WEEKEND WRAP: Powell Puts Positive Spin On Rates, Economy; Stocks Respond With Banner Gains

As much as stocks were flattened last week, they gained back this week, and then some, rebounding mainly off the lips of Fed Chairman Jerome Powell, who uttered two words which are sure to become ensconced within the annuls of great Fed Chairman one liners, such as Alan Greenspan's notorious "irrational exuberance."

Having a way with words, especially concise two-word constructs, Powell uttered, in a speech at the Economic Club of New York, that interest rates were "just below" neutral, sending stocks spiraling upwards on Wednesday.

Those gains followed two prior sessions with more pedestrian advances, the Wednesday push a 617-point blast on the Dow which sent the industrials into positive territory not only for the month, but for the year as well. The week's gains were capped off by a window-dressing close on Friday, with the Dow posting a nearly 200-point gain, all of which came after 1:30 pm ET.

Events of the week - from Powell's speech to Trump's dealings at the G20 in Buenos Aires - managed to put a positive spin on the outlook for stocks going into the final month of the year and the holiday shopping season.

Effectively, what Powell's statement on interest rates did was virtually assure a 25 basis point hike in the federal funds rate and then a pause at what would have been the next logical rate increase, at the March FOMC meeting, and beyond. Whether the Fed's members actually believes that an overnight rate of 2.25-2.50% neither hinders nor aids the US economy is a question open for debate, as most believed that more rate hikes were necessary per the minutes of the last FOMC meeting earlier in November.

That sentiment put a bit of a damper on the market when released on Thursday, but, as Wall Street memories seem exceedingly short these days, the flattish close didn't have any lasting effect.

Once into 2019, the Fed is likely to continue to spin positively, as Janet Yellen's honorable mention entry in the two-word scrabble that is Fedspeak, "data dependent" should be rolling off the lips of more than a few Fed officials in the cold months of winter.

Undeniably, a dovish Federal Reserve can be nothing but good for stocks, which are the de facto underpinning of the US economy. The Fed - and Powell in particular - may have been taking a sideways glance at the housing market as well, another pillar in the economic construct. Rising mortgage rates have shut down advances in new and existing home sales, punishing home builder stocks like Lennar (LEN), D.R. Horton (DHI), and KB Home (KBH). A stagnant housing market may have been instrumental in the formation of Powell's suddenly-accomodative stance.

Even with the rebound this week, stocks still have a pretty large slope to scale to get back to September or October's all-time highs. The NASDAQ still has issues with falling tech stocks and GM's announcement that it was shuttering five factories and laying off 14,000 workers had a chilling effect on what was an overwhelmingly positive week.

Elsewhere, oil continued to hover at the $50 level for WTI crude, precious metals remained flat to negative, but other global markets perked up a bit.

When the FOMC meets on December 18-19, there will be little doubt about their direction. A rate hike of 0.25% is practically baked into the cake. After that, however, it certainly appears the Fed will consider its work done, for now, at least. The next rate hike - and there is almost certainly to be one or two in the next 12-18 months - will probably come after some gaudy economic data or fresh highs in the stock market.

Until then, the skies are blue and smooth sailing is ahead.

Dow Jones Industrial Average November Scorecard:

Date	Close	Gain/Loss	Cum. G/L
11/1/18	25,380.74	+264.98	+264.98
11/2/18	25,270.83	-109.91	+155.07
11/5/18	25,461.70	+190.87	+345.94
11/6/18	25,635.01	+173.31	+519.25
11/7/18	26,180.30	+545.29	+1064.54
11/8/18	26,191.22	+10.92	+1075.46
11/9/18	25,989.30	-201.92	+873.54
11/12/18	25,387.18	-602.12	+271.42
11/13/18	25,286.49	-100.69	+170.27
11/14/18	25,080.50	-205.99	-35.72
11/15/18	25,289.27	+208.77	+173.05
11/16/18	25,413.22	+123.95	+297.00
11/19/18	25,017.44	-395.78	-98.78
11/20/18	24,465.64	-551.80	-650.58
11/21/18	24,464.69	-0.95	-651.53
11/23/18	24,285.95	-178.74	-830.27
11/26/18	24,640.24	+354.29	-475.98
11/27/18	24,748.73	+108.49	-367.49
11/28/18	25,366.43	+617.70	+250.21
11/29/18	25,342.72	-23.71	+226.50
11/30/18	25,538.46, +199.62	-23.71	+426.12

At the Close, Friday, November 30, 2018:
Dow Jones Industrial Average: 25,538.46, +199.62 (+0.79%)
NASDAQ: 7,330.54, +57.45 (+0.79%)
S&P 500: 2,760.17, +22.41 (+0.82%)
NYSE Composite: 12,457.55, +68.18 (+0.55%)

FOR THE WEEK:
Dow: +1,252.51 (+5.16%)
NASDAQ: +391.55 (+5.64%)
S&P 500: +127.61 (+4.85%)
NYSE Composite: +421.31 (+3.%0%)

Stocks Slammed Back Into The Red As Resistance Has Been Met

The stock market is getting too predictable, and when that happens, it's generally a sign that change is at hand.

