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OPINION

No Juice

The opinions expressed by columnists are their own and do not necessarily represent the views of Townhall.com.
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Last week began with hope and slight optimism, but it ended with anger and frustration. Ironically, it was the Fed’s decision to keep the punch bowl in place that crushed Wall Street.

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No rate hike!

The inability or unwillingness to move wasn’t seen as a bow to Wall Street and an attempt to prevent yet another hissy fit.

On the contrary, as Yellen threatened to prove her independence with a rate hike, even if conditions weren’t one hundred percent, she blinked the other way.

We learned a dirty little secret-- the punch bowl is empty!

Instead, the Fed is not capable of letting the world know that the U.S. economy is strong enough to move on its own. It was a devastating acknowledgment of the Fed’s own inability to dictate to the market (particularly with its mechanisms that flood money to banks, not people, or small businesses). In reality, those seven years of class warfare, higher taxes, and mounds of regulations may win elections, but it moves the actual needle of prosperity in the wrong direction.

The Fed is trying to clean up its actions with hints at a rate hike before the end of the year, and suggested that it almost happened last week. Despite there being only one dissenting vote, Fed official Williams says the vote was a “close call.” Fed chair Yellen says the Fed is “monitoring developments aboard,” insinuating that it’s not America’s economy, but our connection to the rest of the world. It’s sort of like that old break-up line: “It’s not you, it’s me.”

It’s the Economy, Stupid

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It’s the U.S. economy and weak wage appreciation. The backward prosperity of cheap gas and a strong dollar are not going to spark that virtuous cycle. I have said this all along, and many thought that it was a call for higher gas prices or higher interest rates. In fact, if we are looking for real prosperity, it’s not about an economy where people are being laid-off and where major projects are being shelved. It’s about growth and businesses taking risks and making investments.

The DNA and resolve of the average American who starts and grows small businesses will keep the nation afloat long enough for someone to take office and make America exceptional. Between now and then, I suspect there will be several rate hikes, even with some political trepidation in 2016, which I find interesting. In the meantime, the narrative has changed to Wall Street whining and begging for more Fed accommodation; hoping the rates move higher as a sign that our economic health is okay.

Technical View

The market finished the week almost at the exact same point that it began; the trip higher was slow and methodical, while stocks tumbled lower with the typical thump associated with everyone hitting the exits at the same time. Coming into the week, I felt that it was important for the Dow to close above 16,400; for a while, a close above 17,000 seemed possible. Now, it’s back to defending the Dow at 16,000, otherwise we could see a re-test of the flash crash bottom of August 24.

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Fundamentally, we shouldn’t be talking or bracing for the Dow to dip below 16,000. The overall market valuation isn’t outrageous unless you employ some of these new measures created; I think people should make or remake a name for themselves. Nonetheless, this is an antsy period of real frustration, fear, and a dollop of confusion. In so many ways, it mirrors our political situation.

This is a brief moment in time, it seems to be forever after the market’s march higher, but even that march was interrupted and challenged from time to time. The weaker and more frustrated hands were shaken. Next time, the Fed will hike rates; by then, China will have announced a major stimulus package, and we’ll be a few months closer to potential change that will reward and focus on greatness.

Make sure to keep an eye on oil, which now trades hand-in-hand with equities. Another big drawdown could send the price north of $50, but there are many calls for a 3 or 2 handle, which means trading in the $30s and $20s.


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