Another negative week with the Dow Jones down 309 points (-1.25%) and the Nasdaq down 182 points (-2.36%)
This week’s downside was very much anticipated. At least based on our internal mathematical and timing calculations. Having said that, earlier in the week the stock market found itself under increasingly oversold conditions and with bearish sentiment soaring.
So, will these conditions deteriorate even further or is it time to load up on stocks? Unfortunately, the answer is not that simple. If you would like to find out what the stock market will do next, based on our timing and mathematical work, please Click Here
Let’s talk about inflation and Trump’s stunning attack on the FED.
Key US inflation indicator hits 6-year high
A key measure of US inflation hit a six-year high in May, matching the central bank’s target in another sign price pressures are finally rising, the government reported Friday.
The long-awaited rise in the Personal Consumption Expenditures price index, the Federal Reserve’s preferred inflation measure, came amid a slight slowdown in consumer spending last month, according to the Commerce Department.
The weak spending could weigh on GDP growth in the second quarter, but incomes posted sharp gains.
On an annual basis, the PCE price index hit 2.3 percent, the highest since March 2012.
Now, we can argue about the validity of this inflation data until the cows come home, but my opinion remains the same. Recent inflationary spike, mostly due to QE, zero interest rates and Trump’s tax cuts, will very soon go deflationary as the pendulum swings the other way. It is important to remember that ALL debt binges eventually end in deflationary collapses. And we are in a historic one right now.
Yet, that is not the most important variable to consider here. This is…..
It’s been decades since the White House has warned the Fed the way Kudlow just did
It has been a long time —the early 1990s in fact— since a White House tried to influence Federal Reserve policy the way Trump economic advisor Larry Kudlow did on Friday.
In an interview with Fox Business Network, Kudlow jawboned the Fed, saying: “My hope is that the Fed, under its new management, understands that more people working and faster economic growth do not cause inflation.”
“My hope is that they understand that and that they will move very slowly,” he added.
Let’s not kid ourselves. The FED is anything but independent. Their mandate is not necessarily to maintain price stability, at least not anymore, but to keep today’s highly leveraged economy and financial markets afloat…..whatever the means.
In that regard Trump’s request is dead on. Stop raising interest rates and let inflation run. That way Mr. Trump can continue to praise soaring capital markets, telling everyone how great his economy is in the process. What Else Do ‘Trade War Loving’ Presidents Trump & Hoover Have In Common??? – Meet The Stock Market Trajectory
Having said that, I continue to maintain that both Mr. Trump and the FED and in for a rude awakening. No matter what they do going forward or what President Trump forces them to do.
The FED is stuck between a rock and a container full of TNT. Should they fail to reload for the next recession, the market/economy might crash and never come back. At least for a very long time. Should they continue to rise, things will break. As today’s inverting yield curve clearly suggests.
In this environment the right financial analysis is more important than ever. As our timing and mathematical work suggests, what happens next is complicated. As it should be considering recent cross currents and unstable White House. Once again, if you would like to find out what happens next, at least in the stock market and the US Economy, please Click Here
