Druckenmiller and Trump were right

[Gregmal]

Just dropping this in here. Apparently the big banks are fine:

and https://www.bloomberg.com/news/articles/2018-12-23/mnuchin-called-top-u-s-bank-executives-about-market-stability

 

Never say your banks are fine if they are fine.

 

This is getting insane. You'd think we are in the midst of some massive crisis. Or that every listed company in the US is cooking it's books...

 

I know Tepper basically just declared the Fed Put dead, but all the writing on the wall, at least to me, seems to indicate that with a little more pain, a lot of folks are going to start looking to resurrect it.

[John Hjorth]

Just dropping this in here. Apparently the big banks are fine: https://twitter.com/stevenmnuchin1/status/1076958380361543681 and https://www.bloomberg.com/news/articles/2018-12-23/mnuchin-called-top-u-s-bank-executives-about-market-stability

 

Never say your banks are fine if they are fine.

 

This is getting insane. You'd think we are in the midst of some massive crisis. Or that every listed company in the US is cooking it's books...

 

I know Tepper basically just declared the Fed Put dead, but all the writing on the wall, at least to me, seems to indicate that with a little more pain, a lot of folks are going to start looking to resurrect it.

 

Twitter links & links to Bloomberg articles ... -It would be nice if this could be a data & facts driven discussion.

[rb]

These people need to stop tweeting.

[NeverLoseMoney]

Just dropping this in here. Apparently the big banks are fine: https://twitter.com/stevenmnuchin1/status/1076958380361543681 and https://www.bloomberg.com/news/articles/2018-12-23/mnuchin-called-top-u-s-bank-executives-about-market-stability

 

Never say your banks are fine if they are fine.

 

This is getting insane. You'd think we are in the midst of some massive crisis. Or that every listed company in the US is cooking it's books...

 

I know Tepper basically just declared the Fed Put dead, but all the writing on the wall, at least to me, seems to indicate that with a little more pain, a lot of folks are going to start looking to resurrect it.

 

Twitter links & links to Bloomberg articles ... -It would be nice if this could be a data & facts driven discussion.

Seems like a fact to me that he said it at this point. Are you worried about his statement? And is that why you'd have preferred me not to post those links? Because I'm a bit worried now that you might be worried... I'm not in fact, but that's how confidence works and it can affect markets. If it was mostly about data and facts there would be a lot more rich mathematicians out there.

[rb]

Yea the banks are fine. But Stephen Mnuchin may not be that bright. Which in itself is not very confidence inspiring either. I think I heard Jamie Dimon yell "WHAT THE ACTUAL FUCK!" when that tweet went out.

[Spekulatius]

Just dropping this in here. Apparently the big banks are fine:

and https://www.bloomberg.com/news/articles/2018-12-23/mnuchin-called-top-u-s-bank-executives-about-market-stability

 

Never say your banks are fine if they are fine.

 

This is getting insane. You'd think we are in the midst of some massive crisis. Or that every listed company in the US is cooking it's books...

 

I know Tepper basically just declared the Fed Put dead, but all the writing on the wall, at least to me, seems to indicate that with a little more pain, a lot of folks are going to start looking to resurrect it.

 

Ouch! I just miss the infamous phrase: “ Our liquidity is strong”. Feels more and more like September 2008 to me when they introduced TARP. They really should keep their mouth shut. Back then there was a problem, now there isn’t, unless they fabricate one.

[Liberty]

https://www.bloomberg.com/news/articles/2017-11-02/trump-has-340-million-of-debt-linked-to-powell-s-rate-decisions

 

 

[Cardboard]

From RB:

 

"Btw, I am in the camp that the fed shouldn't tighten. The reason for that, which is the right argument for tightening, is the headline numbers are painting a wrong narrative. If the economy is doing so great then the labour market is banjo tight. At this level we should see wage inflation, but we don't see that. So maybe the economy is not doing so great. One of the worst mistakes in the history of the fed was the recession of 1937. Maybe we should avoid that this time around."

