One thing about markets and cycles that you'll surely notice when you're in the financial-news industry is that financial-industry news itself certainly does re-cycle headlines. George Soros writes about how markets, news and stocks all reflexively feed off one another and it makes you wonder where the topics like the day-to-day fretting over central bank moves comes from.
To that end, look at the collection of quotes I gathered this morning and headlines that I've written about the Federal Reserve and the "tightening" cycle and its impact on stocks over the past five years. You'll notice that many of the quotes could simply be copied and pasted (recycled, as it were) into an article about the Fed meetings this week.
I just don't get why people think that the Fed moving rates to 0.25% from 0% matters. Zero-percent interest rates and even 1% interest rates would still be far below what is the natural market rate that savers are seeking. One percent would still be forcing savers into risker assets like stocks.
I hear them say that the reason this next Fed tightening will matter is because it will symbolize how the cycle of easy money has finally flipped and the Fed is indeed in a tightening phase. Well, history will tell you that stocks are more likely to inflate into even bigger bubble-blowing bull-market valuations during the first part of a tightening phase.
In an article titled "Why you must fight the Fed and get ready for a new stock market bubble" from 2010, I explained it this way:
"There's an old saying on Wall Street that you 'can't fight the Fed,' but it's dead wrong. For the last 15 years, you always want to buy when the Fed is getting done lowering rates and sticking around till the Fed starts to lower rates.
In about 1994, the Fed stopped lowering rates and never went that low again for many years, as the overall trend in rates was higher. Meanwhile, the stock market went into a huge bubble by the year 2000. By 2001, the Fed started dropping rates and the markets literally crashed over the next couple years. By 2003, the Fed was done lowering rates and we once again went into an environment of rising interest rates -- and the stock market doubled over the next three years.
By 2010, we're done lowering rates and easing. We'll likely see the overall trend in interest rates rise over the next few years. And I do think the most likely scenario is, indeed, for a booming or even a bubble in the stock market again."
See, just because the Fed might finally be ready to tighten and raise rates, there are still all kinds of longer-term forces and ramifications from years of below-market rates, as I explained in 2014:
"With continued cheap money for corporations, margin-enhancing policies from the government at all levels and 0% rates still forcing savers into risk assets etc., I expect we still have more bubble-blowing bull market ahead of us. By the time the Fed finally acts to 'tighten,' the bubbles will likely be much bigger than they are currently. Important to remember, too, is that the bubbles will actually probably continue to inflate even after the Fed starts to tighten.
You can't flood the corporate economy and force savers into risky assets like stocks for years on end and then contain the effects of those policies by cutting back on your pumping. Jawboning the end of excessive, emergency liquidity measures isn't going to change anything, though it will likely give you a small-term market correction if and when the Fed finally ends all forms of qualitative easing.
Zero percent interest rates are going to inflate huge asset bubbles and especially stock market bubbles -- as I've been saying for five years now. And 1% will still cause bubbles. Maybe a 2%-3% Federal Funds Rate might start to draw money out of the markets and shift inflation down to a lower gear. So until the 0% interest rate itself is actually being raised, you want to keeping trying to ride the bubbles being blown all around you."
So let's say the Fed does suddenly get serious about raising rates to 1% or even 2%. There's always a lagging effect to monetary policy, not to mention unintended consequences -- Fog of War, Black Swans, currency effects and so on. The simple and probably right analysis is to see that the entire Republican/Democrat Regime remains focused on maximizing corporate profits and protecting and subsidizing giant corporations and banks while Main Street and the consumer are finally starting to see their fortunes improve.
You don't have to try to game Fed meetings. Your brokers and the traders on TV might try to make you think otherwise, but you're just guessing how other people are going to react to a headline event. As I wrote back in 2011:
"It's true that people actually trade off these types of headlines. But we don't have to, and therein lies much of our advantage -- we can and do ignore the noise:
- Bernanke lowers growth forecast
- Fed lifts 2011 inflation view
- Fed policy, promise intact"
Look, what we do know is that the Fed's got interest at below market levels and that they've infused trillions of dollars into our banking system in the name of stimulating the economy. We know that the Fed is always late to the trend. The economy's stronger than those idiots at the Fed realize too ... and more importantly to us as traders, the fundamental earnings are through the roof and seem to be accelerating. Which is also exactly what we've been setting our portfolio up for too. We also know that the Fed's 0% rates are forcing savers into the stock market and into other riskier assets ... and that is, again, why I expect we'll eventually hit new all-time highs in the DJIA and that many of our App Revolution and Cloud Revolution stocks will eventually not just go up big from here, but will eventually bubble like it's 1999."
The Dow industrials were at 12,800, Apple (AAPL) was at $50 and Facebook (FB) wasn't even public yet when I wrote that paragraph. I'm not nearly as wildly bullish about the stock market in 2015 as I was in 2011, when I wrote was loading up on tech stocks. That's OK, too. I don't have to be wildly bullish or wildly bearish at any given moment; I can let my analysis drive my conclusions and let my playbook help me figure out what to own and why.
On that note, as I mentioned on Real Money in real-time as I was doing it, I'd been buying Wearables Revolution stocks like Ambarella (AMBA) and a couple of others last week that I believe are headed much higher in coming years -- no matter what the Fed says or does tomorrow, and no matter whether the bubble-blowing bull market is over or not.