Trump Calls for a Big Fed Rate Cut, Again Criticizes Central Bank Chairman 

Source: Wall Street Journal

“President Trump on Monday called for the Federal Reserve to sharply cut interest rates and again criticized the central bank’s chairman for a ‘horrendous lack of vision,’ while reiterating his belief that the U.S. economy is strong. The president said in a pair of tweets Monday morning that the Fed should cut its benchmark interest rate by at least a full percentage point and resume its crisis-era program of buying bonds to lower long-term borrowing costs. Such moves would typically be considered only when the economy faces serious peril, which Fed officials don’t believe to be the case….White House aides said Monday they are examining other proposals to bolster the economy. Among the ideas being discussed is a cut in the payroll tax….If the Fed cut its benchmark rate by at least a percentage point and perhaps launched a new bond-buying program, the president tweeted, ‘our Economy would be even better, and the World Economy would be greatly and quickly enhanced.’….Interest-rate futures are pricing in a 95% chance that the Fed will reduce rates by a quarter percentage point at its Sept. 17-18 meeting.”

 

Think of this economy as an elderly friend: Old age means coming death 

Source: The Hill

“I’m teaching macroeconomics to MBA students this summer and thinking about asking this question on the final: ‘We set a record in July. The U.S. economy has now gone longer without experiencing a recession – 121 months – than in any other time in modern history. This means: a) We’ve learned our lesson and have solved the problem of business cycles. There will never be another recession. b) We’re overdue for another recession. People should expect one soon.’…There are lots of wrong answers, and both of these options are just wrong….Sooner or later, there is another recession. Nothing has happened in the past 10 years to change that….No one knows when it will happen. But the accumulation of debt, along with lots of bad stuff that’s happened – higher tariffs and all the rest – have left the economy more vulnerable to failure than it was a few years ago. You should think about this economy the way we are thinking about an elderly friend. We’re all looking forward to the big party on his 100th birthday. But we’re keeping our dark suits cleaned and pressed.”

 

The Bond Market’s All-In On Its Recession Forecast 

Source: Capital Spectator

“Mounting recession worries of late have taken a bite out of stocks, but heightened fears that an economic contraction may be near has lit a fire of buying for US bonds. Long bonds in particular have soared recently….The source of the bond market’s striking gains: elevated recession fears. Right or wrong, the crowd has piled into Treasuries and investment-grade credits on the assumption that the US economy is caught in downward spiral….’The bond market is screaming recession,’ says Andrew Brenner, head of international fixed income National Alliance. ‘Just take a look at what the US market is doing.’ Suffice to say, the fixed-income crew is all-in on expecting that the US economy will begin contracting soon, courtesy of the implied forecast via inverted yield curves.”

 

Markets Are In A Panic, And This Time There Will Be No Happy Ending

Source: Zero Hedge

“I always try to be a rules-driven investor. And when the US stock market is down -3% in a day, taking it to -6% from its peak in three weeks, when 10-year US treasury yields have halved in nine months to just 1.55%, and when gold is up 20% in three months, it is a good time to review those rules to see what they can tell me. The answer is: quite a lot….Since May 2019, when the treasury total return/gold ratio fell below its five-year moving average, I have been recommending that investors switch from overvalued bonds to gold as the preferred hedge for their equity exposure. Usually, these two assets – long-dated US treasuries and gold – tend to be negatively correlated. When treasuries are going up, gold tends to go down, and vice versa. But in the last few months, both have powered ahead at the same time. This left me scratching my head, and as usual when puzzled, I reached for the history books to see when in the past both treasuries and gold have looked overbought at the same time…The conclusion is striking: we are in a panic….So what should investors do? My immediate advice would be to do very little right now. Acting in the middle of a panic is seldom a good idea….Concentrate equity holdings in high quality stocks relatively immune from the vagaries of governments, and hedge them with gold.”

 

How a Recession Could Hit This Year 

Source: New York Times

“The chances that the U.S. will fall into recession have increased sharply in the last two weeks. Here’s how it could happen, according to Neil Irwin of The Upshot: ‘The trade wars and a breakdown in international economic diplomacy cause businesses around the world to pull back. This leads to further tumbles in markets and job losses, prompting American consumers to become more cautious. High corporate debt loads create a wave of bankruptcies. And central bank policy proves impotent, combined with fiscal policy that is nonexistent.’ And what would it look like on the ground? Besides the hardships for businesses and individuals, Ross Douthat of the NYT makes a few predictions in his latest column: ‘President Trump could lose re-election, as he would be unlikely to muster enough votes if his boom evaporates. Venture-capital funding could start to dry up, which might make business like Uber and WeWork unsustainable. The immigration crisis could diminish, as the U.S. becomes less attractive to those in other countries, while domestic social problems like suicide rates and drug overdoses could get worse.'”

