The Market Bull – September 11, 2019
The major averages closed with large gains as Trump called for Zero or Negative Interest Rates, labeling Fed Chair Jerome Powell a Naive Bonehead.
Where do you start with this? One of the items studiously avoided by the lamestream media and President Trump, is that the other side of the zero interest rate coin crucifies pensioners and those on a fixed income, like retirees. While it is well documented that zero interest rates lead to all manner of leveraged speculation and asset price booms and busts ala 2000 and 2008. What is rarely discussed is the damage it does to pension funds, Social Security and retirees and others living on a fixed income. As an example most pension funds are underfunded by about 30%, meaning that they only have 70 cents to pay every Dollar of benefits they are currently obligated to pay. Additionally, pension fund managers are more or less required to follow a 60% fixed income, 40% equity portfolio and aren’t allowed to invest in junk bonds and other hinky investments. It is quite common for pension funds to use assumed rates of return in the 7-10% range. Given historical stock returns and a 10-year Treasury bond yield of less than 2% at present and it doesn’t take much to realize that the assumed rates of return are wildly optimistic. Put another way and the current interest rate environment is all but guaranteed to destroy every pension fund in time. This is basic math. Push the interest rate to zero or negative and it will happen just that much sooner. When this credit induced bubble implodes, just like the last two. The Federal Reserve and the worlds other Central Banks will be exposed once again as the “boneheads” they really are. Then again fixing the problems caused by too much debt with even more debt is just as boneheaded as zero interest rates as that was the mechanism that precipitated it.
The Mortgage Bankers Association reports that its mortgage activity index gained 2% last week as Purchase Apps jumped 4.5% and Refi’s gained .4%. The 30-year contract rate for a Jumbo Loan fell to 3.84%.
The wholesale price measuring Producer Price Index or PPI advanced .1% in August on gains in Services costs, all other categories declined. On a year ago basis the PPI gained 1.8% well below the Fed’s desired target of 2%.
Standard and Poors 500 Index closed at: 3,000.93 up 21.54
NASDAQ finished the day: 8,169.68 up 85.52
Gold ended trading at: $1,503.80 up $4.60