The Fed will cut rates this week for the first time since I tried jorts in earnest. (March 18, 2008. Dark times.)
Despite an apparently healthy economy, Fed Chairman and Trump punching bag Jerome Powell has signaled that the Fed will likely cut rates by a quarter percentage point.
But if the economy’s as healthy as it looks, why the snip?
Well, according to Powell, the U.S. economy appears healthy. But beneath the surface, the old girl ain’t behaving like predicted. (Like the sad kid in Stranger Things who has interdimensional brain worms.)
According to old Fed models, falling unemployment should give rise to higher rates of inflation, like the world’s least fun seesaw. But right now, both inflation and interest rates are way down.
Jerome says he’s worried about an “unhealthy dynamic [in which] lower expected inflation gets baked into interest rates, which means lower interest rates, which means less room for the central bank to react [to downturns in the economy].”
“We’ve seen it in Japan. We’re now seeing it in Europe. That road is hard to get off.”
With this cut, the Fed is trying to vaccinate the economy against that low inflation while it’s healthy enough to take the hit.
The Economy’s Biggest Week in 2019
We ain’t just potentially cutting rates this week.
Over the next few days, there’ll be a concentrated cluster of global and domestic events with the potential for far-reaching economic impact.
In fact, it’s probably the most exciting week of the year for economists, who admittedly get excited about some pretty dull stuff. (Like data that confirms their biases and craft beer bars that price their menu like a livestock market.)
- As I’m typing this, U.S. Trade Representative Robert Lighthizer and his travel-Scrabble buddy Treasury Secretary Steven Mnuchin are on their way to Beijing to resume trade negotiations with China — the first time since talks broke down in May.
- On Thursday, we’ll get a look at global manufacturing data, which many economists are predicting may already be in a recession.
- And at the end of the week, the monthly payrolls report will give some more insight into how the economy is behaving under the hood. Economists surveyed by Bloomberg are predicting a 166,000 gain in jobs, down from 224,000 the previous month.
We’ll check back in on this story towards the end of the week when we might have some clarity on this “badly behaving” economy.
Kamalacare: Harris Caught Between a Biden and Sanders Place
Kamala Harris rolled out the details of her healthcare plan, just days ahead of the next round of Democratic debates.
If you want the short version, Harris wants to move America towards a government-backed, “Medicare-for-All” flavoured system. But she wants to preserve the role of private healthcare within that system. And she wants to take her sweet ass time to do it.
If you want the long version, DON’T YOU HAVE ANY HOBBIES!?
Alright, alright, this is a plan that could potentially affect the lives of every American. So let me put on my serious hat (that I won for eating too many chicken wings) for a moment and let’s discuss some of the major talking points from Harris’s plan and how it differs from her running mates’ plans:
- Kamalacare would be rolled out over a 10-year period, as opposed to the four years proposed by Senator Sanders.
- Unlike Bernie’s healthcare plan, the proposal does not include a tax on the middle class. (Sanders proposes a 4% on households making above $29,000.)
- Harris would exempt households making less than $100,000 and would make further exceptions for families living in high-cost areas.
- Harris’s plan would allow private insurers to offer Medicare plans. But they would have to adhere to strict Medicare requirements on costs and benefits.
- Employer-sponsored health plans, which now cover more than 150 million Americans, will go the way of the dinosaurs (who incidentally had terrible healthcare.)
- During the transition period, employers would pay into Medicare to get coverage for their employees.
Kamala’s plan is less extreme than the carpet-buying plans of her progressive running mates. But Kamalacare is still far to the left of Biden’s Obamacare 2.0.
“Medicare works. It’s popular,” Harris wrote in a post on Medium. “Seniors transition into it every day, and people keep their doctors and get care at a lower cost. Let’s not lose sight that we have a Medicare system that’s already working.”
What do you think about Kamala’s plan or even just the Democrats radically different approach to healthcare this election season? I’d love to hear from both Conservatives and Democrats on this one?
In Other News
One Last Thing
Investors Are Drinking “the Same Kool-Aid”
According to a new report, investors are packing into just a small collection of megastocks and shying away from smaller companies.
The study, which was conducted by Bank of America Merrill Lynch, says the overlap in stockholdings between mutual funds and hedge funds are at near-record levels.
The most crowded stocks include (names I’m sure you’ll recognise) Mastercard, Microsoft, Amazon.com, Abbott Lab, and PayPal.
Meanwhile, investors are moving away from stocks that are comparatively cheap with huge growth potential.
“This huge world of investible assets has shrunk down to a small cohort,” said Savita Subramanian of Bank of America Merrill Lynch. “We’re all in this echo chamber where everyone goes to the same dinners and drinks the same Kool-Aid.”
This kind of group-think creates a weakness in the market. For example, if bad news causes a decline in this relatively short list of stocks, we could see a mass exodus from the markets.
We saw this in May of earlier this year, when a mass selloff of large tech stocks resulted in a 10% decline in the Nasdaq Composite.
We’ll be watching this precarious situation closely.