The White House Is Not Happy With the Fed
The White House is not happy with the Fed... President Trump wants more quantitative easing... Signs of a bottom in bitcoin... More big news for cannabis...
In November 2017, President Donald Trump handpicked Jerome Powell to lead the Federal Reserve...
And Powell officially replaced Janet Yellen as Fed chair early last year.
However, the "honeymoon" didn't last long. The president and senior administration officials turned decidedly critical toward their nominee as the year progressed.
Most notably, in October, the president said the Fed was "out of control" for continuing to raise interest rates. A month later, Trump followed that up by saying he was "not even a little bit happy" about nominating Powell as chairman and suggested it was among the worst mistakes of his presidency.
Powell apparently 'got the message' by year-end...
And since Powell's sudden "dovish" reversal in January, the White House has been relatively quiet regarding the Fed.
Until recently, that is.
You see, it seems the president is no longer satisfied with the Fed halting rate hikes and its quantitative tightening program. He now wants the Fed to begin actively easing again. As financial news network CNBC reported on Friday...
Commenting after a strong jobs report for March, Trump said the Fed "really slowed us down" in terms of economic growth, and that "there's no inflation."
"I think they should drop rates and get rid of quantitative tightening," Trump told reporters, referring to the Fed's policy of selling securities to unwind its balance sheet, a stimulus put in place during the financial crisis.
"In terms of quantitative tightening, it should absolutely now be quantitative easing... You would see a rocket ship. Despite that, we're doing very well."
In short, Trump wants the Fed to return to its most aggressive crisis-level measures simply to boost an already strong economy... an economy that he himself has called "the greatest in U.S. history."
This is shortsighted and foolish...
Sure, it could help keep this boom going a while longer. However, it would only worsen the fallout when the inevitable bust arrives... and leave the Fed with even less "ammunition" to respond to it.
But we're not the only ones who think it would be a mistake. Even the president himself has said as much in the past...
Elsewhere in the markets, the signs of a bottom in bitcoin continue to mount...
In the March 25 Digest, we told you our colleagues Ben Morris and Drew McConnell – editors of DailyWealth Trader – had just turned bullish on the volatile cryptocurrency.
In short, Ben and Drew noted that since falling to a fresh 52-week low in December, bitcoin had been slowly climbing higher. It had put in a series of "higher lows," one of the key pieces of an uptrend. But it had yet to make a "higher high" of more than $4,064, as we shared in the following chart...
Well, as of last week, we now have a confirmed uptrend...
As you can see in the following updated chart, bitcoin rocketed through this key level on Monday, and it is now trading for more than $5,000...
Clearing this level is an undeniably bullish sign. We now have a clear uptrend for the first time in more than a year. And as Ben and Drew noted last month, after such a large decline – and with sentiment still relatively bearish – there is plenty of room for bitcoin to move much higher from here.
Again, this is not a recommendation to go "all in" on bitcoin. It remains incredibly risky today. But if you can afford to speculate – and are sure not to risk a penny you can't afford to lose – this could be a fantastic buying opportunity.
Speaking of controversial assets, last week also brought some more bullish news for cannabis...
Just a few days after we last mentioned bitcoin, we noted that Congress was pursuing two important measures related to the burgeoning cannabis industry.
The first was the Secure and Fair Enforcement ("SAFE") Banking Act, a bill that would allow banks and credit unions to work with any marijuana-related businesses that operate legally under state law. That bill was just approved by the U.S. House Committee on Financial Services and will soon move to the full House for a vote.
The second was a proposed bill that would go even further. Known as the Strengthening the Tenth Amendment Through Entrusting States ("STATES") Act, the bill would essentially end federal prohibition entirely in states and U.S. territories that have already decriminalized cannabis.
On Thursday, a bipartisan group of lawmakers introduced versions of this bill in both the House and Senate...
As industry newspaper Marijuana Moment reported that afternoon...
Reps. Earl Blumenauer (D-OR) and David Joyce (R-OH) filed the Strengthening the Tenth Amendment Through Entrusting States (STATES) Act, appearing alongside cosponsors Reps. Barbara Lee (D-CA) and Joe Neguse (D-CO) at a press conference. Sen. Cory Gardner (R-CO) and Elizabeth Warren (D-MA) filed the Senate version of the bill.
The legislation would amend the Controlled Substances Act to protect people complying with state legal cannabis laws from federal intervention, and the sponsors are hoping that the bipartisan and bicameral nature of the bill will advance it through the 116th Congress...
"I've been working on this for four decades. I could not be more excited," Blumenauer told Marijuana Moment in a phone interview. While other legislation under consideration such as bills to secure banking access for cannabis businesses or study the benefits of marijuana for veterans are "incremental steps that are going to make a huge difference," the STATES Act is "a landmark," he said.
