June 19, 2020
By Steve Blumenthal
“I can’t believe there is no uproar for a policy that involves so
much resource misallocation, moral hazard behavior, and price manipulation.”
– David Rosenberg
President and Chief Economist & Strategist of Rosenberg Research & Associates Inc.
That pretty much says it all. No uproar indeed. I’m angry, but that won’t change what is. We are sitting at a different poker table and the casino control board has rigged the game. I listened to an interview yesterday and the Wall Street guest shared a story about an investor who quickly turned his $1,000 government-issued COVID stimulus check into $6,000. Davey the day trader is back. #1999. If you are too young to remember what life was like back then and only learned about the great tech bubble in school, just look around. History is repeating itself.
On June 17, 2020, Camp Kotok fishing friend Robert Eisenbeis, Ph.D., vice chairman and chief monetary economist at Cumberland Advisors, published a piece titled, “The FOMC: Whatever (and However Long) It Takes.” The title of Dr. Eisenbeis’s piece captures most of what we need to know about the Fed’s mindset. Here’s an excerpt from the piece:
To no one’s surprise, the FOMC in its June meeting reaffirmed its 0–25 basis-point target for the federal funds rate. Markets did not react well, especially since the announcement came on the heels of a fairly downbeat assessment by Chairman Powell regarding the expected slow path for the recovery and the problems in the labor market. The statement itself had little useful information. It focused on the pandemic, the sharp decline in economic activity, and the risks posed to the economic outlook. The Committee indicated that it will keep rates at the present level until the economy has weathered the downturn and is on track to achieve the Committee’s statutory goals. It went on to indicate that it will use its tools to support the economy, and to that end it will continue to support the flow of credit and the smooth functioning of financial markets through continued asset purchases in support of accommodative financial conditions.
Not only is Bob a wonderful man, he was formerly executive vice president and director of research at the Federal Reserve Bank of Atlanta, where he advised the bank’s president on monetary policy for FOMC deliberations and was in charge of basic research and policy analysis. His insight matters.
Today I’m sharing my notes from Jim Bianco’s excellent Mauldin Economics 2020 Strategic Investment Conference (SIC) presentation with you, but I need to add one caveat: this week Jim turned from bear to bull. He’s back on the “Don’t fight the Fed” bandwagon. If the house is dealing you five aces, don’t fight the house. Personally, I’m not sure when or how this will end but, like bubbles past, it will.
Jim was on CNBC saying the Fed’s support moves him out of the bear camp. Every one of our (CMG’s) trend-following models is saying the same thing. You can watch Jim’s interview here (click on the photo to check it out).
Do take a look at my high-level bullet-point notes from Jim’s SIC 2020 presentation. You’ll find them below. Despite the switch in perspective, his presentation was excellent—and held some important insights that we should keep on our radars.
I hope you’ve been enjoying my SIC 2020 notes so far. I have a few more to share with you over the coming weeks, and I’ll then conclude with a short summary of each presentation as well as my overall thoughts.
I keep a yellow sticky note on my desk so that I can see it every day. On it is a Ned Davis quote that says, “Listen to the cold bloodless verdict of the market… that is what price-based indicators accomplish.” Fundamentals rule the next 3, 5 and 10 years. Price tells us what is. My favorite indicator, the Ned Davis Research CMG Large Cap Long/Flat indicator, remains bullish. You’ll find the link to Wednesday’s Trade Signals post below too.
Finally, do read on to the personal section. The world is offsides and I’m offsides… maybe great growth will come from it. I sure hope so.
In search of a lift, I found an email my daughter, Brianna, sent to me filled with quotes from 4- to 8-year-old kids on what love means to them. You’ll find them below but here are two:
“Love is when your puppy licks your face even after you left him alone all day.” – Mary Ann (age 4).
“Love is what’s in the room with you at Christmas if you stop opening presents and just listen.” – Bobby (age 7).
They are all pretty great!
Thanks for reading and please feel free to reach out to me with any questions.
If a friend forwarded this email to you and you’d like to be on the weekly list, you can sign up to receive my free On My Radar letter here.
Included in this week’s On My Radar:
- SIC 2020 Notes – Jim Bianco
- Trade Signals – The Fed’s Big Guns
- Personal Note – What Love Means to 4- to 8-Year-Old Kids
SIC 2020 Notes – Jim Bianco
Following are a few highlights, as well as a link to the full piece with charts (you’ll need to click the link below to get to it).
Jim’s presentation was about the economy and how it will recover back to just 90% of its former self. On the surface that may sound OK, but it is actually a disaster.
As you read, keep in mind that Jim’s pivot this week from bear to bull on the stock market has nothing to do with the economic challenges that remain ahead and everything to do with the “everything” the Fed is throwing at the markets.
