Is Fed Money Going from Easy Money to Tight Money?
“Don’t fight the Fed!” — Maxim of Wall Street
Since the financial crisis of 2008, the Fed has adopted a three-pronged easy-money policy:
- Increase its balance sheet by purchasing and holding $4 trillion worth of Treasury securities and mortgages;
- Sharply reduce interest rates to practically zero; and
- Expand the supply of money (M2) at 6-8% a year.
The Fed kept these easy-money policies in place until 2016. Now, we are seeing a gradual shift in policy:
- The Fed minutes, released April 5, revealed that for the first time the Fed will begin selling off the majority of its Treasury and mortgage securities. The stock market sold off on the news.
- Since late 2015, the Fed has begun to raise (deregulate) short-term interest rates, and has promised to raise rates two or three more times this year.
- The supply of money (M2) is still growing at 5-6% annual rate, slightly less than the past 6-8% rate.
So it is clear that the Fed is reversing its super-easy-money policy, but not drastically.
According to the Fed minutes, several Fed officials were concerned that the stock market is overvalued. No doubt much of the easy money has gone into the market, and by many measures it is fully valued, if not overvalued. The S&P 500 is selling for 20 times trailing earnings and 18 times prospective earnings. That’s high compared to the long-term average price-to-earnings (P/E) ratio of 16.
Fiscal policy also might improve if the much anticipated tax cuts and deregulation are passed by Congress.
In sum, stocks actually can move higher if interest rates and inflation stay relatively low, along with the factors of cheap energy and an improving economy. Moreover, there’s still a lot of skepticism about this market and lots of cash on the sidelines. I will remain 100% invested in the market until I see the Fed adopt a super tight monetary policy. So far, that hasn’t happened.
In case you missed it, I encourage you to read my e-letter from last week about how more people are now on Medicaid than Medicare.
Upcoming Conferences
Every year, I am invited to address the Los Angeles chapter of the American Association of Individual Investors (AAII). This year, I’m speaking on Saturday, April 15, Tax Day, on the new topic, “How to Maximize Your Profits and Minimize Your Taxes.” The lecture, plus question and answer, is 1 hour, 15 minutes, so there’s plenty of time to get detailed advice and have your questions answered. The other speaker is Richard Barnett, chief investment officer of Northern Trust, who manages billions of dollars. The meeting starts at 9 a.m. at the Skirball Cultural Center in Los Angeles. Barnett speaks first; I speak at 11 a.m. To sign up, email the AAII program director Fred Wallace at fredwallace77@gmail.com. The price of admission is $12 at the door.
Las Vegas Investment Club, April 18, Orleans Hotel: I’ll be speaking at the Club meeting on Tuesday, April 18, about the Trump Agenda and how it will affect your business and investments. Also speaking is Dr. Bo Bernhard, PhD executive director for International Gaming Institute. For more information on attending, go to http://lvinvestmentclub.com.
MoneyShow Las Vegas, May 15-18, 2017, Caesars Palace: I will be moderating an opening ceremonies panel on “Trump and Your Portfolio” with Steve Forbes, Steve Moore and Wayne Allyn Root. Plus, join us for a luncheon and a breakout session, “Yellen at Trump!” Other speakers include Mike Turner, Jeffrey Saut, Jim Stack, Pamela Aden, Marilyn Cohn and Matt McCall. I hope to see you there. To register free as my guest, call 1-800-970-4355 or 1-941-955-0323 and mention priority code 042818. Click here if you prefer to sign up online.
You Blew It! Cable News Ignores Real Issues
Cable news channels such as Fox, CNN and MSNBC, as well as publications like The Huffington Post, like to go on and on about replacing Obamacare, Russia’s attempts to interfere with U.S. elections, Trump’s tweets and his border tax proposal. However, to me, these issues are trivial compared to the 32 million Venezuelans now starving, subject to violence, deprived of their rights, becoming political prisoners and at the mercy of a one-man rule.
Apparently, the media have adopted the view of Henry Kissinger, who once said that “nobody cares about Latin America.” Let’s reconsider that misplaced perception.
I watch a lot of cable news and I’m amazed at how so much time is wasted on trivia, while serious news is ignored. In the past week, I read in the New York Times (yes, the New York Times!) how Venezuelans are starving and losing their freedoms… and that the Jehovah’s Witnesses are being treated as terrorists in Russia and forced to leave the country… yet the TV news is silent on these issues.
Last week, the New York Times recognized both of these crises by addressing them on the front page. It ran two front-page stories on Venezuela, reporting that President Maduro in Venezuela has just dissolved the legislature, taken over the nation’s Supreme Court and the military, sent scores of political prisoners to jail without trial, violently repressed protestors and “swiftly consolidated power” into a virtual dictatorship.
The Economist magazine reported that Venezuela went from the richest country in Latin America in 2000 to the one of the poorest in 2017, within a mere 17 years. It is scary what full-blown Marxism-Communism can do. Adam Smith said “There is much ruin in a nation,” and the Marxist regime of Chavez-Maduro that has ruled Venezuela for the past 17 years is proving it.
This all reminds me of Castro’s Cuba and Lenin’s/Stalin’s Russia — and look how long these communist regimes lasted – for more than two generations.
Will the U.S.A. come to the rescue of freedom lovers before it’s too late? Too bad the military is in the hands of the Madura regime — a military coup may be the only answer. But alas, where is the Pinochet of Venezuela?
The dire situation in Venezuela will be one of the main topics of our Global Economic Summit and our Latin American panel at FreedomFest — “Capitalism vs Communism: Who’s Winning the Battle of Ideas?” Apparently the Marxist communists are winning in Latin America! See this https://drive.google.com/file/d/0BwODMC7RAeoYYXVqcC1ZT1JuV28/view.
You get the truth and what’s really going on in the world at FreedomFest. As Steve Forbes says, “FreedomFest is the gold standard of conferences. It is where the best and brightest meet and decide the best policies to pursue. I attend all three days and wouldn’t miss it.”
To register, go to www.freedomfest.com, or call toll-free 1-855-850-3733, ext. 202.