This bill reportedly has the White House's support as well. Senator Gardner said President Trump personally told him he would sign the bill should it make it to his desk.
But this wasn't the only positive news for cannabis last week...
On Tuesday, the U.S. Food and Drug Administration announced it will be holding a hearing on legalizing cannabidiol ("CBD") in food and drinks.
As regular Digest readers know, CBD – along with tetrahydrocannabinol ("THC") – is one of the two best-known active components of the cannabis plant. But unlike THC, CBD is not psychoactive.
In addition, CBD is sourced primarily from the hemp plant, rather than marijuana, like THC. So CBD has officially been legal to use in the U.S. since December, when Congress passed the 2018 Farm Bill.
However, CBD has not yet been approved for use in food and drinks. And the FDA's hearing is the first step in eventually doing so.
On Wednesday, the Federal Reserve weighed in on cannabis as well...
Piggy-backing on Congress' SAFE Banking Act we mentioned earlier, several Federal Reserve presidents called for more clarity on rules for providing financial services for the cannabis industry. From a separate Marijuana Moment report that day...
During a panel at the American Bankers Association summit, the [Fed] executives were asked about how financial institutions are expected to manage conflicting state and federal cannabis laws. All three stressed the need for a resolution to how the growing gap between state and federal marijuana laws has created difficulties for bankers and cannabis businesses alike.
"For better or for worse, we're responsible to follow federal law, and so we would very much like to have clarification on this," Tom Barkin, CEO of the Federal Reserve Bank of Richmond, said...
Esther George, who runs the Federal Reserve Bank of Kansas City, added that "the reality on the ground is there are businesses that are considered state-legal around this substance, and the money that is generated from that again, is a challenge for the banks"...
Raphael Bostic, CEO of the Federal Reserve Bank of Atlanta, put the situation into starker terms. Existing federal cannabis laws put banks "in an impossible situation because we don't actually have a vote at either level but are asked to sort of navigate in this middle space," he said.
Finally, that same day, we read a report from New Jersey...
The state's government has not yet passed a proposed bill to legalize recreational cannabis within its borders. But that didn't stop New Jersey Attorney General Gurbir Grewal from making a significant change in the state's enforcement of marijuana laws.
Specifically, Grewal ordered New Jersey state police to stop training dogs to "sniff out" marijuana, effective immediately.
On the surface, these reports appear to have little in common...
But if you can't see a trend developing here, you're simply not paying attention. All across the country, at virtually every level of government, the "tide" is turning.
As we've been saying for months now, legal cannabis is going mainstream. It's now simply a matter of time before it is legalized on the federal level.
New 52-week highs (as of 4/5/19): BHP (BBL), CBRE Group (CBRE), Celgene (CELG), Hershey (HSY), Ionis Pharmaceuticals (IONS), Ingersoll Rand (IR), KLA-Tencor (KLA), McDonald's (MCD), MarketAxess (MKTX), Anglo American (NGLOY), O'Reilly Automotive (ORLY), Rio Tinto (RIO), Starbucks (SBUX), SPDR S&P Dividend Fund (SDY), Vanguard Real Estate Fund (VNQ), and W.R. Berkley (WRB).
In today's mailbag: More feedback on the cannabis "debate"... and two readers weigh in on Whitney Tilson's Tesla short. As always, send your comments and questions to feedback@stansberryresearch.com.
"Doc, your response was 'Right On'! While all reasonable humans can and should accept differing opinions regarding the amount of information that we encounter in today's complex existence, I applaud Doc for his response that was clear and straight forward. I do not like the uninformed questionable 'moral' talk from the subscriber." – Paid-up subscriber Dwight G.
"I don't smoke pot but that doesn't stop me from having an opinion! I'm a [landlord] in the Metro Detroit area. One of my tenants has been growing weed in his garage for years – well before it was legal. The only opinion I had on the matter is this: His rent checks always arrived on time and they cleared. I love weed." – Paid-up subscriber Matt V.
"Whitney is exactly right about Tesla now that the major auto companies are coming out with their own cheaper versions of electric cars. Elon Musk is nothing more than what we used to call a 'Flim Flam Man'. A person who kept diverting your attention off of what was really happening and making you focus on something else, but it's about to finally catch up with him. Think about all the billions of dollars of taxpayer money wasted on the Flim Flam Man's company. Thanks a lot Obama!" – Paid-up subscriber K.S.
"The most eye opening valuation statistic regarding TESLA was a while back when they were selling 35,000 cars a year and the valuation was $35B. The company was valued at $1 million per car produced. Absolute insanity. Maybe it's now 'only' valued at a half mil per car now? Must be a screaming deal!
"Even if they survive, they undoubtedly will run into union issues that plague the other domestic car companies, escalating costs to the point of ruin." – Paid-up subscriber Rick V.
Regards,
Justin Brill
Baltimore, Maryland
April 8, 2019