THE FED/MARKETS

–We promised ourselves years ago that we would try to see the world. We have been everywhere around the globe. But we must tell you one of the places we were moved most was Normandy where they are currently signifying the 75th anniversary of D Day. Go there. Get there. It is an easy train ride from Paris. Walk on the beaches. See the bombed out bunkers. Visit the American Cemetery. See the history. Feel the history. You will not feel the same when your visit is done.–
–Well, this time it only took a 7% drop in the S&P for the fed to go from “being patient” to “cut rates” time.–
–We just wanted to repeat a few things and we should be done for the week. On December 19, 2018, the fed raised rates for the last time to 2.5%. Within a week, with markets swooning, the trial balloons started. Rumor of the fed changing their stance started to hit the tape. Markets stopped the swoon the day after Christmas. And then on January 4th, it was no longer rumor. All of a sudden, Powell went from raising rates 4 times in 2019 to “we can now be patient!” Markets did not look back until the end of April.–
–Fast forward to yesterday. Again, after a 7% drop, Powell and the fed now pivot from “being patient” to “cut rates” time. We told you this would happen because this has been their modus operandi since the lows of 09.–
–We are asked if whether the Fed can have so much sway over markets. You need not ask. Just look at their moves of the past 10 years. We came off our bearish stance on January 4th for one reason…. Powell’s change of stance. We told you yesterday we thought A low was now put in. There was only one reason for this…another Powell pivot to easier. But this time, we have something else to watch. Watch that 10 year yield. What is it telegraphing? Is it just the proposed tariffs or is it something else? If it is something else, that A low will not be THE low. Either way, we expect rate cuts to start this month or next and will continue to pay close attention.–
–And lastly, there is no way, no shape, no form that President Trump ever takes tariffs to 25% on Mexico. He knows and they all know there is too much at risk if they go that far. Expect a walk back of the rhetoric sooner rather than later.–