Is Fed Money Going from Easy Money to Tight Money?

Mark Skousen

Mark Skousen, Ph. D., is a professional economist, investment expert, university professor, and author of more than 25 books.

“Don’t fight the Fed!” — Maxim of Wall Street

Since the financial crisis of 2008, the Fed has adopted a three-pronged easy-money policy:

  1. Increase its balance sheet by purchasing and holding $4 trillion worth of Treasury securities and mortgages;
  2. Sharply reduce interest rates to practically zero; and
  3. Expand the supply of money (M2) at 6-8% a year.

The Fed kept these easy-money policies in place until 2016. Now, we are seeing a gradual shift in policy:

  1. The Fed minutes, released April 5, revealed that for the first time the Fed will begin selling off the majority of its Treasury and mortgage securities. The stock market sold off on the news.
  1.  Since late 2015, the Fed has begun to raise (deregulate) short-term interest rates, and has promised to raise rates two or three more times this year.
  1. The supply of money (M2) is still growing at 5-6% annual rate, slightly less than the past 6-8% rate.

So it is clear that the Fed is reversing its super-easy-money policy, but not drastically.

According to the Fed minutes, several Fed officials were concerned that the stock market is overvalued. No doubt much of the easy money has gone into the market, and by many measures it is fully valued, if not overvalued. The S&P 500 is selling for 20 times trailing earnings and 18 times prospective earnings. That’s high compared to the long-term average price-to-earnings (P/E) ratio of 16.

Fiscal policy also might improve if the much anticipated tax cuts and deregulation are passed by Congress.

In sum, stocks actually can move higher if interest rates and inflation stay relatively low, along with the factors of cheap energy and an improving economy. Moreover, there’s still a lot of skepticism about this market and lots of cash on the sidelines. I will remain 100% invested in the market until I see the Fed adopt a super tight monetary policy. So far, that hasn’t happened.

In case you missed it, I encourage you to read my e-letter from last week about how more people are now on Medicaid than Medicare.

Exclusive  Daily Data Flow: Normal Open Tomorrow; Global Shares See Modest Rise

You Blew It! Cable News Ignores Real Issues

Cable news channels such as Fox, CNN and MSNBC, as well as publications like The Huffington Post, like to go on and on about replacing Obamacare, Russia’s attempts to interfere with U.S. elections, Trump’s tweets and his border tax proposal. However, to me, these issues are trivial compared to the 32 million Venezuelans now starving, subject to violence, deprived of their rights, becoming political prisoners and at the mercy of a one-man rule.

Apparently, the media have adopted the view of Henry Kissinger, who once said that “nobody cares about Latin America.” Let’s reconsider that misplaced perception.

I watch a lot of cable news and I’m amazed at how so much time is wasted on trivia, while serious news is ignored. In the past week, I read in the New York Times (yes, the New York Times!) how Venezuelans are starving and losing their freedoms… and that the Jehovah’s Witnesses are being treated as terrorists in Russia and forced to leave the country… yet the TV news is silent on these issues.

Last week, the New York Times recognized both of these crises by addressing them on the front page. It ran two front-page stories on Venezuela, reporting that President Maduro in Venezuela has just dissolved the legislature, taken over the nation’s Supreme Court and the military, sent scores of political prisoners to jail without trial, violently repressed protestors and “swiftly consolidated power” into a virtual dictatorship.

The Economist magazine reported that Venezuela went from the richest country in Latin America in 2000 to the one of the poorest in 2017, within a mere 17 years. It is scary what full-blown Marxism-Communism can do. Adam Smith said “There is much ruin in a nation,” and the Marxist regime of Chavez-Maduro that has ruled Venezuela for the past 17 years is proving it.

Exclusive  Trump's Election Causes Equity Rotation

This all reminds me of Castro’s Cuba and Lenin’s/Stalin’s Russia — and look how long these communist regimes lasted – for more than two generations.

Will the U.S.A. come to the rescue of freedom lovers before it’s too late? Too bad the military is in the hands of the Madura regime — a military coup may be the only answer. But alas, where is the Pinochet of Venezuela?

