Here we are again!
As we expected, the Fed cut rates another 0.25% yesterday after changing just 15 words from their last statement, essentially indicating that Business Spending has slowed down to justify the completely unneccessary cut. “*We took this step to help keep the U.S. economy strong in the face of some notable developments and to provide insurance against ongoing risks*,” [Powell told reporters](https://www.bloomberg.com/news/articles/2019-09-18/fed-makes-second-straight-rate-cut-splits-on-further-action?srnd=premium). So, apparently, we've gone from a "*data-dependent*" Fed to one that now uses psychic powers to react to trouble before it even happens?**
Powell said “Weakness in global growth and trade policy have weighed on the economy” but does that mean he will RAISE rates if Trump makes a deal with China? Powell can't win so he shouldn't try to please Trump, who immediately tweeted about the Fed Chairman: “No ‘guts,’ no sense, no vision!” for not giving the President the negative rates he demanded just last week.
Powell left the door open to “a more extensive sequences of cuts” if needed, but stressed this was not what officials expect. Instead, he described the situation as one “which can be addressed and should be addressed with moderate adjustments to the federal funds rate.” Updated quarterly forecasts showed officials split over the need for rate cuts this year. Five didn’t want to move. Five saw a quarter-point reduction warranted, while seven saw 50 basis points of easing needed by year-end — half of which was delivered on Wednesday.
As you can see from the Fed's projections, we're wrapping up Trump's Presidency (hopefully!) with barely 2% GDP growth and an uptick in unemployment while the fiction of low inflation is being maintained and keep in mind that if inflation is 2% and the economy is growing 2% – then the economy isn't growing at all – things are just getting more expensive while we produce the same amount of stuff. To some extent, that's to be expected in a mature economy but we do have 1% population growth so really 3% growth with 2% inflation should be the minimum we shoot for.
I discussed the Fed and the overall economy with Kim Parlee on Money Talk last night, so here's that segment:
Given all those concerns, as we noted in yesterday's PSW Report, we are moving to CASH!!! in 4 of our 6 Member Portfolios, including the Money Talk Portfolio we tracked on that BNN show for 2 years, our Options Opportunity Portfolio which we tracked over at Seeking Alpha and our main, paired Long-Term and Short-Term Portfolios. Our Hemp Boca Portfolio is very new so we're keeping that one active and our Butterfly Portfolio is like the Honey Badger – it could care less what the market does – it just keeps making money!
You can view the Money Talk Portfolio HERE, as we did our final review yesterday and, to summarize, the IBM trade we like into Jan, 2021 is (adjusted for today's prices):
Buy 50 IBM 2021 $120 calls at $25.60 ($128,000)
Sell 50 IBM 2021 $135 calls at $16.50 ($82,500)
Sell 20 IBM 2021 $130 puts at $11 ($22,000)
That's net $23,500 on the $75,000 spread so $51,500 upside potential on our 2019 Trade of the Year and yes, we originally took the position at net (if it were 50/20) $1,750 so we're already up $21,750 (1,242%) on cash but $51,500 is still up another 219% gain on $23,500 – so it's still a good trade and, more importantly, we have CONFIDENCE that IBM will hit it's mark. The ordinary margin requirement of the 20 short puts is $32,469 so we're using just a little of our cash and a little of our margin to pop our entire $124,000 cashed out portfolio another 41% by Jan 2021 if all goes well. We could take the whole year off and still make good money!
Meanwhile, though the market is getting a little lift today thanks to low rates, the Organization for Economic Cooperation and Development (OECD) has dropped its global growth forecast from 3.6% to 2.9% in 2019 and is predicting only 3% next year as well as the damage from the Trade War begins to show up in the Global Economy. The OECD said that the global economy risked entering a new, lasting low-growth phase if governments continued to dither over how to respond.
“What looked like temporary trade tensions are turning into a long-lasting new state of trade relationships,” OECD chief economist Laurence Boone told Reuters. “The global order that regulated trade is gone and we are in a new era of less certain, more bilateral and sometimes assertive trade relations,” they added.
As I said in yesterday's Live Trading Webinar, if we don't complete a trade deal with China in October (doubtful), then even the positions I deemed "keepable" from our portfolios should be treated with great cautions. On the whole – I'm very glad to be sitting this one out!