central banks Archives - Page 2 of 9 - Runnymede Capital Management

Friday TV Appearances: Strong Jobs Reports, LK, ATVI

Last Friday, Chris Wang talked about the strong jobs reports and growth stocks, Luckin Coffee (ticker LK) and Activision Blizzard (ticker ATVI). Check out the videos to learn more. Hear what the strong jobs report means for the market and importantly what it means for the still very accomodative Fed. Also find out why Chris is excited about the prospects of LK and ATVI.

Fed Stimulating the Markets to Record Highs

In the past, the Fed announced their clear intention to use quantitative easing to stimulate the economy. They even named QE2, operation twist. This time, it has been much more stealth in nature. While the Fed has signaled its intention to pause on interest rate cuts, they have reversed course in shrinking their balance sheet and may instead drive it to new highs in 2020. This is clearly a short-term positive for risk assets and has sent the stock market to record highs.

Prepare for negative rates in the US

Back in 2016, we wrote “Watch out! Negative interest rate policy is coming to the US sooner than later.” To us, the future feels inevitable with virtually all the other developed nations in negative territory again in 2019. PIMCO's Joachim Fels echoed this thought saying that it's “no longer absurd to think that the nominal yield on U.S. Treasury securities could go negative.”

The Central Banking Problem: Quantitative Tightening

The stock market has rallied nicely to start 2019 but we think there is a big problem. The major central banks, the Fed, ECB and BoJ, have pumped up asset prices since 2008 with a massive liquidity injection of $11 trillion. They kept interest rates at ridiculously low levels on the short and long end of the curve and investors were forced into risk assets. This grand experiment is known as quantitative easing. Now is the more difficult part called quantitative tightening, the central bankers are trying to normalize policy.

Leadership tries to instill calm but instead sparks fear

Since the end of September, the market has been shaken by the China trade dispute, Fed rate hikes and a government shutdown. On October 31st, I wrote “Is the Fed triggering the next bear market?” and Runnymede began taking some risk off the table for client accounts. We believe this is prudent given that we are in the 2nd longest economic expansion in history. While economic data hasn't shown signs of a recession as of yet, growth has certainly slowed and the government has less ammunition with its ballooning budget deficit. With stock market risks rising, the current administration is looking for answers and trying to instill calm, but it has had the opposite effect.

Is the Fed triggering the next bear market?

October has been a rough month for the stock market with the recent downdraft wiping out index gains for the entire year. The deterioration has been rapid despite a strong earnings season and overall S&P earnings increasing by nearly 30 percent. It is highly unusual for earnings and stock prices to diverge to this extent. Something is obviously deeply troubling investors, and we wonder if the Fed is triggering the start to the next bear market?