September 16
Proponents of greater redistribution and more equality fail to mention a major flaw with their UTOPIA: there is a tipping point in redistribution where the greater the redistribution the poorer the country. The United States is at the tipping point, Europe has gone too far. The countries of Western Europe are experiencing economic stagnation and falling farther behind the U.S. and maybe China.
Markets and Stocks
I like the market. My six month target is 6,000.
The Fed will cut rates on Wednesday afternoon. The only question is how much?
I had been leaning toward 25 basis points but two former Fed governors and now Greg Ip of the Wall Street Journal say that a 50 bps cut would be appropriate because policy is so restrictive.
Greg Ip is an unofficial “mouthpiece” for the Fed. Regardless, cuts are coming.
Right now the tape is pretty transparent in what it believes it wants — such as right now.
The market wants positive news on the economy and continued progress toward 2% inflation
The market’s turn toward treating good economic news as positive for stocks is pictured here in a chart from Citi strategists, showing the three-month correlation between the S&P 500 and the Citi U.S. Economic Surprise index has turned sharply higher.
Last week the market got good economic news and an okay CPI report. Moreover, the data from both the CPI print and the PPI release suggest a good core PCE reading on September 28. So, after a 4% up move last week, the S&P 500 is just 0.5% from an all time high.
Importantly, we are at the top of the two month trading range of 5,400-5,600. I think we break out to new all time highs. Leadership will be provided by the AI trade.
The economy is growing at around 2.5%. The Visa CFO at a conference last week had encouraging words about spending picking up.
The Atlanta Fed projects Q3 growth at 2.5%
https://www.atlantafed.org/cqer/research/gdpnow
I like AXP. You can buy it and own it for a decade. The global economy is growing and the well educated or highly skilled or both are seeing strong income gains. AXP is a play on growing affluence.
What matters is that the Fed has a lot of room to cut with policy at 5.375% and inflation at 2.5% or possibly lower.
And it really matters that the economy continues to expand as the Fed cuts. Rate cuts and a growing economy invariably drive higher prices.
“History says that slower, more deliberate Fed easing cycles are typically better for stocks than faster, urgent ones, strictly because the latter type is almost exclusively associated with recessions.” See Santoli at CNBC.
Credit markets remain firm. Forward 12-month S&P 500 earnings forecasts continue to rise , now approaching $270. More than 60% of stocks are in an uptrend. The trend is your friend. Sentiment is not overwhelmingly positive.
August retail sales data are out tomorrow. It should be an okay report.
Economics
Trickle down economics does work. The most affluent become more affluent but the poorest see strong improvements in their absolute economic position. It is better to be poor in the United States than to be poor just about anywhere else.
sourpatchlyds (@░SourPatchLyds░) posted: A rising tide lifts all boats!
Socialism and communism do not work. Sure everyone is more equal but everyone is poorer. Just look around. And when everyone is poorer, innovation and life saving technologies are not developed.
Politics
The Presidential election is a toss up. The House is a toss up. Republicans are slight favorites to win the Senate.