Bits and Pieces
What I like to do from time to time is do short bullet points about several things that are on my mind. Some of those things have been discussed in more detail in previous columns. This is more about “I told you so” and touching on things that may have some impact in the near future as far as business is concerned.
The first thing is easy. We are rushing back into bear market territory for sure. Getting the S&P index to around 3800 will be easy. Keeping it there and forming some sort of base will not be. I believe I have said this a few times but it bears repeating. If the S&P bounces off this level yet again, it will return. The question for this week is:”Will the S&P break through this short term support and if it does, where will it go?” I will put it here first and say that I think the major indices will crash through this support area and find the next level of support at around 3260. That is a huge drop and trust me, it gives me no pleasure to say it but I do think there is a better than 50% chance we touch that level, a level the S&P has not seen since October of 2020. On a brighter note, if we bounce off this level this week, we may see the second (or is it third) bear market rally. In any event, the picture I am painting is not a good one.
The next thing on my agenda is the Fed. Everyone now knows how badly the Federal Reserve missed the signals and are just now playing catch up. The fear is that this “Catch up” will result in an overly aggressive Fed. Which means they will be raising rates by 75 basis points more than once this year. Now I don’t think the Fed pays all that much attention to those headline news items about inflation, and recession and stagflation. They use data tools that allow them to make decisions based on one month and three month old pieces of information. Rather than get down on the ground and talk to John Q Public or have Mr or Mrs Public come in and explain what is actually happening on the ground. They are three steps removed from reality and that is why they are always three steps behind. The FOMC is meeting this week and its a pretty good bet that they will raise interest rates by 75 basis points. Is this being proactive or reactive? That will come in the statement they release.
The big “R” word is being thrown around on every media outlet for good reason. An aggressive Fed can not have a “Soft landing”. The landing from higher rates, especially the way the Fed is doing it, can only result in a thud. That’s what we are going to have I believe. It will be the first time in history that there has been a recession with a strong job market but I will present this here first. The government will not admit we are in a recession until the data is too persuasive to ignore. That is typical for recessions, most times you don’t even know you are in one until it has been upon you for three months or so. This will not bode well politically as we are approaching a very important Mid Term election in November. Recessions invariably kick the ruling party out. I will reiterate a much more important facet of the recession that few are talking about, housing. Keep in mind recessions don’t start without a weaker housing market and we are seeing several (but not all) housing number soften over the past three weeks. Poor housing data is fertilizer for a growing recession.
Which brings us back to The White House. Denying that their policies have had a negative impact on the economy and caused this inflationary cycle will eventually do Biden in. People suffering economically never bodes well for an incumbent President and if you look at his polling numbers, they bear that out. The leadership has failed in so many ways but the one that people will always remember is what their pocketbooks look like. The Democratic Party has to be fearing for their political lives since they are the “Party of the People” and those people are suffering more than the rest of America. They are stuck in a hard place because if they do what they typically do, throw cash at the poor, it will just fuel inflation even more and everyone will suffer. If they try and cut back, the poor will suffer as well and the possibility of voting for a change will rise substantially. They put the country in this spot and they have no plan to get us out of this spot except blame Putin, Trump and hell, they even blame Reagan. The White House is relying on the Fed and its ability to adjust money supply to bail them out but if history is any guide, it may work but it will take a minimum of 18 months to have it’s true impact felt and they just don’t have the time.