Here at last, the dog days of summer. Under normal circumstances, the stock market would usually be swooning by now from lack of attention while Big Money folks hang out in the Hamptons, hike in Maine, chic stuff like that. But as the late, great Erma Bombeck said, normal is just a setting on your dryer!
Instead, the Dow Jones 30 Industrials Index has played catch-up since its low on the first of June and moved on to record highs. Ditto for the S&P 500, a much more broad measure of U.S. stocks, the Nasdaq 100 and its Composite Index of titanic-sized tech companies as well as the newer, younger ones. (Small- and mid-caps still lag their high points however.) By Monday, July 15, the S&P 500 had registered about 20 percent gain in 2019 (www.finance.yahoo.com).
Why almost half of that gain since Memorial Day? Aaron Pickert, my associate, suggested perhaps because now technology allows anyone and everyone with a cellphone/computer and the inclination to trade while lying on the ocean beach, the lake beach, and anywhere else. Probably right.
What is even more certain is that Federal Reserve Chair Powell poured gasoline on the market fires with his seeming change of heart and mind. As Brian Wesbury points out, the Fed chair had been consistent in pounding the data dependent drum until now (www.ftportfolios.com, July 15, 2019).
Former Chair Janet Yellen had already placed those two words into the hall of fame of fedspeak. But on June 4 in Chicago, Powell said, We will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2 percent objective. Reading to the end, it becomes clearer to me that means, Whatever it takes!
Jim Cramer, the enthusiastic host of “Mad Money,” was correct in August 2007, when he said, They know nothing! about the Fed. You can enjoy it again on YouTube if you missed it. In 2009 to 2010, the Fed missed the curve when it refused to raise interest rates during that period when no one could even get a loan anyway. But the computers in the backrooms of all the economics Ph.D’s could not possibly be wrong. Free money would save the day. And the next, and the next. And here we are ... still, quaking in our boots for fear of what normal interest rates would mean.
The only winners of the past 11 years have been our federal government printing money and borrowing trillions, the billionaires who did not need more borrowed money anyway, and now, most public corporations that have borrowed to the hilt yet again since money is still so cheap. This is the big reason why the rich have had a field day in the past 10 years while regular folks have waited patiently for the tide to rise.
What about the millions of retired people of our country who have eked out $50,000 to $100,000 in savings in the banks? About the time they thought they might get some bread crumbs, maybe a 3 percent or higher CD, these Fed academic wizards decide that even their target 2 percent core inflation trend and 2.3 percent core producer price inflation may not be enough. But the piper will be paid again someday.
Whether it’s from Chairman Powell, President Trump, the friend of Realtors everywhere, or the majority of those on the Board of Governors, the policy of deliberately forcing the devaluation of our money – even 2 percent per year – is an offense against all of us.
Merle Haggard sang it best: (Someday soon) We’ll all be drinking that free Bubble Up and eating that rainbow stew!
(Past performance is no guarantee of future results. Advice is general in nature and not intended for specific situations)
Ron Finke is president of Stewardship Capital in Independence. He is a registered investment adviser. Reach him at firstname.lastname@example.org.