Wall Street

On Security Blankets

By David Stockman  |  March 20, 2019

This blanket is a necessity. It keeps me from cracking up. It may be regarded as a spiritual tourniquet. Without it, I’d be nothing, a ship without a rudder.

– Linus Van Pelt in “A Boy Named Charlie Brown” (1969)

Yesterday, for the second time in three months, FedEx (NYSE: FDX) cut its 2019 revenue forecast.

FDX was down as much as 6.5% today. And the Dow Jones Industrial Average was off more than 200 points at its intraday low.

The Dow’s decline was probably as much to do with the Donald telling the White House press corps that U.S. tariffs on Chinese imports could remain in place for a “substantial period of time.”

But there it was: Reality was getting priced in on Wall Street…

And, then, the Federal Open Market Committee (FOMC) announced it was holding its key interest rate steady and would probably not tighten it any more in 2019.

On that dovish note, FDX pushed out to intraday highs, and all the major indexes turned from red to green…

FedEx CFO Alan Graf blamed a slowing global economy for his company’s guidance revision. He’s spot-on. Economic, financial, and political headwinds, storm clouds, and booby traps lurk everywhere.

Indeed, the U.S. is rapidly lapsing into stall speed.

The big plunge in December retail sales was apparently not the “fluke” Bubblevision cracked it up to be; January’s seasonally adjusted figure was down 1.4% from November, sliding all the way back to May 2018 levels.

Likewise, the December figure for construction spending was even worse, down 0.6% from November. Construction spending is now 2.4% below its May 2018 level.

Bloomberg Economics provides global “color” to this bleak picture:

Its new GDP tracker puts world growth at 2.1 percent on a quarter-on-quarter annualized basis, down from about 4 percent in the middle of last year. While there’s a chance that the economy may find a foothold and arrest the slowdown, “the risk is that downward momentum will be self-sustaining,” say economists Dan Hanson and Tom Orlik.

The European Central Bank is in full panic, as trumpeted by its pivot into massive money printing, again.

And exports from the world’s factory zone in East Asia are collapsing. year-to-date figures for South Korea, Japan, China and elsewhere. The most recent readings show exports from South Korea were down 5.8% in January. Japan’s were down 8.4% in February. And China’s exports declined by 21% last month.

And the full impact of the Donald’s Trade Wars hasn’t yet been measured…

We’re more than 2% above the S&P 500 Index’s 200-day moving average. And we’re about 4% below “Peak Trump,” the all-time high we saw last September 21. That’s just a crazy two-day rally away…

The prices of financial assets and stock market averages are still decoupled from reality. They’ve been blown up by Bubble Finance beyond anything happening on Main Street.

And Wall Street is still crawling with financial zombies-to-be. They’re too fat/too happy/too complacent to recognize the prevailing “It’s OK!” narrative is about as dumb as it gets…

How else to explain the nonchalant response to the Atlanta’s Fed markdown of its estimate of first-quarter GDP growth to just 0.2% on March 11…

It’s back up to 0.4% as of March 13. But this is 70-odd days into the quarter, when a large share of the data driving the first-quarter print are already and factored in forecast.

As Zero Hedge observed, we might well be merely 0.2% away from contraction. Doesn’t matter…

Because, apparently, it means we’re also only an FOMC meeting or two away from the next round of rate cuts, “quantitative easing,” and whatever else empire’s bankers can concoct to defile the laws of sound money and sustainable finance.

Today’s turns remind us Bubblevision is only concerned with an unknown (but wondrous!) future and intricate (but subject to revision!) forecast models.

Never mind the ill winds from abroad. Ignore the punk action on Main Street. Forget the fact that at month No. 116 of the most ragged recovery in history, the U.S. economy has “recession” written all over it…

That’s because word came – again – today from Imperial Washington’s banker…

Do You Have a Crash Plan?

Desperate times call for… “common sense” measures.

And these are desperate times… Markets are corrupted by monetary central planning. They’re confused. And the road back is going to be treacherous.

We’re looking at a major re-pricing for all financial assets. And thousand-point intraday or day-to-day swings are part of that equation. Those can be frightening… for “buy and hold” investors.

I have a different approach, one that combines strategy and tactics into a plan flexible enough for you to survive and thrive amid the coming chaos. It’s called “The Stockman Model.”

All we’re after is a little stability, perhaps a chance to pocket a windfall when opportunity presents…

To common sense,

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David Stockman

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David Stockman

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.MORE FROM AUTHOR