “talking my book”. It is more palatable to have our money market earning over 2% and not being pushed into more risky assets. In these times of redemptions of preferreds and baby bonds we always seem to end up with excessive cash and we don’t mind waiting for reasonable opportunities while earning 2%–when we are earning 0 on money market there is more urgency to get cash deployed.

Look for all of the markets to remain quiet until next Wednesday afternoon as no one will want to make commitments prior to the interest rate announcement.

35 thoughts on “Markets Quietly Awaiting the Fed”

  1. Hello Nomad
    The USA has for many years outsourced manufacturing overseas because of cheaper labor costs and lax to non-existent safety and environmental laws. Bringing that work back to the USA will mean more jobs which will entail higher costs that must be covered by higher consumer prices (econ 101). I doubt top management will take pay cuts, and today we see a loosening of environmental laws that will come back to haunt us. The world is an economic/political chessboard, with consumers and taxpayers the sacrificial cash cows.

  2. Refugee from SA. This is a great site. Recommended by another investor who is also into preferreds. Hope you can keep it manageable size-wise.

  3. Lowering short term rates does help (somewhat) straighten out the inverted yield curve. Wait until Q2 has flat to down earnings on S&P 500 and we have two consecutive quarters like this (Q1 and Q2), some of the traditionalists will move further into the bear camp.

    Pressure China into settling trade dispute and watch rates rise.

    1. Marc, we are in no great rush to settle the trade war with China. They are paying the US Government (about $70 billion total yearly) and its putting great pressure on the Chinese Communists and their ruling party leaders. This trade dispute should have been “settled” a decade ago, but we sat by and let the Chinese steal our trade secrets and products.
      Wishing you profitable investing, Nomad

      1. Nomad, China plays dirty pool but is it really them paying that $70 Billion? Without getting political, with hard-liners on both sides, I don’t see this coming to a conclusion anytime soon. Unless markets crash, not much incentive for anybody.

        1. Ken, thank you for your reply. I use to consult to a Congressman (a client when I managed private money) that sadly has since passed away. He told me many years ago that the US was powerless to stop the Chinese because we were so intertwined and dependent on their cheap manufacturing/labor/inexpensive goods. We are now FINALLY fighting back. We cannot and hopefully will not allow those that only desire to hurt the United States go unchecked. What made our country great has been the free market(s), our entrepreneurship and the desire for the next generation to do better than their parents. We are in the fight for our lives economically and it’s about time someone in our government stand up to the thieves and virtual slave laborer factories in Communist China…sorry to get on my soapbox, but I recently took a product that I manufactured in Shenzhen and Tianjin and moved it to Indianapolis and India because I couldn’t stand back and watch the Chinese push the US around. It costs me a bit more, but I save on shipping in the US and every Indian we employ speaks better English than me (they are all so friendly).
          I will tell you a quick story. I was in Guangzhou, China recently and remarked at a fine restaurant my clients/§friends took me too that I didn’t want to peel my own shrimp because my hands would smell like fish. The owner of the establishment must have over heard me because a young lady came out and immediately started peeled (seemed like hundreds) of massively large shrimp for my dining party of 12. There was no additional charge (meal was about $200); we bought everyone in their restaurant high end drinks and the owner told me that he was so thankful for the “Americans” coming to his restaurant (I am a dual citizen (have multiple passports) and don’t always identify while traveling as an American) not sure how he thought I was an American. EVERYONE you meet in China is very interested in doing deals with Americans and aggressively making money in anyway they can…
          Too much more to say…
          Have an incredible weekend my friends, Nomad

          1. Thanks for the stories Nomad, your posts are always fun and interesting to read. Reminds me of how boring my life is haha.

            I do hope that a strong trade deal comes out of all this but my worry is China will keep prolonging talks and I don’t think our side will have much stomach for a trade battle during an election cycle. Maybe after the next election, something will get done. Agree or disagree with Trump, Republicans, Democrats whomever, almost everyone agrees that a strong enforceable trade deal with China is in our best interests. Getting there is the problem.

            Have a good weekend as well everyone.

            1. Ken

              It would not surprise me at all that China attempts to “run out the clock”. By that I mean I can see China keep delaying and paying the tariffs until after the 2020 election in the hope that a softer negotiator is elected. Trump whether you like him or not, has been the first US President in ages to stand up to the Chinese and try to negotiate a good deal for the US.

          2. Nomad, I do hope someday this group finds a way to get together and I can afford to attend because a face-to-face with you (and many others here) would be so rewarding on a personal level, not only financial. I find the shared details of your life story fascinating.

            1. mikeo, thank you for your kind words and thoughts. We are all here to learn, hopefully help each other navigate through very volatile financial markets and I truly would look forward to meeting everyone in the future. We can make anything happen if we have the resolve and desire to all come together. Tim is our astute and erudite leader and it would be great if he would be kind to coordinate or nominate a team to put the meet-up together.
              Hoping everyone is having a memorable weekend, Nomad

              1. It would be great if we gave our general locations for any future meetups.
                I will bring pen and paper to glean info from you veterans.
                I am in the NY in the summer and the FL in the winter

              2. Nomad, Bob-in-DE and I were fortunate to meet up during his and Susan’s recent soiree to CA. It was a lot of fun so I’d certainly endorse your sentiment on this.