Not individual stocks, mind you, but at the macro level - entire indices, countries, or specific sectors - movement is largely telegraphed, as if some floor brokers have bullhorns shouting out the trades of the day, the week, the quarter.

On an impersonal level, US indices are ready for another bruising earnings season, having already touched recent highs, now dipping into negative territory for the year. It's all about the flow at this juncture, and the flow is out of stocks and into cash, or bonds, or any place safe.

All of this begs out for the buy-and-hold mentality that persisted during the true heyday of the American stock markets, from the mid-80s through Greenspan's irrational exuberance regime of the late 90s, but that epoch is long past and investors must be more nimble and adroit, being that there are so many more pitfalls and potholes in modern markets.

Above all, the Fed's role is out-sized and outdated. They've simply overstayed their welcome in equity markets, politicizing them to such an extent that honest trading on fundamentals has become passe - a relic from a long-lost civilization.

And so we embark into earnings season with the worst-looking week in nearly two months. Stocks were pounded without mercy on Thursday, setting up either a massive bounce on Friday or a continuation of the dolorous trading that has prevailed for the better part of this week.

As stated here yesterday, resistance has been met, and the only way out is to the downside. How far? That kind of conceit will kill you and leave your heirs penniless.

Many commodities - take your pick, but steer clear of oil - are close to short-term lows and may be the way ahead, though it would be advisable to tread very lightly for at least the next few months.


S&P 500: 2,041.91, -24.75 (1.20%)
Dow: 17,541.96, -174.09 (0.98%)
NASDAQ: 4,848.37, -72.35 (1.47%)

Crude Oil 37.54 -0.56% Gold 1,242.00 +1.49% EUR/USD 1.1377 -0.14% 10-Yr Bond 1.69 -3.65% Corn 361.25 +0.91% Copper 2.08 -3.01% Silver 15.23 +1.17% Natural Gas 2.02 +5.65% Russell 2000 1,092.79 -1.45% VIX 16.16 +14.69% BATS 1000 20,682.61 0.00% GBP/USD 1.4057 -0.45% USD/JPY 108.1250 -1.49%

Dow Gains 9th Straight Day to Another Record High

For the first time since November, 1996, the Dow Jones Industrial Average has risen for nine sessions in a row, the last seven of which made new record closing highs.

Not that it matters at all to ordinary investors (whatever that term means today), but the referenced date was during one of the market's greatest bull runs of all time and just prior to the famous "irrational exuberance" speech then-chairman Alan Greenspan gave just a month later, warning that the markets were overheating.

The chances of current chairman Ben Bernanke saying something similar are essentially nil. There's a better chance that Mr. Bernanke would fan, rather than cool, the flames of capitalism in coming months. It's simply not in the cards for the Fed to change course any time soon.

Today's gains were slim, with a range and volume that were slimmer by comparison. The Dow traded in a 50-point span from top to bottom, and volume, which has been non-existent throughout the current rally, was decidedly dull.

For all the talk of recovery and new highs, this leg of the rally has been noticeably dull and unappreciated.

But, that's where we are, QE, ZIRP and all the jolly talk aside.

The main catalyst for today's gains was a surprising jump in consumer spending for February, up 1.1%, far ahead of projections and the best reading in five months.

But, judging by the tepid response, this rally seems to be nearly out of gas. Not to worry, however, as any setback in stocks will almost immediately be washed away by some new rally, likely due to massive injections of liquidity by the Federal Reserve.

While the current prices of stocks and levels of the major indices may be irrational, there's little exuberance to be found anywhere.

Dow 14,455.28, +5.22 (0.04%)
NASDAQ 3,245.12, +2.80 (0.09%)
S&P 500 1,554.52, +2.04 (0.13%)
NYSE Composite 9,057.00, +2.96 (0.03%)
NASDAQ Volume 1,552,400,375
NYSE Volume 3,327,864,500
Combined NYSE & NASDAQ Advance - Decline: 3538-2872
Combined NYSE & NASDAQ New highs - New lows: 386-31
WTI crude oil: 92.52, -0.02
Gold: 1,588.40, -3.30
Silver: 28.96, -0.213

Irrational Exuberance, Part II or Squared to the Power of X

Talk about irrational exuberance, the term applied to stock market speculation by the liar-crook-Fed Chairman Alan Greenspan back in the heady days of the internet revolution of 1996 (actually, December 5, 1996), when the "esteemed" Chairman uttered:

Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?

