TWC App, Chat and Fed analysis

I was always shocked at how big our ratings at Fox Business Happy Hour would spike whenever there would be a major market downturn like there was a few weeks ago. If the $DJIA goes -1000 on the day, you can bet that people would tune in that night to hear my take on the “market crisis” or whatever. The recycled news events and market cycles themselves feel “foolish” a lot. I feel more foolish about having bought $ICON back when it was in the $20s. I hate feeling like a fool at the market, but I usually do feel like a fool at the market, even when I see other people being foolish too.

Don’t forget this week’s Live Q&A Chat at 2pm EST on the TradingWithCody apps for iPhone and Android and on http://twc.scutify.com/members.

I’d probably look to bet that the market will rally intraday if the Fed raises rates. And that the market probably rallies intraday if the Fed doesn’t raise rates. But I’m not a day trader and I’m not planning on making any moves based on whatever the FED does or says today.

The Federal Reserve raising rates from 0% to a rounding error of 0.25% which is still basically 0% doesn’t matter one iota. The forces of below market interest rates forcing investors and savers into higher-risk asset classes like stocks doesn’t change and won’t change until rates get closer to 2or 3%. Anybody out there actually going to make a trade based on what they hear the FED does today?

I hear them say that the reason this next Fed tightening will matter is because it will symbolize how the cycle of easy money has finally flipped and the Fed is indeed in a tightening phase. Well, history will tell you that stocks are more likely to inflate into even bigger bubble-blowing bull market valuations during the first part of a tightening phase.

As I explained in 2010 in an article actually called “Why you must fight the Fed and get ready for a new stock market bubble“:

“There’s an old saying on Wall Street that you ‘can’t fight the Fed,’ but it’s dead wrong. For the last 15 years, you always want to buy when the Fed is getting done lowering rates and sticking around til the Fed starts to lower rates.

In about 1994, the Fed stopped lowering rates and never went that low again for many years, as the overall trend in rates was higher. Meanwhile, the stock market went into a huge bubble by the year 2000. By 2001, the Fed started dropping rates and the markets literally crashed over the next couple years. By 2003, the Fed was done lowering rates and we once again went into an environment of rising interest rates — and the stock market doubled over the next three years.

By 2010, we’re done lowering rates and easing. We’ll likely see the overall trend in interest rates rise over the next few years. And I do think the most likely scenario is, indeed, for a booming or even a bubble in the stock market again.”

See just because the Fed might finally be about to start tightening and raising rates, well, there are still all kinds of longer-term forces and ramifications from all these years of below market rates, I explained in 2014:

“With continued cheap money for corporations, margin-enhancing policies from the government at all levels and 0% rates still forcing savers into risk assets etc, I expect we still have more bubble-blowing bull market ahead of us. By the time the Fed finally acts to “tighten,” the bubbles will likely be much bigger than they currently. Important to remember too, is that the bubbles will actually probably continue to inflate even after the Fed starts to tighten.

You can’t flood the corporate economy and force savers into risky assets like stocks for years on end and then contain the effects of those policies by cutting back on your pumping. Jawboning the end of excessive, emergency liquidity measures isn’t going to change anything, though it will likely give you a small-term market correction if and when the Fed finally ends all forms of qualitative easing.

Zero percent interest rates are going to inflate huge asset bubbles and especially stock market bubbles — as I’ve been saying for five years now. And 1% will still cause bubbles. Maybe a 2%-3% Federal Funds Rate might start to draw money out of the markets and shift inflation down to a lower gear. So until the 0% interest rate itself is actually being raised, you want to keeping trying to ride the bubbles being blown all around you.”

So let’s say the Fed does suddenly get serious about raising rates to 1% or even 2%. There’s always a lagging effect to monetary policy, not to mention unintended consequences, Fog of War and Black Swans, currency effects and so on. The simple and probably right analysis is to see that the entire RepublicanDemocrat Regime remains focused on maximizing corporate profits, protecting and subsidizing giant corporations and banks, as meanwhile Main Street and the consumer are finally starting to see their own fortunes improve.

You don’t have to try to game Fed meetings. Your brokers and the traders on TV might try to make you think otherwise, but you’re just guessing how other people are going to react to a headline event.  As I wrote back in 2011:

“It’s true that people actually trade off these types of headlines.  But we don’t have to, and therein lies much of our advantage — we can and do ignore the noise:
Bernanke lowers growth forecast
Fed lifts 2011 inflation view
Fed policy, promise intact

Look, what we do know is that the Fed’s got interest at below market levels and that they’ve infused trillions of dollars into our banking system in the name of stimulating the economy.  We know that the Fed is always late to the trend. The economy’s stronger than those idiots at the Fed realize too…and more importantly to us as traders, the fundamental earnings are through the roof and seem to be accelerating.  Which is also exactly what we’ve been setting our portfolio up for too.  We also know that the Fed’s 0% rates are forcing savers into the stock market and into other riskier assets…and that is again, why I expect we’ll eventually hit new all-time highs in the DJIA and that many of our App Revolution and Cloud Revolution stocks will eventually not just go up big from here, but will eventually bubble like it’s 1999.”

The DJIA was at 12,800, Apple was at $50 and Facebook wasn’t even public yet when I wrote that paragraph above there. I’m not nearly as wildly bullish about the stock market in 2015 as I was in 2011 when I wrote that and was loading up on tech stocks. That’s okay too. I don’t have to be wildly bullish or wildly bearish at any given moment. I can let my analysis drive my conclusions and let my playbook help me figure out what to own and why. On that note, I’d been buying some Wearables Revolution stocks like Ambarella, GoPro and Fit last week that I think will be headed much higher in coming years, no matter what the Fed says or does tomorrow and no matter whether the bubble-blowing bull market is over or not.