Dear Friends,
So much for the sunny, funny, isle of Manhattan. Travel snafus related to the lovely ‘thundersnow’ unleashing her fury on New York scuttled my writing schedule, if you’ll pardon the late arrival in your inbox.
Check out our H2 hedge fund letters here.
Pexels / PixabayThe good news is this week’s newsletter is of the evergreen variety, as in you can read it at your leisure, though it might not prove to be all that relaxing.
Before triggering the launch sequence to the newsletter, a word on the markets. Riding the daily ups and downs in the stock market is akin to landing in full-blown thundersnow at La Guardia (where do the meteorologists come up with these colorful terms?)
It’s as if we weren’t reading about the record calm that had lulled markets into a gravity-defying comatose state just months ago. In the space of one calendar quarter, we now find ourselves reading headlines declaring 2018 to be one of the most volatile on record. And it’s just now March!
Investors for their part are falling all over themselves, jockeying for the top spot in the guessing game of How Will Jerome Powell React? Will it be QE4? How will that look? Treasuries and more mortgages or will he pull a Draghi and start buying corporate bonds?
Call it pig-headedness, call it what you will. I’m still of the mind that Jay Powell is of his own mind. “Reactionary” just doesn’t fit the mold. Besides, the most convenient scenarios require Quantitative Tightening to stop in its tracks, which is a huge assumption considering he was one of the primary advocates to have a set game plan to execute QT…six years ago.
More to the point, as the ADP report reminded us this morning, job creation has averaged 210,000 for 12 months running. Leave behind the hard data/soft data debate for a moment. Jobs matter more than anything else, especially for an economy dependent on consumption to drive the train. And Jay Powell knows it.
Lael Brainard herself, the last of the old guard of doves on the Board, agreed in a speech that rate hikes should remain on track. Given the tough talk, even from the doves, investors would be best served preparing for four or six rate hikes in 2018.
Come again? Four rate hikes are considered to be the worst-case scenario. Two is the kinder, gentler hoped-for middle ground. But when you consider that roughly every $200 billion in QT equates to a quarter-point rate hike, and that the Fed is poised to execute $420 billion in QT this year, what we really should be talking about is whether we will get the equivalent of four or six hikes worth of tightening.
As for the stock market giving Powell anxiety attacks day in and day out, don’t count on his getting a case of the jitters. On both of the days he testified to Congress, Powell took the opportunity of baiting politicians to assure investors it wasn’t the Fed’s job to give credence to the stock market. Can we please get a “Go Jay!”
While we’re in the cheering mood, perhaps we should wish the current stock market rally a Happy Ninth Birthday! That’s right, it’s that time of the year again when we look back to March 9, 2009, when the S&P 500 bottomed at 666 in intraday trading.
Speaking of anniversaries, but of the happier sort…I had hoped to be in New York today to wish my friend Arthur Cashin a happy birthday in person. In that Mother Nature had another thing to say about those plans, I hope you will join me in wishing the best market historian ever to grace us with his presence the same, a very happy birthday.
With that, I welcome you to enjoy this week’s installment, REAL ESTATE ROULETTE: Does the House Always Win?
To any stranded travelers and all the birthday boys and girls, wishing you well,
Danielle