 

Really??? So why so much arguing?

 

I am seriously amazed by the discussion here and the level of amnesia.

 

For example, don't you guys recall that only 4-5 short years ago, a great deal of people on this website were anxiously reviewing every bank Fed review/stress test to figure if Bank of America could pay out something on any given year to its investors?

 

Then there is the other bunch such as Gregmal implying that so many are stupid and panicking because the market is heading down: you should try to profit and buy!

 

By the way, I was up 80% from the start of 2008 to the end of 2009, so I know a thing or two about averaging down and trading value!

 

These large recessions are really bad for the regular folks who don't even have a dime invested in the stock market. Many lose everything: job, family, sometime their homes. And after seeing a few of these cycles, it is obvious to me that the Fed is always too slow on the way up, then over-reacting as we head down.

 

On the other hand so far, I think that they were doing just fine. However, looking at various signs right now such as copper prices, slowdown in EM, housing, inflation, it seems obvious that things are pausing or decelerating. So recent hikes combined with the unwinding of QE and the simple end of a cycle seem to all be playing a part to slow things down.

 

Druckenmiller said a very important thing in this interview or how easy it is to break confidence. Buffett also said in other words that tapping the brakes via higher interest rates always send you in the windshield while tapping on the gas does not always respond.

 

Is it asking too much to try to get a soft landing or a mild recession?

 

Cardboard

 

 

[Jurgis]

Yea the banks are fine. But Stephen Mnuchin may not be that bright. Which in itself is not very confidence inspiring either. I think I heard Jamie Dimon yell "WHAT THE ACTUAL FUCK!" when that tweet went out.

 

;D

[thefatbaboon]

Cardboard, I find it unnerving that I now don’t understand where the Fed is coming from so I have no idea what they will do.  What happened to take the fed from being so cautious under Yellen to reckless under Powell?  Why did no one want to pause to see so many hikes flow through before doing anything more? It is so different to the fed behaviour of 2015 and 2016.

 

I am neither a trump supporter nor a conspiracy theorist but there was no real data to support their latest move and out of their own mouths both Powell and Williams were both saying that economic growth was already slowing and inflation below target.  So what is motivating Powell& co?  Can they really have so much confidence in their modelling guesses of neutral rates that they would base action on that alone against every other economic stat and  financial market?

 

 

[SharperDingaan]

You might want to look 'up', not 'down', and ask what has suddenly changed?

 

It would seem to us that the Fed credibly believes that Trump is musing 'firing' the Fed Chairman, after just 'firing' the US Secretary of Defense, declaring the war against ISIS won, and ordering the immediate withdrawal of troops from Syria. Zero consultation, and not exactly 'stabilizing'.

 

The US markets are currently down how much this year?, the US Fed is supposed to be independent of politics, and the US government currently doesn't have the authority to pay its bills. What do you suppose happens when millions of government workers don't receive a pay deposit to cover their christmas bills at the end of this month?

 

Do you really think Trump and the senate are going to agree on the spending bill anytime soon?

The man merely asked the banks about their liquidity, and arguably has very good reason.

We just didn't like the answer.

 

SD

 

 

 

 

 

[thefatbaboon]

SD, Not sure if you reply directed at me or another, but I was questioning fed not treasury sec.

[EliG]

Robert Shiller on the Fed and the hike:

 

https://www.valuewalk.com/2018/12/robert-shiller-fed-hike-rates/

 

The link includes a transcript but it's poorly done. I recommend that you watch the short video.

 

 

[Spekulatius]

Robert Shiller on the Fed and the hike:

 

https://www.valuewalk.com/2018/12/robert-shiller-fed-hike-rates/

 

The link includes a transcript but it's poorly done. I recommend that you watch the short video.

