We’ve all heard the phrase, “Trust but Verify,” and, “Don’t fight the Fed.” And there’s a reason for this: Both are true.
You can have a powerful Fed, but in times like this, you also need to verify that what it’s doing is trustworthy.
And herein lies the problem: The recent Fed surge doesn’t verify much, other than how desperate the central bank is.
But then again: Don’t fight the Fed, right?
Recently, we weren’t so aggressive when the Fed went into over-drive in 2020.
After all, don’t fight the Fed, right?
Don’t Fight the Fed in 2020? Hmmmm….
When the markets tanked in March, the Fed (whose dirty little secret mandate of bailing out the government and Wall Street is now an open secret) stepped in with unlimited QE and a race toward potentially negative interest rates.
Of course, we called this for what it is—faking it—or better yet, Federally sanction fraud.
But enough with semantics. It was basically another “fat pitch.”
The real question is this: If the Fed was handing us another fat pitch or “tasty wave,” why didn’t we ride that wave with 100% enthusiasm?
After all, the markets just saw the biggest (and fakest, most hated) stock market rally in 50 years.
Shouldn’t we have gone all-in then, and shouldn’t we continue to do so tomorrow, cash, data and risk be damned?
Again: Don’t fight the Fed, right?
The Great Question Today
In short, the great question, for now, boils down to this: Is the Fed verifiably taking the markets to the Promise Land or to a nearby cemetery?
The short answer is “Yes” to both…
Hindsight vs. Common Sense
Hindsight, of course, has 20/20 vision, and now it seems obvious to even the most novice investor that the Fed has effectively nationalized the securities markets and confirmed what many now argue is its magical ability to outlaw recessions.
But here’s the rub. With GDP tanking, unemployment rising, and global production on its knees, the US and world are in many ways already in a verifiable economic recession.
The recent market rally from its embarrassing lows is simple Fed stimulus—i.e. bull steroids, or even more bluntly: Lipstick on a market pig.
So, no…the Fed governors haven’t outlawed an economic recession, trust us. They’ve just verifiably bankrolled the markets with more fiat currency.
And remember: The markets are NOT the economy, a fact Powell forgot to expand upon in his recent (and embarrassing) 60 Minutes Interview.
Thus, the Fed has allowed the markets to surge despite every modicum of market common sense, with leading indicators pointing South, from yield curve warnings to debt to GDP metrics.
Who Cares If the Markets are Fed-Rigged?
Some might rightfully ask: Who cares if the Fed has killed capitalism and natural price discovery, so long as the markets go straight up?
Don’t fight the Fed, right?
Well, not so fast…
First, the 2020 Fed surge, unlike the 2019 fat pitches we swung at, are very different scenarios.
2019, for example, was NOT staring at negative 20%-45% GDP as we are now facing in Q2 (depending upon which forecast or bank analyst you cover).
Nor was 2019 staring down the barrel of double-digit unemployment, as we are today.
For these reasons, we didn’t shout “ride the Fed wave” in 2020 like we did in 2019, despite the now obvious fact that is has been a really nice wave in the last month.
In short, we didn’t fight the Fed, but nor did we fully trust it.
Rocks Beneath the Fed Wave
The rocks beneath that recent wave simply made us pause, and we don’t regret it. Our Subscribers missed a 30%+ plunge in equities because we trusted our signals, not Powell.
Furthermore, by not getting caught off guard when the markets tanked in March, we’ve been making money this year while the others, who drowned in March, are no better off now than before the plunge, yet with a lot of water in their lungs.
Why subject yourself to that, we say.
Again, we make money by not losing it. Besides, drowning is no fun.
But what about going forward?
Ignore the Risks, Get Stoked?
Should “stoked” investors just close their eyes and paddle into more Fed waves and new market highs despite the ironic (i.e., horrific) fact that the world has gone haywire at the same time, be it COVID or riot-driven?
There’s no denying the power of the Fed, and thus no way to ignore the possibility that these markets can continue to rise on pure steroids again, despite the longer-term certainty that a rigged-to-fail day of reckoning (and painful stagflation) awaits the Fed and its doped markets.