While Greenspan was a few years ahead of his time - the great dotcom bust occurred in 2000 - his warning to speculative investments was not well-heeded then, just as today, practically anybody not predicting unlimited growth potential and stocks soaring to new levels is routinely given short shrift by the establishment Wall Street press. But suppose someone were to look at the past three-and-a-half weeks (or, extrapolating out to the past three-and-a-half years)and say something to the effect:

Let me get this straight. The hopes of the US stock market are pinned to perpetual zero interest rates at home and hope that a collective of mostly bankrupt European nations will cobble together a lending facility designed to keep certain mostly Southern European governments from defaulting on their massive debts by bailing out banks and then borrowing even more hundreds of billions of euros from them. That sends stocks ten to twelve per cent higher over the course of the past three-and-a-half weeks and we haven't even seen details of the plan. I would call that either wishful thinking, a complete fake-out or irrational exuberance squared and to the power of X, X being the number of idiots who believe issuance of more debt will solve a problem that began because of excessive debt.

Perhaps the imagined quotation is not quite as erudite or economically succinct as Greenspan's more famous lines, but the message is very clear, nonetheless and it is exactly how the Europeans plan to solve their various deep and myriad problems with finance. Most of the known world is so heavily indebted - spilt between governments, banks and businesses and individual households - that most should be barred from going further into debt. Fortunately for most Americans, this is exactly the case, as banks have not lent to anybody or anything besides the most creditworthy since the financial calamities of 2008. The mega-banks' own fears of their own imminent demise forced them into tighter lending standards after they realized (too late, though, since they are bankers, after all, they should have known better) that the trillions of dollars in mortgage loans made to people without adequate credit, jobs or income might just default and spread the contagion of massive debt default throughout the banking system.

Let's face it, they knew exactly what they were doing, peddling s&*t securities, disguised as top-shelf, AAA credit risk, by bundling together all of the garbage sub-prime, alt-A and payday loan-type mortgage junk into massive tranches of mortgage-backed securities and selling them to whomever came up with the cash. The bankers didn't really care that they would implode the system, knowing full well that their well-paid lackeys, aka bought-and-paid-for elected representatives of the US Congress and the Presidency would not allow them to fail. Besides, they had already absconded with billions of dollars in fees and other payments from the unsuspecting suckers they swindled.

Of course, this is now ancient history, as none of the bankers have gone to jail, nor even been investigated, much less tried for their egregious crimes. Instead we have the little show of insider trading by a couple of immigrants, Raj Rajaratnam (already indicted, tried and sentenced) and Rajat Gupta (indicted today on five counts of securities fraud and one count of conspiracy to commit securities fraud) to act as fall guys for the white, Wall Street elite.

Both are (were) rich, important and notably non-white and not natural-born American citizens. Rajaratnam was born in Sri Lanka and is of Tamil descent. Gupta was born in India. The message is clear. White guys who commit white collar crimes walk free. All others can, and likely will, be used as fall guys, protecting the brotherhood of the saintly banker elite. These guys may do jail time, but it won't be tough. Rajaratnam is already appealing his conviction and 11-year sentence, a process that could take years. Meanwhile, he's still free, at least until November 28. That's the date the judge set for him to surrender to authorities. Place your wagers on whether "Raj" flees the country or is admitted to a hospital. He suffers from multiple health issues, including diabetes.

It's pretty clear that these dark-skinned fellows are just actors in a well-scripted play that goeswell outside the bounds of traditional jurisprudence. Steal a car or a sell a dime bag of grass and justice will be meted out swiftly and surely. Steal billions of dollars and walk away.

So, expecting Wall Street to respond properly to the current European stupidity is just another example of the absurdity of economics, circa. 2011. Greece is already half-way to default, with Italy, Belgium and Spain close behind. Portugal and Ireland have lost their sovereignty to the international banking cartel, the citizens of those countries reduced to nothing more than indentured debt slaves. France teeters on the precipice of recession and the whole bunch will probably take down Germany - the only semi-stable country on the continent - with the lot.

All of that adds up to a buying frenzy of US stocks. If this isn't the most cockeyed, woeful example of irrational exuberance ever seen, I challenge anybody to make sense of it all. The contagion from the eventual failure of the Euro will spread like wildfire around the globe, affecting everything we buy, sell or touch. But until then, buy stocks, You can always sell them just before the next market crash.

Dow 11,869.04, +162.42 (1.39%)
NASDAQ 2,650.67, +12.25 (0.46%)
S&P 500 1,242.00, +12.95 (1.05%)
NYSE Composite 7,506.15, +105.33 (1.42%)
NASDAQ Volume 2,153,615,250
NYSE Volume 4,873,521,000
Combined NYSE & NASDAQ Advance - Decline: 4346-1278
Combined NYSE & NASDAQ New highs - New lows: 87-52
WTI crude oil: 90.92, -2.25
Gold: 1,723.50, +23.10
Silver: 33.31, +0.26