 

I believe that slump is caused by Trump more so than the Fed. For one thing, the “Trump slump” started before the Fed raised the interest rates, which shouldn’t have come as a surprise for the market, as it was well telegraphed.  What comes as a surprise is the lack of predictability from the current government and the infighting. That’s the issue that should be addressed and has nothing to do with the Fed. The market has shrugged of the political muppet show for a long time, but not any more apparently. It’s a little bit like the situation in Britain, where politicians continue to shoot themselves in the foot.

 

As far as interest rates are concerned a 2.5% interest rate seems on the low side, if we get 2.5% growth ne t year and 2% inflation. That’s still basically free money I agree with Druckenmillet

R that the rate of change could be important , but then again, we are at such low levels in terms of interest rates, that the rate of change starting from zero has to be somewhat significant to actually accomplish something. I am pretty sure that the Fed will change their plan for hikes next year, when the data warrants it. I am not so sure that our president stops digging when he finds himself in the hole deeper and deeper.

[thefatbaboon]

Robert Shiller on the Fed and the hike:

 

https://www.valuewalk.com/2018/12/robert-shiller-fed-hike-rates/

 

The link includes a transcript but it's poorly done. I recommend that you watch the short video.

 

Schiller: it’s One little rate hike?  It’s 8 hikes in a row squeezed into 2 years.

 

Schiller: We need to the raise cost of money so it costs least a bit about zero in real terms.  Didn’t  he see the 10 year at 2.8, and 30 at 3, and all the inflation inputs crashing. Didnt that tell you that the great majority see inflation falling? So it’s not really a matter of “just” getting money to real zero, we might have passed that four hikes ago.

[shalab]

Spekulitis - I generally like your posts but the below doesnt make sense. If China has 10% growth rate and 4% inflation, they should have 14% interest rate per your calculation. That kind of interest rate will kill any growth in China.

 

Fed's mandate is to keep inflation low and employment high. Their goal is not to kill wage growth, employment and cause deflation. The fed badly missed the boat here.

 

That said, I appreciate their help to make me rich in the longer term - a lot of assets are going cheap and I like it.

 

Robert Shiller on the Fed and the hike:

 

https://www.valuewalk.com/2018/12/robert-shiller-fed-hike-rates/

 

The link includes a transcript but it's poorly done. I recommend that you watch the short video.

 

 

As far as interest rates are concerned a 2.5% interest rate seems on the low side, if we get 2.5% growth ne t year and 2% inflation. That’s still basically free money

[Spekulatius]

True, a country with a 4% inflation and a 10% growth rate and 14% interest rate would never occur as the data with each other. But such an economy could handle risk free  interest rates higher than 4% for sure. a 4%  risk free interest rate with a 4% inflation is still free money basically. same with a 2.5% interest rate and 2.0% Inflation, yielding a 0.5% net cost for a borrower. Generally speaking a risk free rate at about the rate of inflation seems to be OK. Any interest rate below the

 

The argument remains whether the rate of change for interest rates is too fast. Now, that we are about level with inflation, further increases need to be more carefully considered. There is also the “risk” that inflation falls with a slowdown, pushing the net interest rate (interest rate minus rate of inflation) up.

 

Then, as I understand it, the Fed doesn’t look at overall inflation, it looks at core inflation, which takes out volatile components like energy. Energy was up huge in October, but has fallen significantly since. Seems like quite and interest set of challenges for the Fed to look at, and getting it right isn’t easy.

 

[shalab]

You are right about the pace of increase - the rule of thumb is to keep interest rates around inflation rate. So the current interest rate is right and no more increases are needed. It is not that hard - especially when the economy is decelerating and the yield curve is flat.

 

But the decision making is partly qualitative, subject to human biases and this leads to incorrect decisions.

 

The federal reserve could have simply said - we keep the option of increasing interest rates if the situation changes. The biggest concern of the market is that this federal reserve goes off rails in 2019.

 

I read an article that said - the market has predicted 10 of the last 5 recessions whereas the federal reserve has predicted none. This is very accurate.

