Home About Archives RSS Feed

@theMarket: Markets Reach for the Sky

By Bill Schmick
iBerkshires columnist
Credit the Fed for this week's bump up in the averages. Technology shares led the charge as usual, shrugging off a sinking economy, higher unemployment and no progress on another bail out. What else is new?
 
At the annual Jackson Hole Symposium of world central bank leaders, conducted virtually this year, Jerome Powell, the chairman of our central bank, took center stage. In his prepared remarks, Powell announced a shift in the U.S. inflation policy. Rather than using the oft-stated, long-held inflation target of 2 percent, the Fed will now "seek to achieve inflation that averages 2 percent over time."
 
What's the big deal, you might ask? In laymen's terms, if inflation rises above 2 percent for some period of time, the Fed now will sit on its hands, instead of taking action preemptively to slow the economy and douse inflation.
 
Of course, he stated all the usual caveats about taking action if inflation were to run too hot, but reminded us that the Fed has not been able to get the inflation rate up to 2 percent in well over a decade. Inflation remained low, even when unemployment dropped to 50-year lows, he explained, instead of the opposite, which was what most experts expected.
 
The Fed believes that the markets are convinced that inflation won't ever get any higher than 2 percent because of past Fed policy. In which case, interest rates should stay low and maybe go lower still. That is the conundrum the Fed believes the markets and Fed policy find themselves.
 
A way out, they believe, is to be more flexible in targeting inflation in the future. If investors are no longer exactly sure how high the inflation rate might go. Before the Fed acts, it may break down some of the deflationary psychology that permeates the markets. Unfortunately, their policies thus far have resulted in what I call "bad" inflation. Asset prices such as gold, housing prices, and the stock market have seen huge price increases. But "good" inflation, as represented by wage growth, for example, has gone the other way.   
 
One bit of good news was that the China/U.S. trade talks turned out to be a non-event. I guess the administration has bigger fish to fry at the moment. The RNC convention this week was a four-day affair. In addition, the White House attempted (but failed) to get the stimulus bail-out talks re-started between the two parties. In any event, the market believes that a sale of TikTok, the Chinese-owned company in the administration's cross hairs, will be sold shortly to any one of a number of American bidders.
 
In the meantime, I have not changed my view that over the next few weeks stocks should pull back. Investor sentiment, already in the danger zone, has risen even further last week. The fear index, called the VIX, bears watching as well. Over the last few days, while the stock market continued to climb, so did the VIX. Usually, the opposite occurs. It is just another sign that the frothiness of the market needs to be reined in for the time being.
 
I also expect the election campaign to begin in earnest after Labor Day. It usually ushers in a period of uncertainty through November, when the race is this close. Markets, as you know, do not like uncertainty. And judging by the tone of both party's conventions, I expect the level of vitriolic debate will stun us all.
 

Bill Schmick is now the 'Retired Investor.' After working in the financial services business for more than 40 years, Bill is paring back and focusing exclusively on writing about the financial markets, the needs of retired investors like himself, and how to make your last 30 years of your life your absolute best. You can reach him at billiams1948@gmail.com or leave a message at 413-347-2401.

 

0 Comments
     

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
North Adams Shop Connects Art, Greenery and Curiosities
Limited Parking Causes Issues on Mount Greylock Summit
Mount Greylock School Committee: No Need to Gauge Community Support for Fields Project
Butterflies Like it Hot at Mountain Meadow
Pittsfield Developing Plan for Bicycle Network
Children Learn About Wildlife at Richmond Free Library
PHS Names 57 AP Scholars
Berkshire United Way Hires Director of Donor Engagement
Mount Greylock District Enrollment Down, School-Year Start Survey Positive
BArT Upcoming Enrollment Deadlines
 
 


Categories:
@theMarket (347)
Independent Investor (450)
Retired Investor (17)
Archives:
October 2020 (6)
October 2019 (1)
September 2020 (6)
August 2020 (6)
July 2020 (10)
June 2020 (7)
May 2020 (9)
April 2020 (9)
March 2020 (5)
February 2020 (7)
January 2020 (10)
December 2019 (7)
November 2019 (8)
Tags:
Markets Europe Congress Pullback Oil Housing Energy Japan Fiscal Cliff Recession Stock Market Jobs Stimulus Commodities Currency Interest Rates Banks Bailout Election Metals Deficit Selloff Economy Wall Street Stocks Rally Debt Federal Reserve Debt Ceiling Greece Retirement Euro Taxes Crisis Europe
Popular Entries:
The Independent Investor: Don't Fight the Fed
@theMarket: QE II Supports the Markets
The Independent Investor: Understanding the Foreclosure Scandal
@theMarket: Markets Are Going Higher
The Independent Investor: Does Cash Mean Currencies?
The Independent Investor: General Motors — Back to the Future
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: How Will Wall Street II Play on Main Street?
The Independent Investor: Why Are Interest Rates Rising?
The Independent Investor: Will the Municipal Bond Massacre Continue?
Recent Entries:
@theMarket: Politicians Play Cat & Mouse With Investors
@theMarket: Investors Reduce Risk as Stimulus Talks Fail
The Retired Investor: China Leads Global Economic Recovery
@theMarket: One way or Another, Markets Expect More Stimulus
The Retired Investor: U.S. Moves to Nail Down Strategic Metals
The Retired Investor: Halloween Could Be the Holiday Test Case
@theMarket: Markets Feel the Heat
The Retired Investor: Back to the Future in America's kitchens
@theMarket: Investors Face a Rollercoaster Ride
The Retired Investor: Bicycles Sales Are Booming