 

Trump and the Greenland New Deal 

Source: Ponte/WND

“Days ago the Wall Street Journal reported that, ‘with varying degrees of seriousness,’ President Donald Trump has ‘repeatedly expressed interest’ in buying from Denmark the world’s largest island, Greenland. Likewise, the ‘future of the Democratic Party,’ socialist Congresswoman Alexandria Ocasio-Cortez, recently proposed a ‘Green New Deal’ that would save the world from global warming by outlawing the internal combustion engine; prohibiting airline travel; ending cow flatulence, a major source of greenhouse gases, by banishing the eating of beef; and taxing nearly $100 trillion out of businesses and the wealthy. The Green New Deal was a pretext to use climate fears to transform our economy from capitalist to socialist….Today 80 percent of Greenland’s 836,330 square miles is covered with ice, which at its center is almost two miles thick. Only 56,000 settlers remain, and 90 percent are not primarily Vikings but descendants of the native Inuit peoples. Greenland has been owned since 1814 by Denmark, which provides its people an annual subsidy of $591 million, about $10,550 per person. This subsidy sustains a socialist society in which nobody owns private property, with all land controlled by five ‘kommunes.’….Alexandria Ocasio-Cortez should love socialist Greenland, far better than the proudly capitalistic, free-enterprise, high-tax welfare state of Denmark itself. But as leftist British newspaper the Guardian admits, Greenland is riven by high unemployment, alcoholism, depression and suicide. So why does President Trump want a socialist island whose head of local government says that Greenland is ‘open for business but not for sale’?….Today we recognize that Greenland is rich in resources: zinc, lead, copper, iron ore, coal, diamonds and oil. Canadians are already mining gold there, and Chinese are mining rare-earth elements.”

 

What’s the Deal With That Inverted Yield Curve? 

Source: New York Times

“The financial world has been atwitter about the inversion of the yield curve. It is a phenomenon in the bond market in which longer-term interest rates fall below shorter-term interest rates, and has historically been a warning sign that a recession could be on the way….Bonds that mature at different times are always trading on global markets, and with some fairly simple math you can figure out what the price of different bonds implies about how interest rates are expected to change over the coming years….If you buy, say, a 90-day Treasury bill, you are likely to receive an interest rate that is closely tied to whatever the Federal Reserve has currently set as its main target for interest rates in the banking system and any changes the Fed might make in the near future. It’s like betting on next week’s football game: We know a lot about what opponent your team is facing, how well they’ve been playing, whether there are injuries likely to affect the outcome. But if you buy a 10-year Treasury note, you’re making a bet on the more distant future. The economy will probably change a lot over the next decade. You can’t predict exactly what will happen, but you are betting on the general direction of things: Do you expect the economy to heat up, creating inflation pressures and causing the Fed to raise rates? Or do you expect it cool down? So purchase of a longer-term Treasury bond is like making one of those long-term bets on how a team will perform for many years to come….Longer-term rates below shorter term rates are a clear signal from bond investors that they think the United States economy is on the downswing – that its future looks worse than its present.”

 

The U.S. Treasury is about to flood the market with debt to fund a $1 trillion deficit. Here’s why that is a worry 

Source: MarketWatch

“An anticipated surge of U.S. borrowing in the global debt markets in the second half of this year is starting to create concern as Treasury is expected to ramp up its issuance of bills, notes and bonds to fund a soaring $1 trillion budget deficit….Last month the U.S. Treasury laid out its plans to borrow $814 billion between July and December, after the Trump administration and Congress agreed to a two-year postponement of the U.S. debt ceiling, ensuring no government shutdown or a federal default. Not only does the Treasury needs to borrow to cover the fiscal deficit created by Trump’s 2017 tax cuts and the inability of Congress to agree on spending cuts, but Treasury needs to rebuild its cash balance which was run down to pay the governments bills when the debt ceiling was hit in May. The coming deluge of Treasury issuance has stoked worries on Wall Street about whether there is enough liquidity in the system in the short term to meet the supply without pushing up short-term borrowing costs and inverting the yield curve even further. U.S. dollar liquidity is deteriorating and ‘is reaching a point where it may require drastic action if measures aren’t taken to address it soon,’ warned Gaurav Saroliya, director of macro strategy at Oxford Economics, in a note on Wednesday….’We are concerned that the U.S. banking system is nearing reserve scarcity,’ Bank of America Merrill Lynch analyst Mark Cabana wrote in a note to clients. Ultimately, he said opening the Treasury ‘floodgates’ would likely ‘force the Fed to start expanding its balance sheet by year-end.'”

 

Time to review your portfolio 

Source: Moneyweek

“More global fund managers now expect a recession than at any time since 2011 (which you’ll remember, was a tough year and a time when every other headline was fretting about the solvency of Greece). More global fund managers are bullish on bonds than at any time since 2008 – only 9% of them expect to see higher bond yields in the next 12 months which, given that bond yields are at record low levels in most parts of the world, is quite something. And an overall majority of fund managers expect value stocks to underperform growth over the next 12 months, the most bearish managers have been on value’s relative prospects since the financial crisis. All of this data comes from the latest Bank of America Merrill Lynch monthly survey of global asset managers, and more than anything else, it shows one thing – investors are currently positioned for extremes. A key part of the US yield curve has finally inverted, a pretty reliable recession signal….Perhaps the best bet at extremes is to take a chance to review your portfolio (if you haven’t done so in a while). Are there any sectors where you’ve made a lot of money and feel you are now over-exposed? Do you have enough gold (for insurance) and cash (for quickly jumping on opportunities)? And most importantly – do you have a clear financial plan at all? Because if you don’t, the midst of a market panic is not the time to be caught without one.”

 

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