• Market Crumbs

Jerome Powell And The Fed Save The Day...For Some

Image via Reuters

As widely expected, the Federal Open Market Committee cut its target range for the federal funds rate by 25 basis points to a range of 1.5% to 1.75%. This is now the third rate cut in the last four months.

The Fed dropped the words "act as appropriate to sustain the expansion" from the statement, signaling this may be the last rate cut for a while. Two of the ten FOMC members, Fed Presidents from Kansas City and Boston, voted against the rate cut.

Following the FOMC statement, Fed Chair Jerome Powell said "I think we would need to see a really significant move up in inflation that’s persistent before we even consider raising rates to address inflation concerns." That was all algos needed to hear to send stocks higher, with the S&P 500 closing at a fresh record high.

Perhaps interpreted as they will change course if the S&P 500 falls a couple of percent, Powell said "Of course, if developments emerge that cause a material reassessment of our outlook, we would respond accordingly. Policy is not on a preset course."

Unfortunately, the record high stock market and low rates aren't helping the majority of Americans. Nearly half of Americans don't own any stocks. More than half of Americans have less than $1,000 in savings. As previously shown, the wealthiest 1% hold more wealth than before the 2008 financial crisis. Even more, the bottom 90% of Americans have seen their share of wealth fall off a cliff since the Fed's easy monetary policies accelerated following the financial crisis.

President Trump, who has continuously called for the Fed to lower rates and reintroduce quantitative easing, was against low rates just a few years ago. He said former Fed Chair Janet Yellen should be "ashamed" for keeping rates low and creating "a false stock market." He even acknowledged low rates aren't good for savers, saying "The ones who did it right — they saved their money [and] they cut down on their mortgages, ... and now they’re practically getting zero interest on the money."

While they're likely smart enough to realize what their policies are doing, the ones making them either don't care or are not in a position to reverse them. If Powell or anyone else on the FOMC had to feed a family on an average salary or buy everyday things that most people do, they probably wouldn't be so quick to say inflation isn't high enough.

To see policies designed to help those at the top, while quite frankly, screwing everyone else, is sad. While this is not a new phenomenon, with both the stock market and wealth inequality at record highs, something has got to give. That something may come a lot sooner than most realize. The increase in the number of young people who support socialism and communism, as well as plunging support for capitalism, can only be attributed to these very policies which have left so many Americans in poor economic shape.

Leftover Crumbs

  • Maybe it's not the greatest economy in history. The U.S. Commerce Department said yesterday that gross domestic product grew at a 1.9% annualized rate in the third quarter. This exceeded the estimate of 1.6%, but fell below the 2.0% seen in the second quarter. Consumer spending and government expenditures positively affected the number, while business investment declined at a faster rate than the previous quarter. The third quarter saw GDP growth fall below 2% for only the second time during Trump's presidency. 

  • There seems to be a pattern of negligence here. According to a document released yesterday, a Boeing engineer was concerned about the 737 MAX as early as 2015, more than a year before the plane was approved. The engineer was worried the flight control system MCAS, which was involved in the two crashes, relied on only one sensor. He wrote in an email "Are we vulnerable to single AOA sensor sensor failures with the MCAS implementation or is there some checking that occurs?" Boeing CEO Dennis Muilenburg, who is testifying to Congress this week, said "We made some mistakes. We own that. We’re responsible for our airplanes."

  • Twitter has had enough of politics. Twitter has decided to ban political advertising beginning November 22. Jack Dorsey, the co-founder and CEO of Twitter, said "We've made the decision to stop all political advertising on Twitter globally. We believe political message reach should be earned, not bought." Dorsey further explained the decision in a tweetstorm. Twitter's decision comes just a couple days after upset Facebook employees sent a letter to co-founder and CEO Mark Zuckerberg over the company's policies on political ads. 

  • He's not the only one. Bill Ackman, founder of hedge fund Pershing Square Capital Management, believes WeWork is worthless. "I think WeWork has a pretty high probability of being a zero for the equity, as well as for the debt," Ackman said. Admitting he's done so before, he added "As someone who has put good money after bad, I think this looks like putting good money after bad, and SoftBank should have walked away." He did have one nice thing to say, calling co-founder and former CEO Adam Neumann, "an amazing salesman."

  • Yea, we'll see about that. David Simon, CEO of America's largest mall operator, thinks the market is "reaching the bottom" following a spike in retail bankruptcies this year. According to Coresight Research, U.S. retailers have announced 8,993 store closures and 3,780 store openings so far this year. "I think we’re kind of reaching bottom in ... 2019 on that stuff. It’s rivaling what happened in 2017. So, it’s not like something that we haven’t experienced before. But we know [what] we have to do." Simon said.