These are all legitimate questions. They make all of the sense in the world. I know I woke up in a pool of sweat this morning, just bummed out and furious, furious at the Fed for being so foolish, furious at the president for trying to compromise the Fed by ham-handed pressure and furious at all the ill-advised acolytes in the media and at brokerage and hedge funds who applauded Jerome Powell for his imprudent statements yesterday.
Powell had a chance. I know I supported his rate hike because of the possibility of a strong labor market going into 2019. It seemed reasonable given the employment numbers.
But his strange decision to say he's for two more rate hikes while cutting his GDP forecast is pretty unfathomable. If you really think that the economy is slowing why not wait and see how slow it gets?
The pool of sweat?
My inability to influence these policies one iota. I felt as powerless as I did back in 2007 when I ranted at the Fed about the need to switch direction and stop tightening before the financial system's brought down. I was pretty much alone back then and I couldn't get people to listen. At one point on the "Today Show" not long after I was asked if I was yelling fire in a crowded theatre and I responded that, yes, I was, but there is a fire, a real conflagration and I felt it my duty to try to save as many financial lives as I can.
I lay there in the middle of the night trying to figure out how I can try to change things because I know the policy is wrong and the economy is experiencing some serious weakness from even three months ago. The weakness actually began in the first week in October when Powell started talking about the need to raise the fed funds rate four times and even, perhaps, overshoot if necessary. When you cause the weakness, actually cause it, you have to have a gameplan to deal with it and it isn't to call for more rate hikes. Economies are sensitive animals. They can be cowed much more easily than Powell thinks. Oddly, while Donald Trump gets it, he really did us no favors by trashing his own guy. Powell can fire him with a tanking economy far more easily than he can fire Powell.
My wife, Lisa, was justifiably concerned when she saw how depressed I was and she reminded me that, in the end, I can't do anything about it. I am a TV talk show host for heaven's sakes and she wanted to know who in heck I thought I was to believe I even should count in the process. I said I know that I care about people's retirement accounts and their ability to make money with their money in the stock market. Again, she said, it's not my job to fight the Fed, it's my job to try to tell you why stocks may still be worth buying and why this isn't the end of the world. I told her it's a bear market caused by the Fed and Trump's trade policies and that while I can accept the latter for reasons of national security, I can't abide by the former because there is no reason for Powell to be this way, to make these policy mistakes and that if he listened to all of the conference calls I do and talked to as many CEOs as I do, he would have definitely drawn a different conclusion. She reiterated it isn't my job to try to play a role. It's just my job to help.
So, for the purposes of being constructive in a toxic atmosphere for stocks, here goes, here's some thoughts about why, in this bear market, it's worth owning some stocks in a diversified portfolio. I say some, because I am buying certificates of deposits because they have become very attractive and because I think that we could be in for a rocky ride and I am now older and can't afford to give up too much principal.
At the same time I am contributing, as usual, to index funds for my kids. Why not? They are in their twenties and teens. They have their whole lives ahead of them and they can earn back anything they lose and more. I contributed a few hundred dollars to my IRA even when I lived in my car in 1978 and '79. I used the money I saved on homeowner's insurance. No, I am not kidding. It paid off huge. I can't believe how much my persistent contributions starting from when I was 24 have made. The compounding is magnificent. I am not going to try to time those contributions. Indeed for years of my putting money into funds I didn't make much at all. But then, when you least expect it, as was the case in 1981, you did.
Which brings me to the notion of the unexpected. If you are buying stocks here you are making a bet, the bet being that Jay Powell learned what I know, that the economy had downshifted and the next hike will be real bad news for main street. Every day there are new indications of weakness in both consumer and corporate spending. Today it was Carnival Cruise's (CCL) turn to give us evidence of consumer weakness. We had spoken to CEO Arnold Donald not that long ago and we know he can execute incredibly well. But the company didn't make as much money per passenger as I thought it would and while booking are strong there has been a downtick from even a few months ago. Lots of people were in the stock because fuel costs have gone down. It didn't matter. Things are weaker. That's the first time I have heard travel and leisure be soft. So that sector got hammered.
Corporate? This time its Accenture (ACN) , a gigantic and excellent tech consulting company that announced it had basically flat bookings. One analyst described Accenture as experiencing "the continuation of deterioration in the financial services" business which grew only 1%. That's a pathetic figure and not what I was looking for from this company that's responsible for migration of so many companies into the cloud. I didn't expect to see weakness in that secular trend. But there is. Like with Carnival, that's a first. You don't want to lose travel and leisure or cloud migration and tech spend. However, Carnival and Accenture are perfect harbingers of weak times ahead. Does the Fed know them? Does Jay read these transcripts and the analysts reports? Yesterday was Micron's (MU) turn to downtick. Micron is the most important indicator of tech hardware spending because it is the ultimate building block for computing of every kind.
It's every day, people, every day. If I could get with the Fed I could give them example after example, real life examples, of why they need to wait now. The evidence is so against Powell its painful for me. Here's the bill of particulars for owning stocks. My confidence in my judgment, versus his and the Fed's, is so strong that I know he's going to have to reverse direction and reverse perhaps in the next four months. When he does, you will regret selling because it will happen so quickly you will say "why did I sell."
What happened to there's always a bull market somewhere? Why, it's in gold. That's why we always bring on RandGold (GOLD) . It yields 3% and it has growth, and you can buy it or the (GLD) , which is fine with me.
Look, I am not sanguine about the situation. We are due for a bounce and we can't even seem to get it. But we will. When it happens you need to trim your bad stocks if you own individual stocks, bad being that the fundamentals have gotten noticeably weaker and high grade yourself.
Until then, I think the odds do not favor stockholders. You are fighting an ill-advised Fed. But when they recognize they are wrong, as wrong as I said they were in 2007, you will be angry at me if I told you to get out, because this time isn't as bad as 2007, not at all. It's just a shame, though, because the pain could be avoided simply by not being rash as the Fed is now. But, as my wife, Lisa, says, stopping their recklessness? It's not my job.