That’s the verify part.
But for now, that day of reckoning is likely postponed, as the amount of central bank power is now out-of-the-box crazy, and there’s no end in sight to the steroids to come.
Neither Trust nor Fight the Fed
This is why we don’t fight the Fed or the now totally corrupted market signals on our screens as otherwise junky credits and balance-sheet-challenged companies rise from the dead with a Fed needle in each arm.
In short, we’ll ride a few of these Fed waves again, but not trust them. No way. Never.
First, there are too many shark fins and jagged rocks lurking among those waves, so we still focus on risk first; and then return second. By doing so, we always get the better results.
As for those risks, our weekly reports are loaded with data confirming the same, week after week after week. In sum, there’s a ton of risk out there, hence all the Fed steroids today.
So, who will get the last say? The tons of the risk or the all-powerful money printer?
In the near-term, the Fed has plenty of steroids; in the long-term, it, and the markets, will end like Lance Armstrong: In disgrace.
With Signals Matter, however, you won’t follow this trajectory.
The Tides of March
By respecting (and managing) risk, we make more money for our Subscribers in the long term by simply not losing it, as most investors did by losing BIG TIME in March.
We didn’t lose anything. In fact, we were up in March. Well up.
Sure, we didn’t take our Subscribers all-in on the more recent ride up, but then again, we didn’t have to be that crazy, as not one of our subscribers needed to rise that high, as none of them were ever in the hole, stuck at the March bottoms or bleeding money as markets sank by greater than 30% just a couple months ago.
Lately, it’s just steady up as she goes for us.
This is because we (and our subscribers) have been steadily in the green all year, and with none of the sea-sick volatility or water in our lungs.
Sanity in All Conditions—The Signals Matter Portfoli
The Signals Matter Portfolio is built to sail steadily in all conditions, which is precisely what we’ve been doing all along in this Covid-triggered market sea-saw.
Thus, we will continue stick to our knitting and follow our trusted signals and portfolio recommendations with calm rather than bull or bear preaching.
Nod to Minerd
As for the days ahead, even Wall Street can’t deny that the markets today are entirely driven by sickening leverage, fatal debt levels, and a rich Uncle Fed.
In short, just more, much more, of the same risks that markets faced before the current crisis.
Scott Minerd, head of Guggenheim Partners, has so much as admitted this more than once, and just recently confessed again that despite the short-term “miracle” handed to the markets by Powell et al., a day of reckoning is indeed coming.
However, that day is not upon us for now.
Instead, we can simply expect more volatility, central-bank faking it and economic stagnation as markets continue to defy gravity, fairness and realism while the Main Street economy chokes on sea water.
Minerd’s more honest prognosis is atypical of most Wall Street big-wigs, so I tip my hat to at least some signs of courage and blunt-speak from that corner of my own circles.
To see a full interview of Mr. Minerd’s outlook, click here—it’s worth a few minutes of your time.
As for Now—Stay Informed, Stay Calm
In the interim, Tom and I will keep reporting on the risks, facts, and ideas to which we feel all investors are entitled, on everything from doped stocks to shiny precious metals.
Our consistent free reports keep you in the know, with your feet firmly planted in reality, even in this Twilight Zone market backdrop.
But the real “juice” behind our thinking lies in our portfolio service, which is exclusively available to our paid Subscribers.
Again, if you want to see the real data, in simple visuals yet backed by tons of “complex smart,” you’ll need to subscribe here.
For more on what lies behind the Signals Matter curtain, please keep your eyes out for Monday’s report, in which Tom will give you more than a few key insights into what drives our analysis and the opportunities ahead for those not yet subscribed.
Mark your calendar: 1pm EST this Monday, earlier for Subscribers.
We hope to see you more of you on the other side once you subscribe, and we both look forward to speaking with you directly if and when you do (in a one-on-one Zoom meeting or on a private call).
In the meantime, trust but verify 😊
Sincerely, Matt and Tom