VRA Weekly Blog Update: Fed Rate Cut, Dishonest Presser. Global Markets, Economy Picking Up Speed.
/Good Thursday morning all. As expected, the FED cut rates by .25% to a range of 1.5% — 1.75%. For us, it’s increasingly hard to take Powell and his merry band of FED Governors seriously. On the one hand, they just told us that the rate cut was motivated (in part) by “negative global developments” while ignoring two crystal clear developments:
The global economy is picking up speed. Ramping US & global equity markets are telegraphing this (as the best discounting mechanism on the planet). The FED sees this…there’s no way they cannot.
If you’ve been reading a bit of financial MSM you’ve no doubt heard that Germany is in recession. That the whole of Europe is plunging headfirst into recession. Here at the VRA we pay attention to what the markets are telling us, rather than the permabears over at Zero Hedge or on CNBC/Bloomberg.
Germany (DAX Composite) is on fire, with gains of 24% in 2019. #NotRecessionary
We’ve been hearing the same about China and Emerging Markets. Trump’s global trade war has decimated their economies and is pushing them into a deep and dark recession. While it’s true that China’s economy is slowing, as the US takes back the jobs we exported to them under Bush1, Clinton, Bush2 and Obama, EEM (Emerging mkt ETF) just broke an important DT line and is now +14% in 2019.
And this we find interesting as well. From TopDown Charts, the number of countries trading at new 52 week highs is rapidly expanding. Nationalism is kicking the epic failure of globalism to the curb. We continue to look for a global bull market and economic boom. We will be adding a new VRA Portfolio position here soon.
Here’s the other massively important issue that Powell “forgot” to discuss. Negative interest rates continue throughout Europe and Japan yet no mention of this most important global reality??
We’ll tell you what the Fed won’t. The Fed just cut rates for one very simple reason…its the same reason we’ve been discussing here for more than a year…negative rates most everywhere else globally demanded it, as massive money flows into US debt keep forcing our rates lower. The FED is following…not leading.
Why won’t the FED state the obvious? That is a great question. The obvious answer is that this is exactly what Trump has been saying/demanding. God forbid they admit that Trump has been right.
We were also disappointed that Powell did not get into the coming structural moves for re-calculation of GDP. We are reading/hearing that the FED is coming around to the (correct) assumption that US GDP has likely been under-reported for 2 decades (internet/tech advancements) while inflation has been overstated. The net-net of this discussion is that interest rates have been (much) too high for (far) too long.
VRA Bottom Line: We continue to believe that the Fed “should” and “will” cut rates aggressively. Massive global money flows into US debt will continue to force rates down. The FED no longer leads…they follow. Lower rates for longer…this is still our view.
And, TINA will remain in place. There is no alternative to stocks.
While our markets have reached extreme OB levels, we will keep buying pullbacks. We also noticed some deterioration in VRA market internals over the last 2 days. As always, we’ll be watching closely.
Again, when we hit extreme OB levels, ST shakeouts are not uncommon. Then, stampede higher into year end/2020.
Until next time, thanks again for reading…
Kip
Since 2014 the VRA Portfolio has net profits of more than 2300% and we have beaten the S&P 500 in 15/16 years.
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