If you’re a long-term investor, “stay the course”.
He personally isn’t selling anything. (95% of market timers under perform Long-Term Buy & Hold.)
Like with the Bush economic catastrophe in 2008, the Fed will step up to protect the market by reducing interest rates – drastically if necessary. The Fed didn’t repeat Herbert Hoover’s errors in 2008 – and it won’t follow the Hoover playbook in 2024.
intercst
Barring a financial crisis like 2008 (and there’s no sign of one at the moment) Fed Chair Powell won’t repeat Arthur Burns’ mistake of lowering the fed funds rate when inflation is high.
Powell said last week that he won’t reduce the fed funds rate until the economy shows signs of recession. Note: the economy and the stock market are two different things. The Fed is tasked with supporting low inflation and full employment, not supporting an overvalued asset market. (As long as there isn’t a financial crisis.)
That’s not following Herbert Hoover’s playbook. It’s following Paul Volcker’s playbook.
Wendy
Siegel expects a rate cut in May. We’ll see.
intercst
Fedwatch for May is just under 50% for a .25 rate cut.
For June is ~100% for a .25 rate cut and almost 60% for a 0.5 rate cut!
…
For December, it’s >50% for 1.25 cumulative rate cut. Wow.
No matter what government bureaucrats do or don’t do does not change the fact that overtrading is bad for your portfolio. Buy and hold stocks that bounce back.
The Captain
If I recall correctly, in December 2018 Powell talked tough on rates and then knuckled under to political pressure. Plus, if T does not relent on tariffs soon, inflation plus government layoffs plus corporate layoffs will give P enough signs of both inflation and deflation to justify whatever he does. Coin toss, but I think past history shows that P will find an excuse to capitulate like he did 6 years ago.
Personally I think tariffs are just a side show to take our eyes off the real prize - usurpation of power by dismantling our democracy.
Grain of salt time. Back at the beginning of 2024 (just over a year ago) Fedwatch was also indicating six rate cuts for the year.
DB2
Wrong crisis. These tariffs will clearly stoke inflation, and the Fed’s charge is 1st: no inflation, 2nd: employment (stave off recession).
With inflation rearing, and the effects will be almost immediate in some areas, the Fed will not cut rates, and I give a slight chance they will increase them. That’s why, in the midst of a booming economy, the envy of the world, we have found ourself with an illiterate amateur economist who is about to produce stagflation: an economy moribund thanks to the disruption of supply chains, even as inflation is stoked in a way that makes the Covid experience look like a speed bump.
I’m happy for Siegel. He’s about to toss his credibility in the toilet. I hope it doesn’t clog.
If tariffs are the cause of economic troubles and thus the stock market’s troubles, how would interest rate cuts meaningfully help alleviate the tariff impacts?
Lower rates would be stimulative, but why would they help much against tariffs on trade?
The same way they would help in any recession. For example, if home sales decline because of higher input costs then lower interest rates would help alleviate that by reducing mortgage costs.
DB2
How does that work with, say, eggs, which I don’t think get financed over 30 years by the average consumer? (Although given the way things are being managed…)
By lowering the cost of financial transactions for egg producers, transportation companies, grocery stores, etc. It is just the opposite of how higher interest rates increase costs across the economy.
Also, the stimulation from lower interest rates helps shorten and reduce the severity of downturns. This is all very basic stuff, even if it doesn’t affect tariff rates.
DB2
I noted that lower rates are stimulative, so above you are just restating what I said but in more words and more posts.
My specific question is why and how would they be meaningfully helpful against tariffs on trade per se.
Define and explain your diagnosis and the treatment.
Why prescribe lower rates for tariffs versus some other treatment?
The substantive portions of this question are the words meaningfully and against tariffs per se.
We agree that lower rates are stimulative. The downside to tariffs is that they can slow trade and the economy. Thus, lower rates can ameliorate the constrictive effects. In addition cheaper money make it easier, for example, to on-shore production facilities and be more competitive.
DB2
Sure we all understand that. But those effects take time, lots of it, like years maybe to get loans, construct new facilities, build grocery stores, etc.
Unlike your example of cars, in which the drop in interest rates can be enacted overnight at a dealership or a bank.
So you propose a remedy which works quickly for large purchases, but not for the kind of stuff most people buy. OK.
Yes, we discussed it at the time and throughout the year. My biggest wonder about it is - these people are putting real money on the line using this [odd] financial instrument. Why do they do that?
I think it would refer more to egg PRODUCERS who will finance farms and processing equipment and shipping equipment for the eggs. But for the most part we don’t talk much about eggs anymore because apparently their prices have dropped back to previous price levels. I’m still waiting for $1/dozen again at the discounted places!
When there is a recession (for whatever reason) the Fed takes a counter-cyclical stance and lowers interest rates. Is there an immediate “cure”? Of course not, but everyone recognizes that the lower interest rates would help the economy.
Do we have a recession? In my opinion, not at the moment. First quarter GDP numbers will be out in three weeks.
DB2
Several weeks ago, I commented that I was no longer seeing the daily egg hysteria in the media. Which came first, falling egg prices, or the media chicken littles moving on to hype something else?
Steve
