Pento Portfolio Strategies
MAR 8, 2018
All the lip service paid to an “independent” Fed is just that and no more. Lest we forget, all of Wall St. and the federal government were magically merged practically overnight during the 2008 debt crisis for that always-ready reason: “It’s an emergency, we had no choice!”
The Fed will do what the President tells it to do, ultimately. And the President will tell it to do whatever will improve his reelection chances, other consequences be damned.
We are only a little over one year into the Donald's Presidency and what we know most for sure is that our new President loves debt. Trump played "Let's Make a Deal" with the Lords of the Swamp Mitch and Chuck to increase government spending by 13% over current levels.
We also know that he prefers a weaker dollar, which he hopes will engender balanced trade—along with trade tariffs it now seems. But most of all, he loves as a rising stock market that he views as a report card for the administration and his success.
Much of the economic recovery was predicated on a wealth effect from asset bubbles that is now headed into reverse. The Fed is projected to raise rates 2-4 times this year and will be dumping $600 billion worth of Mortgage Backed Securities and Treasuries at an annual pace come October.
All this will cause stock market volatility to increase and then to fall precipitously. Donald Trump will then be in a desperate search for someone to blame. And the likely scape-goat will be new Fed Chair Jerome Powell. There is a myth that the Federal Reserve stands as its own entity--devoid of any and all political pressures. But the truth is the Fed will eventually acquiesce to anything a President desires.