UPDATE: 12 noon Monday: Funny how emotions drive the market. I ended up adding MORE to my longs this morning. lol I still am jittery on multi-month recovery. TBD.
This article is NOT NOT NOT about bashing Trump, it is bashing where we are in the American government system.
The Federal Reserve Bank is an institution that has been treated with 'authority' to give confidence to the world it is not a puppet of the politicians. This is critical, governments that have complete unchecked authority over it's own currency always end in failure. Simply read up on any failed currency, such as Zimbabwe, once the politicians have direct control, the currency eventually fails.
The monetary system is also a confidence game, meaning everyone knows there is nothing backing currency but faith. It has been a critical mission to try to keep balance between investments of bonds, stocks, and cash. The issue is when too much money runs for one or two of them, the imbalance distorts the market.
The combination of co-ordinated messaging between the Federal Reserve Bank, the world bank, other countries national banking system, world leaders, and the President of the USA helps 'nudge' the world opinion to shift running away or two an asset can be mitigated.
We find ourselves in a political environment that USA prides itself on not co-ordinating with anyone, or even within itself. In effect everyone is on their own.......until that isn't liked. Over the weekend President Trump threatened to remove the FED chairman. The stock market on Friday EOD was valued as of JUNE 2019! OMG the crisis?!? This has thrown the entire western model of separation from currency into question instantly. Immediately I thought how will Fed Chairman respond? There is no right answer, the only answer was to NOT create this scenario, but here it is.
If the Fed snubbed the president, and the market tanked Monday, the President may follow through on the threat thinking that the entire market rests on the Fed pressing the easy button to resume the glorious 10 year bull run. But do you the reader believe the Fed truly has the power to push the economy to another 10 year bull run, or new highs, with a policy change?
I do not, and if you agree this is the quandary, the reputation of the Fed would be plunged into the spotlight, like a child pushed into the center of a courtyard being mocked by a bully and the masses loving a show. The damage to the child's reputation would be fatal.
So the Fed decided to unleash maximum response, as a child doesn't want to endure that ridicule. Drop interest rates to zero for lending (to banks, not you!) and unleash 700 billion dollars in direct propping up of assets. (good old TARP circa 2008).
Now that they have, all fixed right? Time to party like we did in January? The president should be pleased, he demanded and got what he wanted, I am sure he will thank the Fed for acting so well and give them full credit for the glorious return to the market. But I think things won't go this way.
The best analogy I can give you what REALLY just happened is an angry parent stormed into the school and demanded the school district principle about his kids grade. The parent or teacher didn't engage to ensure the child's learning is maximized, the shortcut is give the child an A and all will be well. A STRONG district principle with strong support from his/her superiors would rebuke such a request. A weak one issues an edict and the grade is changed. All solved. Does this lead to good things?
What the real message was to the world is the President, and the government apparatus will not act or lead in this time of crisis, or address through leadership. It will scream to the Fed to make it all go away, which it can't. All it can do is destroy its reputation that it has any independence, and the markets cannot count on even a weekend for stability. The president through the bully pulpit can at anytime throw a bomb into the room, and destroy any confidence building in a second.
I am hoping the markets recover today, but my thoughts of a multi-week or month recovery I think are gone. We are going down, hard to SPX 1900, and depending on ACTIONS or INACTION to SPX 1600 for the final 'judgement'. We may get a week here, or two of upside starting today, but I question months.
I may bail on longs and stay out for a week or until the elections. This isn't trading or investment, its rolling dice.
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