The Market has bought the “Economy is Good” Story
Yellen is in a corner.
The economy is chugging along but is no great shakes. The first quarter GDP is estimated to rise only at 1.2 % based on latest figures. The things she is saying now, that employment and inflation numbers are meeting their goals are a good explanatory cushion for the Fed changes coming .
But She has to Act
The Trump administration is a House of Surprises and she does not want to risk getting caught in something totally out of the box.
What do we Think Here?
The markets are buying the “economy is good” story. So it may have a problem. It could mean that a Fed rate rise, while not a big deal in a well managed economic program where rates under 2.5 % are supposed to be temporary (maybe a year or less in bad situations) could end up being a big deal.
Interest Rates heading back to More Normal Levels
In the bigger long term sense rates heading back to more normal levels will be a good thing, savers can start getting their share of the pie. We are still in the camp of seeing discretionary retail spending in decline and will be watching retail sales, including auto’s and restaurants closely over the next few months. Truck sales should hold up for a while as the Trump crowd is in a stage of gearing up to increase supply of products that will eventually run into a weak consumer demand reality.
What about the Bullish Consumer Sentiment Indexes?
In our view various measures of consumer sentiment currently seem to be following a dog chasing its tail syndrome, with the Stock Market being the bait.
The Tracking Funds are Telling a Story
Our two Marketocracy tracking funds, the EXTH (Trump program failure fund) and ECT (Trump Success Fund) have seen their performance lines crossing each other 3 times since January 11 as nothing definitive has occurred yet. At the moment they seem to be headed to another crossing, with EXTH a little bit below ECT but with ECT pointed down and EXTH pointed up.