 

Here is one prediction of potential interest rate cut in 2019:

 

https://www.cnbc.com/2018/12/24/art-cashin-doesnt-expect-the-fed-to-raise-rates-at-all-next-year.html

 

...

The argument remains whether the rate of change for interest rates is too fast. Now, that we are about level with inflation, further increases need to be more carefully considered. There is also the “risk” that inflation falls with a slowdown, pushing the net interest rate (interest rate minus rate of inflation) up.

 

...

[NewbieD]

I know Tepper basically just declared the Fed Put dead, but all the writing on the wall, at least to me, seems to indicate that with a little more pain, a lot of folks are going to start looking to resurrect it.

 

Well, to be fair to him he declared it dead for 400 S&P points - kinda like what you're saying. S&P was at 2500 when he said that. So like 11-12% down from 2350 where we are now I guess he estimates it might be resurrected.

[Cardboard]

"I believe that slump is caused by Trump more so than the Fed. For one thing, the “Trump slump” started before the Fed raised the interest rates, which shouldn’t have come as a surprise for the market, as it was well telegraphed.  What comes as a surprise is the lack of predictability from the current government and the infighting. That’s the issue that should be addressed and has nothing to do with the Fed. The market has shrugged of the political muppet show for a long time, but not any more apparently. It’s a little bit like the situation in Britain, where politicians continue to shoot themselves in the foot."

 

If the FED believes that Trump is now doing crazy things which hurt economic growth, reduce inflation and lower employment then their mandate calls for no rate increase or even to lower them. That is what a data dependent and independent FED should do. If things have changed for the worst, then they need to adapt and act based on new reality. Not stick with some pre-determined schedule based on old, now irrelevant data.

 

I have a hard time understanding why people mix political partisanship with a FED decision who should be independent, honest and smart people.

 

Well, I guess I should not be surprised with a bunch of anti-Trump. It is sad because this attitude only reinforces the conspiration theory as to why there has been 8 rate increases since Trump has been elected and zero under Obama.

 

Cardboard

[Dalal.Holdings]

Somebody call the Wahmbulance!

 

Omg Trump has more rate increases than Obama, the odds are totally stacked against him!!

 

Obama had it so easy walking into the oval office in January 2009 at the depths of the largest recession since the Great Depression with double digit unemployment.

 

Donald J Trump; however, is a beacon of a man who has gone through real hardships like 25bp Powell rate increases from record low rates during record low unemployment (low unemployment not at all due to Obama though).

 

Since He was a child, He had to learn to lift his silver spoon by Himself. Let us not forget His crippling bone spurs which prevented His service in Vietnam but did not stop Him against a valiant fight against HIV in the 90s. This man knows honor, knows sacrifice.

 

The FED (I capitalize it to show my tinfoil hat) is to blame for all market declines. Trade war? Crazy tweets? Unhinged speeches? The FED needs to learn to bring rates DOWN after Trump acts to accommodate him and his volatility. Everyone Trump has hired were the best people when he picked them (Powell included), but somehow always lose their way. These people are to blame for all of the Executive branch's mistakes. The mistakes do not emanate from the top--only the positive success stories do.

 

Nothing on the downside is Trump’s fault. Everything on the upside is due to him though.

 

Am I doing it right?

 

This thread belongs in the politics section.

[John Hjorth]

Dalal.Holdings,

 

Personally, I respectfully disagree with you [with regard to the belonging of this topic], because this is the key:

 

... If the FED believes that Trump is now doing crazy things which hurt economic growth, reduce inflation and lower employment then their mandate calls for no rate increase or even to lower them. That is what a data dependent and independent FED should do. If things have changed for the worst, then they need to adapt and act based on new reality. Not stick with some pre-determined schedule based on old, now irrelevant data. ...

 

The question and also the key here is, which available data should we look at right now? This will get this topic in a data driven direction, in my humble opinion, and thereby provide value to CoBF members reading and / or participating in this topic.