Jim said, “In 2007 to 2009, GDP fell by only four percent. I’ll show you a chart of that in a second. Only four percent. So, if we were to get some kind of a 90 percent recovery, it is going to be something that is at least twice as bad as what we saw during the Great Recession.”
Do click through. There are a number of important insights—especially about the behavior of interest rates in the face of all the Fed buying.
Click here for the full post.
Trade Signals – The Fed’s Big Guns
June 17, 2020
S&P 500 Index — 3,119
Notable this week:
Much more fire power hitting Wall Street than Main Street. The Fed’s comments on Monday that they will buy individual corporate bonds turned a large sell-off and test of the S&P 500’s 200-day moving average line into a large rally.
This photo pretty much tells the story:
Fed Chairman Jerome Powell
Interestingly, and I’m not sure yet why, the Don’t Fight the Tape or the Fed indicator moved to a bearish -1 signal. Stay tuned as I try to figure that one out. Also notable this week, the S&P 500 200-day MA moved to buy signal. The investor sentiment indicators are largely bullish. The Ned Davis Research (NDR) Crowd Sentiment is bullish and the NDR Daily Trading Sentiment indicator moved from Extreme Optimism to Neutral Optimism. And of the equity market trade signals, the NDR CMG U.S. Large Cap Long/Flat Index remains bullish.
Not a recommendation for you to buy or sell any security. For information purposes only. Please talk with your advisor about needs, goals, time horizon and risk tolerances.
Click here for this week’s Trade Signals.
Personal Note – What Love Means to 4- to 8-Year-Old Kids
A group of professional people posed this question to a group of 4- to 8-year-olds: “What does love mean?”
The answers they got were broader, deeper, and more profound than anyone could have ever imagined!
“When my grandmother got arthritis, she couldn’t bend over and paint her toenails anymore. So my grandfather does it for her all the time, even when his hands got arthritis too. That’s love.” – Rebecca (age 8)
“When someone loves you, the way they say your name is different. You just know that your name is safe in their mouth.” – Billy (age 4)
“Love is when a girl puts on perfume and a boy puts on shaving cologne and they go out and smell each other.” – Karl (age 5)
“Love is when you go out to eat and give somebody most of your French fries without making them give you any of theirs.” – Chrissy (age 6)
“Love is what makes you smile when you’re tired.” – Terri (age 4)
“Love is when my mommy makes coffee for my daddy and she takes a sip before giving it to him, to make sure the taste is OK.” – Danny (age 8)
“Love is what’s in the room with you at Christmas if you stop opening presents and just listen.” – Bobby (age 7) (Wow!)
“If you want to learn to love better, you should start with a friend who you hate.” – Nikka (age 6) (We need a few million more Nikka’s on this planet.)
“Love is when you tell a guy you like his shirt, then he wears it every day.” – Noelle (age 7)
“Love is like a little old woman and a little old man who are still friends even after they know each other so well.” – Tommy (age 6)
“During my piano recital, I was on a stage and I was scared. I looked at all the people watching me and saw my daddy waving and smiling. He was the only one doing that. I wasn’t scared anymore” – Cindy (age 8)
“My mommy loves me more than anybody. You don’t see anyone else kissing me to sleep at night.” – Clare (age 6)
“Love is when Mommy gives Daddy the best piece of chicken.” – Elaine (age 5)
“Love is when Mommy sees Daddy smelly and sweaty and still says he is handsomer than Robert Redford.” – Chris (age 7)
“Love is when your puppy licks your face even after you left him alone all day.” – Mary Ann (age 4)
“I know my older sister loves me because she gives me all her old clothes and has to go out and buy new ones.” – Lauren (age 4)
“When you love somebody, your eyelashes go up and down and little stars come out of you.” – Karen (age 7)
“Love is when Mommy sees Daddy on the toilet and she doesn’t think it’s gross.” – Mark (age 6)
“You really shouldn’t say ‘I love you’ unless you mean it. But if you mean it, you should say it a lot. People forget.” – Jessica (age 8)
And the final one: The winner was a four-year-old child whose next door neighbor was an elderly gentleman who had recently lost his wife. Upon seeing the man cry, the little boy went into the old gentleman’s yard, climbed onto his lap, and just sat there.
When his mother asked what he had said to the neighbor, the little boy said, “Nothing, I just helped him cry.”
I do hope you are getting to visit your loved ones. Hang in, stay positive… ever forward.
Wishing you and your family a safe, healthy, and happy weekend.
Warm regards,
Steve
Stephen B. Blumenthal
Executive Chairman & CIO
CMG Capital Management Group, Inc.
Stephen Blumenthal founded CMG Capital Management Group in 1992 and serves today as its Executive Chairman and CIO. Steve authors a free weekly e-letter entitled, “On My Radar.” Steve shares his views on macroeconomic research, valuations, portfolio construction, asset allocation and risk management.
Click here to receive his free weekly e-letter.
Follow Steve on Twitter @SBlumenthalCMG and LinkedIn.
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