It has gotten totally out of hand. Nary a day passes when the “upper fold” of The New York Times isn’t smothered with headlines about Donald Trump. It’s not about policy, the Times attacks are personal.
It is POTUS’ own fault for picking a fight with the media in the first place. Since this uncivil war started, the slogan “all the news that’s fit to print” has become More Opinions Than You Care to Hear.
This sort of thing might be expected from the Washington Post. After all, they cover the political capital of the world.
In true narcissistic fashion, the world attention has been centered on and monopolized by one person. Since Election Day the stock price of the New York Times Co. (NYT) has gone up over 49%! That is far better than the 7% rate of the general market, confirming that narcissism sells newspapers.
There is a whole other world out there that is getting largely ignored while the FBI figures out the real news from the fake stuff. Thank goodness they are on the case.
What Has Happened With The Fed
Take the banking industry for example. Theses are the stocks that comprise the S&P 500 Financial Sector. In the 30 days following Election Day 2016 the group shot up 22% leading the charge in the so-called Trump Rally.
Since then, they have been absolute duds increasing only about 1%. If you’re like me and got caught up The White House nonsense, you probably forgot that the United States Federal Reserve still exists.
A lot is going on there that they want to keep quiet.
A year ago at this time the investment world was glued to each and every FOMC meeting. The battle of wills between Fed Chair Janet Yellen and descenting opinions by various Fed Governors over the need to raise interest rates.
Interest rate hawks believed that all the liquidity, about $4 trillion, Quantitative Easing added to the monetary system since 2009 was inevitably going to create massive inflation. The other side of the interest rate debate claimed that economic uncertainty was still great and that was enough to keep rates low.
Economic reports so far this year have somewhere between luke warm and sucky.
But there is a lot more to the story than just economic growth.
Is The Fed In A Corner
The Fed is in an awkward spot that promises to keep rates artificially low for the next year no matter what the economic reports reveal.
Bankers and investors in bank stocks cheered the idea of higher rates for several reasons. Bankers love a steep sloping yield curve. For example, if they could pay their depositors 1% and turn around and invest that money at 5%, they would be happy campers.
Problem has been, for the last several years, the yield curve has been skinny and that has hurt profits and stock prices.
The other reason banks would welcome higher rates is they get paid more on their “excess reserves”. This was a new little feature that was thrown into some of banking reform legislation after 2008.
One source at Forbes Magazine estimated that if the Fed increased rates to 3.5% for example, they would owe companies like JPMorgan Chase and Citibank as much as $100 billion. That could cause a lot of political as well as financial problems.
Of course, when investors pieced together the idea that the Trump Administration would roll back a lot of the stifling regulations enacted in 2009 plus higher rates, whamo, higher stock prices.
Everyone knew that the Fed had amassed trillions ($4 trillion at latest count). Their balance sheet was out of whack, way too much debt. Some day a rebalancing had to take place. Most investors put of the day of reckoning until sometime much later in 2018.
The position of the Federal Reserve is quite odd. On the one hand, there is a case for multiple rate increases this year. Yet an increase of anything more than a token amount could hurt their efforts to restructure their balance sheet.
What is likely to happen? Well the fact that bank stocks that would benefit from higher rates have been almost unchanged since the start of 2017 tells you pretty much how market professionals view things. So if you are of the mind the rates are heading substantially higher than the beleaguered banking group may be worth taking a peak at. Sometimes betting against the crowd can work out and this time the crowd is definitely against you.