• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing

The Market Is Ignoring the Fed

I think that Jerome Powell actually believes he is accomplishing something...by doing nothing.
By JIM COLLINS
Sep 17, 2020 | 11:15 AM EDT
Stocks quotes in this article: TWTR

Well, I wish I had that 10 minutes back. I spent that amount of time yesterday reading the Fed's statement, along with Chairman Jay Powell's opening remarks and the FOMC's detailed economic projections. If you don't have time to read these documents, consider yourself lucky, but allow me to summarize. The Fed is going to keep showering the U.S. economy with free and nearly-free money. This "news' surprised no one. In fact, the decline in the Nasdaq, which brought the S&P to a slight loss for the day after a sharp rise after Powell began speaking at 2 pm, was quite telling.

This market is ignoring the Fed.

Why? Because this Fed is the most hopelessly inept bunch of con artists this side of Enron. When Powell speaks, he is trying to do one thing: get stock prices to rise. I believe that he believes that is his only job. When the market crashed in February on Covid-19 fears, "Free Money Jay'' came to the rescue. It's almost annoying , because I think that he actually believes he is accomplishing something...by doing nothing.

That's what the markets expect from the Fed. Zero short-term interest rates, which of course are set by the Fed. Long-term rates are not directly set by the Fed, but Powell once again yesterday committed the Fed to "QE Infinity" and buying bonds as a matter of practice, not as an emergency tactic.

Is it obvious that I am not a big fan of the current leadership of the Fed? Let's hope so. I tend to stick to investment ramifications, though, and there are several here. Firstly, in addition to its credibility, the Fed has also lost its ability to influence the economy by cutting rates. They will not go below zero. So they are stuck with these pointless QE exercises.

Thus, government bonds, both as a discrete investment and a pricing benchmark for privately-issued debt securities, are quite valuable. I see a near-zero risk of U.S. Treasury interest rates rising any time in the near future, so if you hold Treasures, there is certainly no reason to sell them. The idiosyncratic risk that individual company securities hold is not going away, and Powell did mention the continuing problems of unemployment (8.4% currently) in the Covid-19 era. So there are fewer employed consumers to "buy stuff" and government transfer payments will only last for so long. Obviously they will last until after the election, but as we move into 2021, bonds of companies whose profits are dependent on consumer spending may have to be de-rated to account for higher default risk. Stick with companies with positive free cash flows and you'll be fine with your fixed-income holdings.

But what about stocks? With "Crazy Jay" Powell so deeply ensconced in his ivory tower that his press conferences give the distinct impression that he has zero knowledge of the real U.S economy, there is a deep, yawning, chasm at the top of the U.S. economy. Where the cigar-chomping Paul Volcker and the Ayn Rand-quoting Alan Gremspan used to reign, we have a guy who seemingly has zero qualifications for this post (his Wikipedia bio is here if you would like to judge for yourself) and has done nothing to refute assertions that he was never qualified for his position in the first place.

With a void in leadership from DC, stock market investors will look to the New Colossi of the U.S economy, most of whom are located on the West Coast. We know them by their first names/nicknames. Elon, Tim, Zuck, Sundar, that hipster dude who runs Twitter (TWTR) , etc. The media chooses to lionize these guys because no one in the media has taken the time to learn how to read financial statements and value companies.

I have.

So, with a rudderless U.S economy from a Fed perspective, it's now a stock picker's market. That's the kind I love. I will have more ways to play the incredible, shrinking Fed in tomorrow's column, but, for today, keep holding onto your bonds.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Jim Collins had no position in the securities mentioned.

TAGS: Economic Data | Federal Reserve | Investing | Markets | Stocks | Trading | Treasury Bonds | Earnings Preview

More from Investing

Peabody Is Glowing Hot

Mark Sebastian
Aug 17, 2022 3:19 PM EDT

Here's how to play Peabody Energy as it looks like it could fire up over $25.

It's Hard to Say What's Cookin' at Weber, Though It Smells Like a Short Squeeze

Jonathan Heller
Aug 17, 2022 11:30 AM EDT

The grillmaker's stock has traded wildly and heavily at times, most recently this week after it posted its latest results on Monday.

Dour Day Shows Why I've Been Raising Cash Into Strength

James "Rev Shark" DePorre
Aug 17, 2022 10:44 AM EDT

I'm not aggressively bearish, but just waiting for better technical conditions.

Target Badly Misses the Mark, Which Sets It Up for a Bearish Bet

Stephen Guilfoyle
Aug 17, 2022 10:30 AM EDT

The big retailer's second-quarter results were atrocious and so is its balance sheet, which makes it a stock not to buy right now.

2 Stocks That Should Perform Well Even if Consumers Pull In Their Horns

Bret Jensen
Aug 17, 2022 10:00 AM EDT

There are reasons to be optimistic about Hims & Hers Health and OptiNose Inc.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 02:23 PM EDT STEPHEN GUILFOYLE

    We're Cleaning Out This Retailer From the Bullpen

    Check out the latest moves in TheStreet's Stocks U...
  • 10:24 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    To Improve Your Trading and Investing, Spend More ...
  • 08:44 AM EDT PETER TCHIR

    CPI Beats Expectations, But Maybe Not the 'Whisper'?

    Slightly better-than-expected inflation across the...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login