Fed Raises Rates, Sets Out Asset Disposal Plan

As was widely anticipated, the FOMC of the Federal Reserve voted 8-1 to raise the federal funds overnight lending rate 25 basis points, from 0.75-1.00% to 100-1.25%. Minneapolis Fed President Neel Kashkari was the lone member to vote to leave the rate unchanged. The Fed also raised the prime rate - to which many credit cards, car and mortgage loans are indexed - by 1/4%. The prime - or Primary, in fed-speak - rate now stands at 1.75%.

While the move was telegraphed to the market well in advance, the Fed's decision to release some details of its plan to unwind its enormous balance sheet of over $4.5 trillion, came as something of a shock to investors, characterized by the sullen market reaction.

About the only assets that didn't go down following the Fed's release were Dow and the dollar, the DJIA saved by the usual antics of the altos or the PPT, with the traditional hockey stick save in the last half hour, which also lifted the S&P, the Comp., and NASDAQ from deeper losses.

The dollar index rallied from 96.36 - a seven-month low - earlier in the day, to close at 96.918, a closing loss of just 0.06%. As usual, precious metals were sold down the river in the heavily-rigged futures market. WTI crude oil closed in New York at 44.69, -1.77 (-3.81%). The price is a massive surprise, considering the "summer driving season" has begun. However, the glut of crude on world markets continues to depress prices. Consumers have not yet seen the result at the gas pump, where prices have been relatively stable, despite oil's recent fall from about $52 to the mid-40s.

As usual, the day following the Fed rate decision will offer more clarity on stock direction.

The Fed laid out plans to wind down its multi-trillion-dollar balance sheet, gradually reducing its holdings of Treasuries and agency securities, by decreasing the Fed’s reinvestment of principal payments. Payments will only be reinvested when they exceed preset and self-administered caps, which start out at $6 billion per month for Treasuries and $4 billion per month for agency and mortgage-backed securities.

Since the Fed sopped up literally trillions worth of garbage MBS and dodgy treasuries during the aftermath of the GFC, the effect of their balance sheet unwind will be an attempt to allow market normalization with the Fed out of the way. While this tactic has been the subject of great scrutiny, without a "buyer of last resort" such as the Federal Reserve, the concern is that interest rates will spiral out of control with inadequate buying interest depressing prices and thus, raising yields beyond reasonable levels.

At present, this has not occurred, In fact, the benchmark 10-year note was exceptionally depressed, closing at a yield of 2.138, but, the Fed hasn't actually begun its unwinding, only mentioned how they plan to achieve their goals.

In an addendum to its statement, the Fed stated,

“The Committee currently anticipates reducing the quantity of supply of reserve balances, over time, to a level appreciably below that seen in recent years but larger than before the financial crisis; the level will reflect the banking system’s demand for reserve balances.”

As the ultimate arbiter of rates and ostensibly in control of all things financial, the Fed is hopeful that the rest of the world will go along with their grand plan.

According to the caps the Fed has just announced, it's going to be a long time before their balance sheet regains some semblance of normalcy. At a rate of $10 billion a month, the Fed will only be able to reduce the bloat by $120 billion a year. At that rate, getting their carried balance down to $2.5 billion would take roughly 20 years.

We can hardly wait.

At the Close, 6/14/17:
Dow: 21,374.56, +46.09 (0.22%)
NASDAQ: 6,194.89, -25.48 (-0.41%)
S&P 500: 2,437.92, -2.43 (-0.10%)
NYSE Composite: 11,779.81, -16.98 (-0.14%)

Dow, S&P Close At Record Levels; FOMC Set to Raise Rates

Unfazed and unaffected by the recent tech dip, the 30 blue chips of the Dow Jones Industrial Average and the S&P 500 each set new closing highs on Tuesday.

Stocks rebounded sharply after the surprise declines in the FAANG stocks Friday and aftershocks felt around the world in foreign tech markets.

Record highs are nothing notable in this market as stocks have been the (OGIT) only game in town for investors seeking profit and percentage gains.

The FOMC began their two-day meeting Tuesday, and wrap up Wednesday, with a policy announcement expected at 2:00 pm ET. It is anticipated that the board of governors will raise interest rates, but note that it may be the last raise in some time. The Fed may not increase the federal funds rate again until December or beyond.

At The Close, 6/13/17:
Dow: 21,328.47, +92.80 (0.44%)
NASDAQ: 6,220.37, 44.90 (0.73%)
S&P 500: 2,440.35, +10.96 (0.45%)
NYSE Composite: 11,796.79, +50.33 (0.43%)

Tech Wreck? Hardly. Stocks Shaky, But Steady Late Monday; Gold, Silver Slaughtered

Not to worry, the sky isn't falling... yet.

Tech stocks got bashed again, this time in foreign markets, after Friday's mini-meltdown, but cooler heads (or those more in control) late in the day, bringing the NASDAQ back to its best level of the day into the closing bell.

However, the S&P and Dow both suffered losses, albeit minor. What's interesting is that amid all the noise and clamor, gold and silver have been dashed, the selling merciless over the past week. This is the same pattern that developed at the onset of the GFC. As strange as it may seem, precious metals were liquidated before stocks, purportedly to make margin calls. Apparently, most of those in brokerage-land just think PMs are nothing more than hedges and fast cash in case of emergencies.

