The Fed and Elmer Fudd

By David Stockman  |  October 31, 2019

He’s got to be kidding. But, deploying his very best Elmer Fudd impression in the middle of his post-Federal Open Market Committee meeting presser, our clueless Federal Reserve Chair did say, “Monetary policy is in a good place.”

I don’t know whether to laugh or cry. Michael Coolbaugh, in his Thursday market commentary, reminds us that we should, at the very least, be very wary right now of the market, of the economy, of experts making forecasts too…

No, monetary policy is not “in a good place.” It’s in an alternative universe where common sense, historically validated financial principles, and empirical data do not matter at all.

It’s all about sustaining an insular Wall Street-Imperial Washington narrative – an ever-changing pastiche of alibis, canards, excuses, palliations, and superfluities – with the sole purpose of levitating equity indexes and sustaining the Acela Corridor’s status quo.

Yesterday’s brain-dead performance by Jerome Powell was surely his greatest homage to futility yet, a veritable “shhh… be vewy, vewy quiet… I’m hunting wabbits…”

That’s right, folks. The Fed is indeed hunting – for growth, for 2% inflation, for “wealth effects”…

Here’s Michael with a timely review of some relevant data the Fed would rather you not share too widely…

Be Afraid… Be Very Afraid

By Michael Coolbaugh

Today, I’d like to revisit a theme we discussed a couple weeks ago.

Remember these leaves?

Believe it or not, I actually had someone try to tell me yesterday that those are not leaves in my back yard.

OK, not in the literal sense… but remember what we talked about regarding indisputable observations?

It all started from the simple comment that the yield curve is no longer inverted, and, thus, we’ve averted a recession.

My response was that this does not necessarily mean we have avoided a recession. In fact, following an inversion, the yield curve typically rises just prior to the beginning of a recession.

Don’t just take my word for it –

See for Yourself…

After a little bit of discussion, the debate turned to whether there was any evidence of a recession.

My view?

There are several data points that say we’re very close. If things continue to deteriorate, we could find ourselves in a recession within several months.

Unfortunately, my view was met with an emphatic statement that, not only are there not “several,” there is not a single data point that indicates the possibility of a recession in the near term…

I’d like to remind you – this was yesterday.

So, if it weren’t for the constant reminders to my son that we don’t want to dirty his new Spiderman costume before we head out for “Trick or Treat,” I’d have sworn that a Halloween ghost had just passed through my body.

As I tried to gather my wits from this mind-bending statement, I began to flip through my library of data series.

I started with two charts and made the simple statement, “You might not believe we’re close to a recession, but to make the claim that absolutely zero data points are close to recessionary is simply wrong.”

So Here we Go…

First, we have a year-over-year decline in industrial production.

Next, we have the Institute of Supply Management’s manufacturing PMI survey. In this series, 50 is the line that separates expansion from contraction. As you can see, not only have we recently entered contraction territory, but the most recent print is the weakest since 2008…

These were met with another emphatic statement, “That is not a recession. Not even close.”

And that’s what really got me.

So, I presented a few more, some of which you might remember…

Here we have the unemployment rate versus average hourly earnings.

Next, we have the recent year-over-year decline in total construction spending.

Take a look at the year-over-year decline in value of manufacturers’ new orders…

Here’s the wholesalers’ durable goods inventories-to-sales ratio…

This is the year-over-year rise in continued unemployment claims…

And then there’s the year-over-year decline in U.S. gross private domestic nonresidential investment…

A Recession Is Coming

These are just a few examples from the United States. Data from the rest of the world doesn’t look any better.

Believe me, I can keep going for quite some time. But I think you get my point.

For me, what’s truly scary is that, despite all evidence to the contrary, there I was, still being told that I don’t have leaves in my back yard!

Now, this was someone with more than 25 years of investment experience. And we can’t dismiss the possibility he might end up being right – that the Federal Reserve will help us avoid a recession.

But no amount of experience permits the denial of objective facts.

The risks are real. And, today, we stand at a critical juncture.

Will the recent actions by the U.S. central bank to lower interest rates help avert a recession?

The U.S. dollar will likely provide some helpful clues…

It’s still an open question. But I don’t need decades of experience to tell me the data are indeed pointing in a certain direction…

Let’s Get Serious

This is the most politicized market in history. And the Tweeter-in-Chief is still in charge. So, the situation is changing almost by the minute.

It’s “Impeachment!” in Imperial Washington and all over the Mainstream Media. It’s “Easy Money!” on Wall Street and across Bubblevision.

And it seems as if the whole world has, indeed, gone mad.

Amid this chaos, prices will continue to rise and fall, trends will continue to develop and dissipate.

Well, The Stockman Letter is made for times like these. And we’ve updated our design to help us better navigate to not only the safest harbors but also the most promising opportunities.

The stakes are as high as they can be heading into 2020. Markets appear to be straining, catching up to an economy that’s been weak and getting weaker for years.

The Donald is tied up in the day-to-day movements of the major stock indexes like no president before him. The increasingly desperate incumbent will do anything he must to hold the White House.

It’s a major tipping point. And there’s no telling what the Donald’s great disruptions could do to your wealth.

You’ve got to be nimble to win in this market…

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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