Is the Fed Getting Hawkish?
The Federal Reserve hikes rates again... Is the Fed getting hawkish?... Powell spooks the market... Sjug's favorite 'New China' recommendation continues to dominate...
Today, the Federal Reserve hiked interest rates again...
During its March policy meeting – the first meeting under new Chairman Jerome Powell – the Fed voted to raise the short-term "fed funds" rate another 0.25 percentage points to a range of 1.5% to 1.75%. Short-term rates are now at their highest level since August 2008. And the Fed also said it expects to raise rates two or three more times this year.
None of this was unexpected...
However, we did see indications that the Fed is becoming more "hawkish" – or in favor of tighter monetary policy – than it was under previous Chair Janet Yellen. As the Wall Street Journal reported...
Compared with December, more officials think they will need to raise interest rates at least four times this year if the economy performs in line with their expectations. Some seven of 15 participants now expect at least four rate increases this year, an increase from four of 16 participants at the December meeting.
Most Fed officials also expect the Fed would need to raise rates at least another three times next year. At the December meeting, officials projected around two increases would be needed in 2019...
Officials marked up slightly the estimate of interest rates they expect to prevail over the long run, to a range between 2.75% and 3%. Because they now expect a slightly more aggressive path of rate increases in the coming years, this means more officials now anticipate they will need to tap harder on the brakes to cool down the economy after next year.
In short, the Fed now believes inflation is likely to rise faster than previously expected...
Which means rates will need to rise faster than expected, too.
Stansberry NewsWire analyst C. Scott Garliss shared his team's thoughts on the news in a private e-mail this afternoon...
The Fed stated real GDP growth is stronger, unemployment is lower, and inflation is higher. It said its economic outlook has strengthened, and it felt the chances of a recession were subdued.
The Fed's "dot plot" – its future rate path outlook – release wiped out the market's early euphoria. For 2018, the Fed was one governor short of having the forecast for 2018 move to four rate hikes from three. Given the Fed's improved outlook for the economy, that is something that could easily happen by the next policy meeting. For 2019, its outlook for rate hikes moved from two rate hikes to three.
The Fed's post-meeting press conference also took on a very hawkish tone. It almost felt like Powell was disappointed that the median expectation for this year didn't go up. This very much had the feel of his testimony in front of Congress last month. He believes inflation is headed higher.
Scott also shared some potential "winners" and "losers" as the market digests this news...
Financials should be the most direct beneficiary, as rising rates imply higher net interest margins – the difference between where they borrow and where they lend.
But this news could be a headwind for the U.S. tech sector.
Higher rates will drive up their future costs of funding. Look at the sharp divergence in technology versus the move higher in financials. Telecom, utilities, and REITs could also suffer as they're anti-yield plays. And consumer staples could also see selling pressure as rising inflation could lead to higher costs.
The market initially rallied following the Fed's announcement. But it turned lower during Powell's remarks, and all three major U.S. indexes closed in the red.
We continue to expect more volatility ahead. Stay long... but stay smart.
Scott and his colleagues provided real-time coverage of the Fed's interest-rate announcement today via the free NewsWire app. Every day markets are open, NewsWire gives readers in-the-moment updates on key market-moving news and events. To download their app and keep tabs on what they're writing about, click here. And again, this real-time news service is absolutely FREE.
Elsewhere in the market, this morning brought more great news for Steve Sjuggerud's subscribers...
If you've been with us for long, you know Steve has been practically begging folks to buy Chinese stocks since 2016.
At the time, Steve foresaw not one... not two... but four massive trends that could push shares hundreds of percent higher over the next several years.
The most exciting of these was the rise of what Steve dubbed the "New China" economy... a dramatic technological revolution being led by a small group of homegrown Chinese companies.
Even then, this trend had already changed many parts of China's economy in ways many Americans wouldn't believe. As Steve noted one year ago, in the March 2017 issue of True Wealth China Opportunities...
You can call it e-commerce, the Internet, or the "New China" economy. Whatever you call it, it's changing the day-to-day life of Chinese citizens. And it's completely reshaping China's overall economy.
Honestly, this is what blew me away when I visited China last summer. And while we launched China Opportunities to take advantage of several trends, the "New China" economy is the most exciting.
The integration of technology into everyday life in China is remarkable... In major cities, the Chinese use their phones for everything: entertainment, banking, paying for goods and services, and just about everything else. This trend is unstoppable... [These New China companies] are no-brainer long-term investments.
Regular readers know Steve was especially bullish on one New China company in particular...
Of course, we're referring to Tencent (TCEHY), which Steve has recommended to both his True Wealth and True Wealth China Opportunities subscribers.
In fact, Steve not only predicted this Chinese tech firm – which was virtually unknown to everyone outside of China – would absolutely soar over the next several years. He also predicted that it would eventually surpass household names like Amazon (AMZN), Alphabet (GOOGL), and Apple (AAPL) to become the world's largest company. As he explained in the April 2017 issue of True Wealth...
Tencent owns all the "eyeballs" in China. It owns your screen time.
For better or worse, your mobile phone is your main source of entertainment in China... This is where folks spend their time. Tencent dominates China's social networks. But its reach goes beyond that...
Tencent is also the world's leader in electronic gaming, based on sales. And gaming continues to be the company's largest growth engine.
I'm barely scratching the surface here on this exciting story. All you need to know is this: Tencent owns the most valuable thing in the world – users' time... specifically, hundreds of millions of users in China.
And Tencent's commanding control of screen time is why I predict it will become the world's largest business (by market value) within the next five years.
Steve's bold call has been exactly right so far...
Tencent shares are up triple digits since his initial recommendation. Meanwhile, the company – which wasn't even among the 10 largest in the world at the time – has already grown to No. 5 today.
But if Tencent's latest earnings announcement is any indication, Steve's forecast may prove too conservative.
You see, despite its incredible growth to date, Tencent continues to grow at an astonishing rate...
The company said revenue grew by 51% in the final three months of 2017, while net profit nearly doubled to 20.8 billion yuan ($3.29 billion) year over year. Wall Street analysts had expected just 16.6 billion yuan.
More important, the company is continuing to invest for future growth in the New China economy. As the Journal reported this morning...
Tech titan Tencent Holdings indicated it was doubling down on investments in China's mobile-first world to ensure it remains a central presence on the smartphones carried by nearly 800 million Chinese users.
Tencent executives signaled they remained bullish on investments in video, artificial intelligence and mobile payments. "Many of the current achievements are really results from investments we made years ago," said Tencent President Martin Lau at a Wednesday press conference...
True Wealth subscribers are officially up 110% through yesterday's close, while True Wealth China Opportunities subscribers are holding gains of 124% to date.
But Steve remains bullish. He believes there's still plenty of
Kudos to Steve
New 52-week highs (as of 3/20/18): CBRE Group (CBRE).
Praise and contempt in the mailbag today. Send your notes to feedback@stansberryresearch.com. Good, bad, or ugly... we read them all.
"Thank you, thank you, thank you, I've been asking for [an explanation on short selling] for
"I'm glad to finally have this other tool in my
"I keep learning so much from you all, sometimes it gets a little overwhelming if I got
"Dear Mr./Ms. LAF, while being invited to present at the Jim Grant conference is a huge achievement and worth many kudos, it is not even close to finding what you called 'the pattern of the primes.' The Riemann Hypothesis is the mathematical challenge of many
Regards,
Justin Brill
Baltimore, Maryland
March 21, 2018