While that may be true, one wonders why such violent action in gold and especially in silver is occurring at this juncture. Sure, the FAANGs are overvalued and should be taken to the whipping post, but liquidation of PMs is a more serious business, though admittedly, quick.

If, indeed, margin calls have been making the rounds, there's little doubt that the PMs would get sold, and also no question that more trouble is on the horizon.

Tuesday and Wednesday are set for the FOMC policy meeting, so there may not be much in the way of wild swings until 2:00 pm ET on Wednesday, when the policy is set. There have been strong indications that the Fed will raise the federal funds rate by 25 basis points and this hissy fit in techno-land is unlikely to disrupt that.

The remainder of the week, after the FOMC meeting, should prove insightful for market participants. Continued weakness could signal significant trouble ahead and a serious turn of fortune for stockholders.

Stay tuned.

At the Close, 6/12/17:
Dow: 21,235.67, -36.30 (-0.17%)
NASDAQ: 6,175.46, -32.45 (-0.52%)
S&P 500 2,429.39, -2.38 (-0.10%)
NYSE Composite: 11,746.46, +1.73 (0.01%)

What Happened Friday? A Shaky Trend Is Developing

Strangely enough, the skyrocketing NASDAQ took a serve turn for the worse on Friday, dropping a massive 113 points at the same time the Dow was setting a new record with an 89-point gain and the NYSE Composite tacked on 65 points.

What drove the NASDAQ to its knees on Friday were the stocks known as FAANGs - Facebook, Apple, Amazon, Netflix, and Google - taking hits to their massively-overvalued share prices.

Here's the ugly reality
Facebook (FB) -5.11 (-3.30%); Apple (AAPL) -6.01 (-3.88%); Amazon (AMZN) -31.96 (-3.16%); Netflix (NFLX) -7.85 (-4.73%); Alphabet (parent of Google) (GOOG) -33.58 (-3.41%).

One-day, three-to-five-percent declines in any equity is usually a big deal. Having all of these institutionally-widely held stocks take a nosedive like that on a single day is a large, red, flashing warning sign that something is fundamentally wrong with the market, the economy, maybe even the world.

These shares weren't dumped all at once because somebody was taking profits. Volume was three times normal. Everybody was booking gains, and probably with good reason. The price/earning ratios for these tech darlings are unsustainable. Netflix leads the way with a P/E of 204, followed by Amazon, at 184, according to Yahoo Finance. Google seems modest by comparison, at 32. Facebook is 38, and Apple looks downright cheap with a P/E around 17.

So, only two of these stocks are wickedly overpriced, using standard metrics, but they all suffer some similar characteristics: They are all tech companies, based on the West coast, run by billionaire founders (excepting Apple, though Tim Cook was surely an heir apparent to Steve Jobs). The only other company that comes to mind with these characteristics is Microsoft (MSFT). The company founded by Bill Gates took a pretty good hit on Friday, down 1.63 (-2.27%).

Does this suggest that the "big one" is about to shake out the left coast, battering California from LA to San Jose with aftershocks up the coast to Seattle? And just how would anybody know that? OK, that theory falls into the category of tin-foil hat conspiracy theory, but, if Cali shakes, rattles and rolls someday soon, Money Daily will take credit for calling it (that's a joke, son).

Outside of Friday's tumult, general economic data has not been encouraging. First quarter GDP was 1.2% (second estimate), which is pretty close to stall speed. The US - and largely the global - economy has been anything but robust since the Great Financial Crisis (GFC) of 2008-09. Captains of finance at places like the World Bank, the Fed, ECB, and elsewhere have been touting "recovery" for eight years, wherein none, in fact, has occurred, unless one peers only at stock charts all day. While stocks have soared on easy money accommodation, he same cannot be said of Main Street's outlook. Retail stores are closing everywhere in America, small business has already been dumped into the trash bin of history, and new company creation has hit a 27-year low. Additionally, the Fed is hell-bent on raising rates for the second time this year when the FOMC meets on Tuesday and Wednesday of this week.

What's troubling about the fall of the FAANGs is that these companies have largely benefitted off the backs of consumers, monopolizing markets and cannibalizing profits to the C-suite executives. Now, the largest shareholders - pension, mutual, and hedge funds - may be taking their money elsewhere, either to cash, bonds, or, maybe just to more stolid, established, dividend-paying stocks. It's tough to know, groupthink among the elites being difficult to gauge or define.

Whatever the case, with the smallish losses on the Dow and S&P earlier in the week followed by a fallout in the most speculative stocks establishes a trend, which, for now, we can only identify as "shaky."

With most stocks and indices hovering near all-time highs, shaky is not a word one would normally associate with risk-taking. The time to run is when the avalanche is first seen at the top of the mountain, not when it barrels into the lodge.

At the Close, 6/9/17:
Dow: 21,271.97, +89.44 (0.42%)
NASDAQ 6,207.92, -113.85 (-1.80%)
S&P 500 2,431.77, -2.02 (-0.08%)
NYSE Composite: 11,744.73, +65.78 (0.56%)

For the Week:
Dow: +65.68 (0.31%)
NASDAQ: -97.88 (-1.55%)
S&P 500: -7.30 (-0.30%)
NYSE Composite: +26.03 (0.22%)

3 Minutes with Fearless Rick: Belmont Stakes Picks

Need some extra $$$. Try gambling...