Fear, but not enough fear?
Worry, but not to the point of being scared out of your wits?
Then we aren't going down. Then we have more to go. Not much, because I don't think that we are going to unravel an entire move, but certainly enough to make it so the fear, the scare and the worry all surface at once.
That's what days like today do.
What's happening on a day like today? I would tell you this is one of those days where it is dawning on people that maybe all of the assurances about how we won't be hurt if the Fed raises rates are totally false.
All during this week I have heard two themes predominate: we need the rate hikes because we are at full employment and don't worry about the rate hikes because they are baked in.
I have endlessly told you that I think full employment is a worthy goal and that we seem to keep finding people who work so what's the deal? Sure, employers may have to pay more to get the workers to entice them to work for them, but wasn't that the point of the corporate tax cut, to put people to work and grow? You can't have one branch of the government trying to get full employment via tax cuts and another branch of the government saying that it has to stymie the goal of the president and Congress because we can't risk full employment. What the heck is that all about? Why not try to get employment as close to 1-2% as you can? I would disagree if the hourly wages were going up huge but I think between health care costs and the stealing of our jobs via NAFTA and the Chinese, the average working person's caught a real bad break in this country. Not that the break is finally changing that we have to stop it because, what, it's too good? We have a workforce with literally millions of marginalized workers who could be fired at a moment's notice whether it be because of a bankruptcy of Sears Holdings (SHLD) or some new app that allows all sorts of support staff to be fired.
In fact the only brand new industry that I think needs workers pronto is the cannabis industry as that's disruptive enough to get the cash to hire people to plant and grow and package.
That's my rhapsody in G for green like in money.
Now let's talk about the fanciful theory that's bedeviling the market by not instigating the fear that we need in order to get a bottom: that the market has already baked in the headaches of trade and, more important, the rate hike in December and the three slated for 2019.
When I hear this stuff I cringe. I don't think that most people even realize exactly how prohibitive, no, make that punitive these Fed actions will be. Right now you can judge the pain by looking at the regional banks. These are being pummeled because they do not have an offset to what will happen when they have to pay you more for your CD's than they can make on their loans, which can most surely happen if the Fed keeps up the fiction that we need those rate hikes to slow the economy. It's pretty obvious when you listen to regional bank conference calls that the slowdown in loans is here. You get a slowdown in loans you get exactly what Jay Powell wants. What's the point of getting even more than that? Does the Fed want no loan growth? How about year over year declines in growth? Would that make them happy?
Now, again, I totally understand what's happening in pockets around the country. There is a labor shortage. My wife wouldn't be struggling to hire people for our new restaurant that's supposed to open soon if there was a surfeit of inexpensive talent around. What a difference five years makes. Five years ago we started Bar San Miguel, our small plate tavern in Brooklyn, and people would come up to me when I was at the bar begging me for shifts. They just wanted a few hours here, an evening there, so they could pay their rent and their student loans.
No one does that now. A combination of a cessation of immigration from countries with people willing to take lower end jobs and the bidding war for scarce talent has ruined the bottom lines for many a business. We planned this place for about a year and we never thought we would have to pay such high wages. I am sure Amazon (AMZN) didn't either when it went for $15 an hour.
But it is a fact of life. Let me ask you, though, is it wrong that those without a full time profession who need work so badly make more money than they used to given how so many others costs, particularly health care are up so big?
I bring all of this up though because I want to give you a real life example of how we haven't baked these rates in. When you begin to think that you can't afford workers, you stop borrowing, which is a very good explanation of what might be happening at the regional banks. You stop borrowing you cut back on the demand for goods and services. You mess with demand then earnings per share go lower. Right now, we are seeing hideous price action in the regionals because of this spiral. Do we think that housing can be that far behind? We know the homebuilder stocks have already been crushed. Consider this, though, the stock of Home Depot (HD) , one of the best American retailers was at $215 one month ago. It's now at $180. I challenge any of those sanguine people who think that the Fed's hikes are baked in to buy that stock right here and right now. I am telling you they are assuring you falsely because most would be scared out of their wits to even nibble at the stock.
Here's something to think about. When everyone was rapturous on Tuesday with the plus 500 point run, I featured the work of our resident fear expert, Mark Sebastian, who said that as much as it might feel that the danger of a big decline is over it was anything but. Sure enough here we are. What does the man of the hour say? He says we are close but that the VIX, the fear index has not risen enough to cause a legitimate bottom. Yep, there's still too much greed and complacency and not enough fear or panic. It's too organized on the way down.
Mark tells me that when we hit around 25 - we are at 20 - we could be at the bottom and ready for a real bounce and we will not most likely take out the high of 29 from last week.
Maybe that's when people will stop accepting false assurances or stop kidding themselves about the gravity of the situation with the Fed, something that only President Trump actually seems to be articulating. I am not political but I think he's right.
I say you can't really wait until that occurs and you should be picking now. That's what I told members of the Action Alerts PLUS club on today's conference call, fully knowing that it is October - a tough month when it comes to be declines and we have been down for nine of the 11 past days. So, stop kidding yourself if you think that all the bad news is baked in - and I am not even including the Italian budget crisis which I am sure the bears will call out tomorrow - and accept that you could be buying the stock of the Fed's next victim - and that's a sad, and frightening, place to be.