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Date: September 16, 2020

Fed Day – Will Bears Join the Party?

Today is yet another conclusion of the Fed’s two-day meeting where nothing major is being anticipated. Sure, it’s the first meeting since Jackson Hole where Powell offered a change to the Fed’s 2% ceiling on inflation, but I only expect additional details that do not move the markets nor the economy. The Fed has done a lot, extraordinary measures. And they created the longest runway in history before rates will be hiked again. But remember, meteorologists have better track records than the Fed does at forecasting the economy.

Bernanke, Yellen and now Powell have begged and pleaded for inflation to return for more than a decade. They have been stuck inside their idiotically small boxes that told them QE and low interest rates would increase inflation. They were tragically wrong and the U.S. economy has been paying the price. Inflation is not about too much money in the system if that money doesn’t want to leave its home. Look at Japan since 1990. It’s an epic central bank failure.

Anyway, we will hear from the Fed and Jay Powell in a few hours. Stocks used to rally on the news. Powell ended that free lunch. I like to sit and watch gold, bonds, the dollar and the Russell 2000 in the minutes after the announcement at 2pm and then during the uber boring press conference.

As you know, I have been a bit worried about stocks in the short-term. The market is not behaving well. The Fab Five Plus mega tech stocks look worse and it looks like there is more downside ahead unless the bulls immediately make me wrong and rally 3-5%. Tech looks like it has at least another 4-6% on the downside, however, the longer tech go hold on without breaching last week’s lows, the less the decline should be.

I continue to like how leadership has broadened out as tech has taken a step back. That’s good over the intermediate-term. If banks and/or energy ever got moving, the bull market could get really fun. Few are positioned for that.

Paul Schatz, President, Heritage Capital
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Paul Schatz, President, Heritage Capital