The dire situation in Venezuela will be one of the main topics of our Global Economic Summit and our Latin American panel at FreedomFest — “Capitalism vs Communism: Who’s Winning the Battle of Ideas?” Apparently the Marxist communists are winning in Latin America! See this https://drive.google.com/file/d/0BwODMC7RAeoYYXVqcC1ZT1JuV28/view.

You get the truth and what’s really going on in the world at FreedomFest. As Steve Forbes says, “FreedomFest is the gold standard of conferences. It is where the best and brightest meet and decide the best policies to pursue. I attend all three days and wouldn’t miss it.”

To register, go to www.freedomfest.com, or call toll-free 1-855-850-3733, ext. 202.

Upcoming Conferences

Every year, I am invited to address the Los Angeles chapter of the American Association of Individual Investors (AAII). This year, I’m speaking on Saturday, April 15, Tax Day, on the new topic, “How to Maximize Your Profits and Minimize Your Taxes.” The lecture, plus question and answer, is 1 hour, 15 minutes, so there’s plenty of time to get detailed advice and have your questions answered. The other speaker is Richard Barnett, chief investment officer of Northern Trust, who manages billions of dollars. The meeting starts at 9 a.m. at the Skirball Cultural Center in Los Angeles. Barnett speaks first; I speak at 11 a.m. To sign up, email the AAII program director Fred Wallace at fredwallace77@gmail.com. The price of admission is $12 at the door.

Exclusive  Daily Data Flow: Stocks Decline; Dollar Falls; Why Cyclicals Will Sizzle for Investors This Summer

Las Vegas Investment Club, April 18, Orleans Hotel: I’ll be speaking at the Club meeting on Tuesday, April 18, about the Trump Agenda and how it will affect your business and investments. Also speaking is Dr. Bo Bernhard, PhD executive director for International Gaming Institute. For more information on attending, go to http://lvinvestmentclub.com.

MoneyShow Las Vegas, May 15-18, 2017, Caesars Palace: I will be moderating an opening ceremonies panel on “Trump and Your Portfolio” with Steve Forbes, Steve Moore and Wayne Allyn Root. Plus, join us for a luncheon and a breakout session, “Yellen at Trump!” Other speakers include Mike Turner, Jeffrey Saut, Jim Stack, Pamela Aden, Marilyn Cohn and Matt McCall. I hope to see you there. To register free as my guest, call 1-800-970-4355 or 1-941-955-0323 and mention priority code 042818. Click here if you prefer to sign up online.

 

Like This Article?
Now Get Mark's FREE Special Report:
3 Dividend Plays with Sky-High Returns

This newly-released report by a top-20 living economist details three investments that are your best bets for income and appreciation for the rest of the year and beyond.

Get Access to the Report, 100% FREE


img
previous article

Consumers aren't the only ones feeling good these days. Benchmark ETFs saw some "Yuge" gains recently during Q1 2017.

PREMIUM SERVICES FOR INVESTORS

Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen publishes 5 different investment newsletter advisories, including the award-winning Forecasts & Strategies, which has beaten the market over the last 15 years.

Product Details

LEARN MORE HERE

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays. Bryan's four newsletter and trading services include:

Product Details

LEARN MORE HERE

Nicholas Vardy

A Stanford and Harvard Law graduate, Nicholas Vardy scours over 40 different global markets every day to uncover new profit opportunities for subscribers. His 3 advisories and trading services include:

Product Details

LEARN MORE HERE

Jim Woods

A 20-plus-year veteran of the markets, Jim Woods has varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor.

Product Details

LEARN MORE HERE

Bob Carlson

In Bob's monthly newsletter, Retirement Watch, he provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

LEARN MORE HERE

Mike Turner

Mike’s financial, mathematical, computer science and engineering background serves as the foundation for his disciplined, rules-based approach to trading. Mike’s three services include:

Product Details

LEARN MORE HERE

DividendInvestor.com

Used by financial advisors and individual investors all over the world, DividendInvestor.com is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

LEARN MORE HERE

DividendYieldHunter.com

Editor Tim McPartland has published Dividend Yield Hunter since 2006. His web site features three model dividend portfolios along with timely income investing alerts.

Product Details

LEARN MORE HERE