          3. Re: “…I recently took a product that I manufactured in Shenzhen and Tianjin…”

            Gee, I have a soapbox, too, Nomad.

            Why were you or any other US company manufacturing in China? I can think of only one reason. That’s what unchecked rapacious American capitalism does, isn’t it? Seeks profit above all else. What’s that great sucking sound a third party candidate once warned about?

            Now we have a hollowed-out manufacturing base and the fast-shrinking middle class, vilified unions, bought politicians, ineffective and hated government, executives making hundreds or thousands of times what their workers make, and and and.

            “The power of government to do good for people is immense. And I think we have forgotten that power.” –Robert Caro

            1. camroc, thank you for your question and inquire. I bought a controlling interest in a corporation that was doing their product manufacturing in China for 5+ year before I bought this interest late last year. These were clients of mine when I was a Money Manager and they approached me a few times before I’d even look to help them out of the imbroglio and plight they were in. I and my team did the comprehensive analysis over a 6 month period, it was clear we all came up with the conclusion that it would be more expensive but was critical to the long term future of the company to move this essential product manufacturing away from China. It cost the company time, effort, many man hours and money to move away from these 2 Chinese towns (Shenzhen and Tianjin). It took almost 5 solid months to be able move away from the Chinese because we had contractual obligations that had to be met: amount of product produced, penalties if we broke our contract, lease agreements, employee issues, new training so the product could be manufactured elsewhere, intellectual property issues (I have a feeling it will now be copied). As you can see it was not that easy to “get away” from the last owners (they still own a piece of the new corporation) decision to do all their manufacturing and customer service in China. China is a beautiful country, but I’m glad we are out and working on better distribution and hiring better people to run the day to day operations better than I or my associates ever could…
              All the very best, Nomad

              1. What an interesting story, and thanks for sharing it Nomad. Indiana is a great state to do business in… and the shrimp there are as big as ears of corn!

              2. Nomad, Just heard the mic hit the floor. Great story – chapter by chapter. But now I have to go do sit ups, climb a mountain or something to feel better about my own relatively meager accomplishments. lol. Keep going Nomad.

                1. Alpha, I prefer reading about other peoples accomplishments. Its a lot easier for me to do and just as satisfying…. That is why I like by 75 in tv. I can get a better look at the Pyramids from my recliner than exerting all that effort into flying there to see the same thing, lol…
                  By the way, my nosed is pressed against the window alongside yours and Retireds waiting for my $125 check. 🙂

                  1. Don’t hold your breath waiting for that $125 guys. Learned that the more that file the less everyone gets. The $125 figure is if only 243,000 file, if EVERYONE whose data was breached file it would be a whopping $0.21!

          4. Nomad, fascinating story. Just ignore the haters that find you vainglorious or worse. Could you report back to the group with the exact size of your shrimp?

      2. Nomadicmist, hopefully this question is tolerated here instead of the sandbox, but for thread continuity, are the Chinese still considered communist? Authoritarian, yes, but the communist label might not apply any longer. Thanks for your reports!

        1. furcal, of course the country of China is unitary and governed by the Communist Party of China. They are only Communists and I like to see a group (or even one citizen) try and start another party; that won’t end well. Do you remember the 1989 Tiananmen Square protests?
          During the 4th century BCE Shang Yang 商shāng鞅yāng(338-390), Prime Minister of the Qin 秦qín dynasty, abolished the feudal system of land division and enabled the common people to buy and sell land. This system persisted for more than 2,000 years.
          The Communists, during the civil war against the kuomingtang in the early 1930s, confiscated the property of officials, landlords, and tax collectors, and redistributed the land to the peasants.
          In present-day China all land is owned by the state, but individuals and corporations have the right to own all other property, except land. The state still has the right, however, to requisition personal property owned by individuals, for public purposes.
          IMHO, most Chinese citizens will do almost anything for renminbi, which is the official currency of the People’s Republic of China; each worth about 0.15 US cents and manipulated by their Communist controlling government…
          Smile that you were not born under Chinese rule,
          Nomad

      3. Completely agree on the trade tiff. US political considerations may override proper long term decision making so will have to wait and see.

  4. I absolutely don’t see the need for a rate decrease, however, it’s baked in and if they don’t decrease as expected – we all better buckle up and put the pads on because it’s going to be a painful ride. I’ll wish I had bought the hell out of the VIX futures in hindsight.

    Why can’t we get a Fed chair that stops shooting them (us) in the foot?

    1. A4I, it’s one of my favorite quotes…
      “Fasten your seatbelts; it’s going to be a bumpy night.”
      This famous line is spoken by Margo Channing, played by Bette Davis, in the movie All About Eve (1950).
      Be well my friend and make great memories this weekend, Nomad

  5. Lowering the fed funds rate is a total political sellout. Sometimes talking your book = talking sense, Tim.

    1. Yes Leonard I am–the rate which peaked out in the 2.31% area is now down to 2.19%–and likely heading down starting in a week.

      1. It’s a money market fund. I tried to buy some on Schwab today but they won’t trade it. It was a few basis points above SWVXX (2.22 vs 2.14%) but I had to settle for Schwab’s SWVXX money market fund.

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