8/2/2019 Weekly Update: When Doves Cry A Fickle, Fickle World

8/2/2019 Weekly Update: When Doves Cry A Fickle, Fickle World

by Zach Marsh on Aug 8, 2019

Weekly Recap                                                                        

S&P 500                -3.11%

10 Year Treasury   +1.56%

Gold                        +1.73%

Volatility                +46.6%


Weekly Update: When Doves Cry A Fickle, Fickle World

According to Google, the use of the word fickle has declined 50% from its highs in the 1850’s.  Beginning at the turn of the 20th century, fickle’s popularity began a sharp decent, bottoming around 1980—63% below its highest popularity.  Since 1980, the use of the word has begun trending higher.  Fickle, as it seems, is quite fickle.

Another fickle lot is the stock market.  On Wednesday, the Federal Reserve lowered interest rates by 0.25%; many market participants were hoping for a full 0.50% reduction.  After trading modestly lower in the immediate aftermath, the market began to sell-off with greater magnitude when Chairman Powell referred to the cuts as, “a midcycle adjustment.”  While this may seem quite benign to the average reader, the market decided to throw a hissy fit, with the Dow dropping over 300 points at one stage.  The market, it seems, was not pleased at the notion of this being a “one and done” rate cut.  To most people the idea that this cut is a small tinkering to keep the economy on track, rather than a cut to prevent the market from flying off the rails, should be viewed as a positive.  I mean, surely its better to have a midcycle cut, like one made in 1995, than a reactionary cut to negative economic headwinds like we had in 2007.  But, alas, this is a fickle market, and just like Prince’s mother, she’s never satisfied.[1] 

However, the market seemed to brush aside its disappointment, and by mid-morning Thursday, it gained some perspective and recouped its initial post-announcement losses.  That is, until the Trump tariff tweet; which, as of the time of this writing, has sent the market down roughly 3%.  Much of the mystery of the Trump presidency is the intriguing question about whether much of what he does is purely emotional or is it part of some greater strategic thinking or plan.  One’s take on that matter probably has much to do with how one views the man.  On this particular point I will say the timing of the President’s tweet seems a bit curious.  Trump, himself, had strongly advocated a full 0.50% rate cut.  In fact, just a few hours after Powell’s news conference, Trump tweeted “Powell let us down.”  Then, only a half day later, he announces that the U.S. will raise tariffs 10% on an additional $300 billion of Chinese imports.  The tweet may have sent the stock market down 3%, but it sent the odds of an additional rate cut at the next Fed meeting skyrocketing.  So, if his goal is to push interest rates lower, depressing the value of the U.S. dollar to improve U.S. exports, then his tweet would seem more strategic than emotional reaction. 

The new world order, post-financial crisis, has all been about pushing borrowing rates as low as possible.  Devaluing one’s currency as a means to improve one’s competitive edge in the global economy.  While the U.S., on the back of the world’s strongest economy, tried to lead the march back to a normal rate environment; its march got interrupted by sputtering European, Japanese, and Chinese economies.  Trump has long argued that many of the U.S. trade partners have been manipulating their currency for strategic advantage, now it seems he is attempting to push the dollar down.  Trying to force the Fed’s hand to lower rates and, by proxy, devalue the dollar, by pushing the trade war envelope can have a negative reaction.  Should he push too far we risk a longer and deeper war, which will severely threaten global economic growth.  The advantage that Trump’s foreign adversaries have is that most serve indefinitely, therefore time is on their side.  Trump, on the other hand, needs the market to maintain its march higher if he hopes to get re-elected, Xi does not.  As investors we should all hope Trump is not like Prince’s father, too bold and too demanding, and that his gamble doesn’t prove a long term detriment to the economy or the market.   

Thanks for reading,

Zach and Dave

Calibrate Wealth






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[1] I’m referring to the artist not Prince William, Harry, or Charles.  “When Doves Cry”