[Dalal.Holdings]

The question and also the key here is, which available data should we look at right now? This will get this topic in a data driven direction, in my humble opinion, and thereby provide value to CoBF members reading and / or participating in this topic.

 

It’s obvious—the S&P500 (Mr. Market) as Druckenmiller states is the Best indicator. So what if algos drive a large number of movements. There must be hidden signals in there.

 

And of course, as value investors who follow in the path of Berkshire here, we fear volatility and must lash out at the FED whenever we see volatility (as many have in these pages). Who was the great investor who said that “volatility is an investor’s worst enemy”?

 

Certainly many on here fear volatility, that’s for sure. I guess we realize who was swimming naked now that the tide has gone out...

[Spekulatius]

"I believe that slump is caused by Trump more so than the Fed. For one thing, the “Trump slump” started before the Fed raised the interest rates, which shouldn’t have come as a surprise for the market, as it was well telegraphed.  What comes as a surprise is the lack of predictability from the current government and the infighting. That’s the issue that should be addressed and has nothing to do with the Fed. The market has shrugged of the political muppet show for a long time, but not any more apparently. It’s a little bit like the situation in Britain, where politicians continue to shoot themselves in the foot."

 

If the FED believes that Trump is now doing crazy things which hurt economic growth, reduce inflation and lower employment then their mandate calls for no rate increase or even to lower them. That is what a data dependent and independent FED should do. If things have changed for the worst, then they need to adapt and act based on new reality. Not stick with some pre-determined schedule based on old, now irrelevant data.

 

I have a hard time understanding why people mix political partisanship with a FED decision who should be independent, honest and smart people.

 

Well, I guess I should not be surprised with a bunch of anti-Trump. It is sad because this attitude only reinforces the conspiration theory as to why there has been 8 rate increases since Trump has been elected and zero under Obama.

 

Cardboard

 

I think Trump needs to own his mistakes. The Fed can own theirs, if it comes to that. Also, where the the conspiracy if a Fed chair elected by Trump raises the interest rates? He could have just kept Janet Yellen, if he likes the low interest rate policy?

 

Anyways, I see this correction more like the one in 1987. back then, we had rising interest rates, a fairly strong economy, the Regan tax cuts buffing the economy and a considerable stock market rout they in the end meant very little for the real economy.

[Gregmal]

"I believe that slump is caused by Trump more so than the Fed. For one thing, the “Trump slump” started before the Fed raised the interest rates, which shouldn’t have come as a surprise for the market, as it was well telegraphed.  What comes as a surprise is the lack of predictability from the current government and the infighting. That’s the issue that should be addressed and has nothing to do with the Fed. The market has shrugged of the political muppet show for a long time, but not any more apparently. It’s a little bit like the situation in Britain, where politicians continue to shoot themselves in the foot."

 

If the FED believes that Trump is now doing crazy things which hurt economic growth, reduce inflation and lower employment then their mandate calls for no rate increase or even to lower them. That is what a data dependent and independent FED should do. If things have changed for the worst, then they need to adapt and act based on new reality. Not stick with some pre-determined schedule based on old, now irrelevant data.

 

I have a hard time understanding why people mix political partisanship with a FED decision who should be independent, honest and smart people.

 

Well, I guess I should not be surprised with a bunch of anti-Trump. It is sad because this attitude only reinforces the conspiration theory as to why there has been 8 rate increases since Trump has been elected and zero under Obama.

 

Cardboard

 

I think Trump needs to own his mistakes. The Fed can own theirs, if it comes to that. Also, where the the conspiracy if a Fed chair elected by Trump raises the interest rates? He could have just kept Janet Yellen, if he likes the low interest rate policy?

 

Anyways, I see this correction more like the one in 1987. back then, we had rising interest rates, a fairly strong economy, the Regan tax cuts buffing the economy and a considerable stock market rout they in the end meant very little for the real economy.

 

Spot on.

 

Trump hated Yellen and handpicked Powell. I really can't explain how he would make those decisions then, with the expectations that things would be any different than they are now.