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Lower For Longer Lives As The Fed Blinks

Published 09/20/2015, 03:36 AM
Updated 07/09/2023, 06:31 AM

The commander must decide how he will fight the battle before it begins. He must then decide who he will use the military effort at his disposal to force the battle to swing the way he wishes it to go; he must make the enemy dance to his tune from the beginning and not vice versa.' Viscount Montgomery of Alamein

On Thursday at 11 am, all eyes were glued on the Federal Reserve to see if they would, after nearly six years at rock bottom, finally raise interest rates. We are not talking about a huge jump either, a pin prick of a raise, 25 basis points. Won't hurt one bit. It will be fine. Could they pull the trigger? And that would be a great big, giant, no, no, no, no, no. NO!!!! Naturally, market participants decided to view this in a negative light, wondering whether global growth is not just slowing down, but maybe dramatically so. The growth question has to be asked, because, if economic activity is increasing and inflation is indeed picking up, the textbook policy play is to raise interest rates. As such, our markets sold off some on Friday because the Fed could not do the deed.

In examining the decision by Mrs. Yellen and the rest of her highly regarded and well educated colleagues at the Fed, it is apparent there are a few main issues. Inflation is not where it needs to be, there is still too much 'slack ' in the job market, and adding a third leg to the stool, global growth is precariously thin. Weakness in emerging market currencies and market volatility in China also helped contributed to the deferment. If you add in the pressure on commodity prices and it's effect on big producers like Brazil, and Canada, among others, it becomes clear the urge to surge went bye bye as soon as China's markets went kaplooey. Throw in the continuing effort by the ECB to bolster European economies through their version of quantitative easing, and you have to think the Fed was also very aware of how different directions in interest rate policy might make markets even more skittish. The bottom line for investors is we are currently in an environment where the glass is clearly viewed as half empty. If interest rates are believed headed higher, markets sell off. When interest rates stay the same, markets sell off. Not good if you are long. Of course, if you are a buyer, lower prices are always sweet. Hmmm, which way are you going? Never mind, I know, you keep the good ideas for yourself.

Anyway, the rest of the news in financial markets was relatively sparse. The biggest event came when Altice NV (AMS:ATCA) announced it would buy Cablevision (NYSE:CVC) for nearly 18 billion bucks. Mr. Drahi's move this week was preceded earlier in the year with the acquisition of Suddenlink for $9 billion. Clearly, Mr. Malone's younger competitor knows how to take advantage of an attractive borrowing environment. Smart move. Still, the logistical implications of combining Cablevision with Suddenlink are going to prove challenging. Of course, you know I am biased. Why might that be? Long time readers know the answer, so maybe take a tour through the archives.

Cracker Barrel (NASDAQ:CBRL) reported earnings which came in on target but guidance and revenues were a bit light. Still, it seems driving long distances through the Midwest and South makes people a little hungry. Imagine that. The next few weeks will probably be somewhat similar to this week, with few earnings announcements as the quarter finishes up. Friday was options expiration so that may have contributed to the volatility a little as well.

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