Are you paying attention? The establishment is trying to kill the Trump effect on the economy before the 2018 elections.
Why is the stock market reversing course? The economic pundits would have us believe that it is because of tariffs and a possible trade war. But if that were true, then wouldn’t only the stocks of importers/exporters be falling, and not the entire market? Wouldn’t bond prices be increasing?
All sectors on the stock market are falling. Existing bond prices are falling. So something other than tariffs are the cause. What?
1. market correction
2. the Federal Reserve
When Price-to-Earnings ratios get too high, the market corrects itself. Traditional P to E ratios were 10 percent higher than normal at a Dow of 26,000. They are now in line as stock prices decreased 10 percent. A correction is anything less than a 20 percent drop. A bear market is more than 20 percent.
When calculating the value of a particular stock, the formula includes current and anticipated interest rates. As interest rates are anticipated to increase, the current stock price decreases. As rates decrease, then the price for the stock increases. And those increases/decreases affect all stocks across the board. The same is true for existing bond prices.
For the eight years of Obama, the Fed held interest rates at almost zero. Stock prices and existing bond prices increased.
Chairman Jerome Powell announced that the Fed will be increasing interest rates at least three times in 2018 and three times in 2019. When that is entered into the formulas for calculating the value of stocks and current bonds, all of those prices decrease, which is exactly what is happening to the stock and bond markets right now.
Powell stated that inflation was not a worry. So why is the Fed doing this? He said that the economy needs to be cooled off. What? Cooled off?
After the actions of Trump to stimulate the economy, the Fed now wants to cool it off. Something is out of sync! Trump is pushing, and the Fed is pulling.
Repatriation of funds. Lower taxes. Oil independence. Increased manufacturing. Practically no unemployment – including for blacks and Hispanics. More than 900 rules and regulations repealed from the Obama administration. GDP increasing more than 3 percent on an annual basis for the first time in a decade (Obama was the first eight year president not to achieve it, including FDR in the Great Depression). Worker wages up more than inflation for the first time in a decade. Corporate profits up more than 18 percent: The economy is booming for workers and corporations, and so should the stock market be booming.
The stock market is usually a nine-month leading indicator for the general economy. The current decreases to stock prices should be telling the Fed that its actions are seen as recessionary. The last two times the Fed increased rates this much (1999 and 2007), the stock market fell for nine months before recessions happened in 2000 and 2008. Higher interest rates pushed up mortgage payments for ARM mortgages that killed the housing market in 2008. Many homeowners could not make the higher ARM payments and had to sell – therefore, too much housing supply vs. demand pushed home values down “under water.”
The Fed maintained almost zero interest rates during Obama. It printed a trillion dollars a year to increase the money supply and bought bonds to maintain bond prices. All to no avail. Now the Fed claims that it needs to increase interest rates so it can lower them during a recession. No money printing. No bond buying.
The Fed causes recessions!
The Fed is deliberately cutting the money supply. Sophisticated investors understand what the Fed is doing. And so does Trump. That is why stock prices and bond prices are falling across the board instead of just those of importers and exporters. The Fed, not tariffs, is causing this. This is economic sabotage. It is snatching defeat from the jaws of victory. It is reversing the gains for American workers.
The actions of the Fed to artificially manipulate the economy is wrong.
The current spending bill out of Congress increases government spending. It adds money to the economy. It helps offset what the Fed is doing. Trump understands. That is why he signed the bill. For a short time, he is canceling out the actions of the globalists to cut the money supply with $1.3 trillion in spending.
The 2018 election is only SEVEN months away – two months shy of nine. The $1.3 trillion of spending by the government just bought the president some time. Then Trump will have to worry about what the globalists will try before the 2020 elections to stop the Trump effect on the economy.
