Timothy Birdnow

"In the short run, the market is a voting machine but in the long run it is a weighing machine.”

Benjamin Graham – Investor, economist, professor 1894-1976


So, what's going on with the roller coaster ride on the market these days? The markets seem all over the map, with both bad and good signs that are nigh unto cryptic.


For instance, short term interest rates have climbed above long term, with three year Treasury notes yielding more than five year. An "inverted yield curve" is often a sign of an impending recession. But in this instance it is defied by other good economic indicators - like reasonable inflation, strong manufacturing, decent auto and home sales, and leading economic indicators posting a high in October. All of the stock markets - the S & P 500 and 600, the NASDAQ and the Dow Jones US Total Stock Market are all in positive territory, even after the 91 point drop in the S & P the other day.

Unfortunately the banking and financial sector is flattening out, which is a bit worrisome.

So why all the volatility?

For starters, the Fed has been raising interest rates all year and was promising to raise them again. The Fed does this to avoid the economy "overheating" and driving inflation (a classically Keynsian idea which has no solid basis in experience. Yes, a temporary inflation may occur if everyone is buying, but it will rebalance on it's own. Keynsianism argues that it has to be avoided by government effort i.e. slowing economic growth. Ergo, an interest rate hike.) The market has largely come back after the Fed announced it was suspending rate hikes for the rest of the year.

There are multiple reasons why the market is skittish; Russia is threatening to start a war with Ukraine, we are in an eyeball to eyeball trade situation with China (the world's second largest market), The Mueller probe is showing signs of life, stirring fears that Mueller may have something on the President, The government came out with that ridiculous apocalyptic Climate Assessment warning we have "ten more years", after having warned we had ten more years every decade since 1980, but people - especially young people - forget that fact and focus on doomsday. Oil prices are low and U.S. oil is suffering as a result (American oil is more expensive and harder to get than Middle Eastern oil), and cold, snowy weather has reduced oil usage across the country (in violation of global warming) hurting the market even more. Oh, and this Kashoggi business is threatening oil production too, as the pressure mounts on President Trump to punish Saudi Arabia - the prime source for oil worldwide. A large part of that story - which few Americans actually care about - is designed by the media and the Democrats to stampede Trump and the Republicans off a financial cliff. Thus far Trump has failed to take the bait, but the pressure is mounting.

All in all, the last few weeks have been very disturbing for the average investor. The swings in the market reflect this.

Do notice they are swings, too; obviously there are people making out on the panic selling. It's like Mr. Potter said to George Bailey in It's a Wonderful Life; they made out because they kept their heads during the Depression. Everyone who freaked out lost their shirts. That is the case here.

So, is it a sign we are facing a recession? I don't think so, although some major knocks could lead to one. We are in a very dangerous time in many ways - politically, socially, economically, spiritually. All of these threaten economic stability. It was inevitable the economy would behave strangely when President Trump tried to realign these economic factors that have been U.S. policy for decades; you can't make fundamental changes in the flow of money and not expect volatility. But there are forces at work behind the scenes that seek to ruin this President to force us back into the "it's a small world after all" model. MAGA threatens a lot of fortunes, and steps on many a rich man's toes.

Posted by: Timothy Birdnow at 09:11 AM | No Comments | Add Comment
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