The Market Bull – July 31, 2019
The Fed’s modest rate cut, end to balance sheet tapering and collapse in Chinese trade war talks. Saw the major averages close with large losses.
The Mortgage Bankers Association reports that mortgage activity fell 1.4% last week as Refi’s gained .1% and purchase apps slipped 3.1%. The 30-year contract rate for a jumbo loan was unchanged at 4.04%.
Payrolls Company ADP reported a modest 156,000 new jobs for July, an improvement over the anemic results of the last 2-months but well below the average of 193,000 seen in the last year. Small businesses, essentially the backbone of the economy showed employment declines for a 3rd straight month.
As was widely expected the Fed cut rates ¼% today to 2%, the first cut in 11 years. The Fed also announced an end to its balance sheet tapering program as well. The accompanying statement attributed it to global developments and muted U.S. inflation pressures, at least that is the official story. I had always argued that with record debt levels across the board and an economy struggling to maintain 2% economic growth despite emergency level interest rates and trillions in economic stimulus. That neither the Fed nor the economy were going to go very far with tightening financial conditions, as the Fed’s move today demonstrates. Some will argue that the Fed’s political independence has been compromised, others that this all but guarantees a recession and perhaps worse. The real problem here is not that the Fed cut rates or stopped tapering. The problem is that the Fed encouraged and allowed 3 consecutive debt-based asset bubbles to grow under its nose, each one larger than its predecessor. As the first two imploded with dramatic negative consequences, the odds of the current bubble doing the same is extremely high. Record debt levels are not the mark of success, especially when most of it is non-productive. Despite claims to the contrary debt and deficits do matter a great deal. While I certainly hope it is different this time, I won’t be holding my breath as the next 6-8 months are going to be very telling.
Standard and Poors 500 Index closed at: 2,980.38 down 32.80
NASDAQ finished the day: 8,175.42 down 98.19
Gold ended trading at: $1,424.70 down $17.10