A Warning From the Federal Reserve
A warning from the Federal Reserve... Is the 'Fed put' no more?... Things are going from 'bad' to 'worse' for GE... The 2018 Stansberry Conference is here... How to join us in Vegas without ever leaving home...
Did the Fed chairman just send a warning?
In yesterday's Digest, we noted that there were no big surprises in the Federal Reserve's latest policy decision.
The Fed raised short-term interest rates again as expected, and Chairman Jerome Powell confirmed that the bank remains on track to continue gradually raising them further as planned.
However, while reviewing Powell's post-meeting press conference last evening, we noticed something we initially missed... a subtle hint that could represent a significant departure from decades of Fed policy.
But first, a little background...
Longtime readers may be familiar with the so-called 'Greenspan put'...
The term was coined in early 2000 for then-Federal Reserve Chairman Alan Greenspan's tendency to cut interest rates at the first sign of financial market turmoil. Like an equity put option that can
It has since become known more generally as the "Fed put," as Greenspan's successors have followed his lead. Ben Bernanke, of course, was responsible for slashing interest rates to 0
Today, most folks naturally assume that Powell will continue this tradition. When the market inevitably suffers its next big correction, the Fed will halt its rate hike cycle... and possibly even begin to cut rates again.
After all, it has been the Fed's "modus operandi" for 30 years. And we've heard nothing tangible from Powell to suggest he wouldn't do the same.
Until yesterday, that is...
About halfway through Powell's question-and-answer session, we noted the following exchange...
Journalist: Mr. Chairman, I'm wondering if you can talk about what plausible risks would make the committee go faster in 2019, and what risk would make them go slower?
Powell: The main thing where we might need to move along a little bit quicker would be if inflation surprises to the upside. We don't see that. We really don't see that. It's not in our forecast. But I would regard that as a risk.
[Regarding slowing down or halting the rate hike cycle,] I think either a significant... a significant and lasting... correction in financial markets, or a slowing down in the economy that's inconsistent with our forecast. Those are the kinds of things that we'd react to.
Now, we have no special insight into Powell's intentions...
But to our ears, he took special care to emphasize the words "and lasting." This suggests that the Fed may be more willing to allow normal market corrections to play out in the future, rather than reacting to every 15%-plus
In other words, investors may soon discover that the "Fed put" is no more.
This would be far healthier for both the markets and the economy in the long run, but it could create some serious volatility as investors wake up to a new reality.
In other news, the problems for former blue-chip darling General Electric (GE) continue to mount...
Regular readers will recall Porter reviewed the bearish case for GE back in January.
When we last checked in on the troubled firm in June, it had just been booted out of the Dow Jones Industrial Average after more than 110 years. Shares were trading near a nine-year low below $13 per share.
Unfortunately, the news for GE shareholders has only gotten worse since...
Last week, shares plunged following reports of problems in its GE Power division. As Bloomberg reported...
A glitch with one of General Electric Co.'s marquee products is raising new alarms on Wall Street, even as the company says the problem is under control.
GE will need to repair dozens of gas-power turbines across the globe in the coming months after uncovering an oxidation issue affecting the high-end machines. While the problem was discovered earlier this year and communicated to customers, the matter gained urgency in recent weeks after an incident prompted utility Exelon Corp. to temporarily shut down two power plants.
A new headache is the last thing GE Power needs as it deals with weak demand and shrinking market share, JPMorgan Chase & Co. analyst Steve Tusa said in a note. "This is not only an earnings issue for Power – with a potentially significant tail that is not one-time in nature if not remedied expeditiously – but also impacts the franchise value."
While it's hard to determine how severe the problem is, Tusa said, a new bug is a big setback for "a company that has little wiggle room for more shoes to drop."
GE shares have shed more than 60% of their value over the last two years and are now trading below $12 for the first time since the financial crisis.
Finally, as you've likely heard by now, the 2018 Stansberry Conference and Alliance Meeting kicks off on Monday...
This year we'll be meeting at the gorgeous Bellagio Resort & Casino in Las Vegas, Nevada. And we've lined up what may be our best group of presenters yet, including...
Steve Forbes, editor-in-chief of Forbes... Jim Grant, founder
Of course, attendees will also hear from Porter, Steve Sjuggerud, Doc Eifrig, and the rest of their favorite Stansberry Research editors, as well.
Unfortunately, tickets to this event sold out weeks ago...
And frankly, we know that for many readers, it's just not practical to make the trip.
But I (Justin) would like to remind you that you can still get all the benefits of being with us live in Vegas, without the expense and hassle of traveling there.
We call it our "Online All-Access Pass."
With this pass, you can watch every presentation – live and in high definition – from the comfort of your home or office. And this year, we've made it better and more affordable than ever before. You can even claim a $500 Stansberry Credit just for registering.
If you've ever been curious about the Stansberry Conference, there has never been a better time to experience it all for yourself. I guarantee you won't regret it. Click here for all the details.
New 52-week highs (as of 9/26/18): Koninklijke Philips (PHG) and Roku (ROKU).
A quiet day in the mailbag. As always, send your questions, comments, and concerns to feedback@stansberryresearch.com. And if you'll be joining us in Vegas next week, be sure to say hello.
Regards,
Justin Brill
Baltimore, Maryland
September 27, 2018