Selloff in equity futures, Asian markets continues

Main Reasons for this selloff are as follows:

1. Traders and fund managers with a shorter-term time horizon don't see any positive fundamental events in the next 30 days that are big enough to keep the market going up, and so they're selling and cashing in big gains since the stock market made a low back in August. Trump's infrastructure program is viewed as very positive but is now also expected to be about the same size as the market expected late last year, and so it is already priced into the market. Short-term fundamental news has become slightly bearish because the jobs report last Friday showed slightly higher wage inflation over the last 12 months than expected.

2. The Fed made two significant mistakes in the last two weeks: a) Atlanta Fed bumped up the forecast for first quarter GDP way too quickly all the way to over 5% and didn't give the financial markets time to adjust to a big surge in economic growth. b) the FOMC meeting statement released last week was significantly more hawkish than the previous statement, and that increase in hawkish language was completely unnecessary and signaled to the markets (incorrectly) that the Fed could get more aggressive about interest rate increases than is currently expected.

3. Uncertainty connected to the Tax Reform bill: There hasn't been a big corporate tax cut combined with a big personal tax cut since the 1980s, and thus market participants aren't sure exactly how the tax reform bill will affect the economy and don't really know how to price in the impact of the tax reform bill. Some of the areas of uncertainty:

a) How much will the corporate tax cut increase investment that improves the productivity of workers and keeps inflationary cost pressure under control?

b) How much will companies increase stock dividends and stock buybacks using the US tax savings and repatriated cash?

c) Is the personal tax cut going to spark a big sudden increase in personal spending that could lead to inflationary price increases, or will consumers use the tax cut more to pay off debt and increase savings?

4. High-frequency trading systems are making the stock market move too fast and are not giving human investors enough time to evaluate the economic and corporate fundamentals and make good decisions, and thus some human investors are selling, raising cash levels, and going to the sidelines until volatility declines and they have some time to figure out what they want to do next.

5. One-time, deferred profit-taking by individuals who delayed selling stocks until 2018 to get the lower tax rates on short-term capital gains.

The Trump Administration and the Fed need to calm the markets now. One of the Federal Reserve Bank presidents who frequently talks to the business news media needs to calm the markets tomorrow morning before the market opening and talk on television about a few subjects:

1) Price inflation is not a big concern at this time for a few reasons:

a) There's ample labor supply in the US economy because while the headline unemployment rate is low, the labor participation rate dropped substantially during the Great Recession and there are still large numbers of discouraged workers in the 18 to 60 year age group who can rejoin the labor force if they can get jobs. Many of them will need job training, and business and government need to work together to expand and improve job training programs. So uncontrolled wage inflation is not a significant concern at this time.

b) The tax reform bill will increase investment in new equipment that increases the productivity of American workers. See my earlier post on the corporate tax cut:

http://www.freerepublic.com/focus/f-news/3547417/posts

c) In the next two to three years, the corporate tax cut should allow most companies to increase wages at a higher rate than general inflation and pay for those increases from tax savings and productivity gains. After three years, wage gains above the general inflation rate will have to be payed for through productivity gains resulting from increased investment and improved job training. But inflationary cost pressures for businesses are not a concern for a few years because of the substantial drop in the cash expense of federal tax payments and an adequate labor supply.

2) Repeat the statement from the Yellen Fed: at the end of this tightening cycle the Federal Funds rate will be well below the typical rates preceding the financial crisis.

3) Very rapid GDP growth in the first quarter is not expected to continue at that pace for the entire year, but growth should be strong for the full year of 2018. Nonetheless, strong growth doesn't change our outlook for interest rate increases this year.

The Trump Administration and the Fed need to stop this fast-paced selloff and stabilize the markets quickly. This selloff is feeding on itself and they need to stabilize the stock market today-Tuesday. In the longer run, the Treasury Dept. has to take a long look at high-frequency trading systems and I'll post a comment about that subject later. But today the key goal should be to stabilize the stock market and slow it down to a much slower speed of price changes.

This is a Worldwide selloff of stocks.

A lot of the US headlines make it seem like it is just happening in the US stock market.

Let us hope Trump is on good terms with the Federal Reserve. There is no institution, agency or group that can totally cripple our economy and society faster than the Fed. The scary thing is that they’ve done it before. Read “The Creature from Jekyll Island: A second Look at the Federal Reserve”, by Edward Griffin. Best book I’ve read in 20 years.

THANK YOU for your incredibly comprehensive info

Could you post where that is from?

I have that book, it’s a bear to read, but very enlightening. I believe the Fed wants to crash the economy. They are players in the globalist movement, and Trump is not one of them. The Fed “trying” to crash the economy is the next step since the Russian collusion is falling apart...next step after this doesn’t work? We may not want to know.

Article is from Fox Business. Link to article is at top of this post.

Thanks for your comment and for reading my post. I’ve been thinking about this subject over the weekend and tonight. Took me about an hour to write this post. Looks like the markets are stabilizing—S&P futures were up slightly last time I checked a few minutes ago.

Let’s hope Jerome Powell is a “friendly” man of action.... unlike Sessions and Mueller and Wray....what a bunch of wet firecrackers.

Hard to trust anyone that Obama nominated to the Fed board of governors. I’ll have to trust Trump in his decision.

Peter Schiff has a book “How an Economy Grows and Why it crashes, which is very good.

Thanks. I’ll check it out.

"They are players in the globalist movement, and Trump is not one of them."

They came as close as a gnat's nose to getting rid of that pesky Capitalism in exchange for Socialism, power for the elite......

I always remember Andrew Jackson's farewell address when things like this happen:

The paper system being founded on public confidence and having of itself no intrinsic value, it is liable to great and sudden fluctuations, thereby rendering property insecure and the wages of labor unsteady and uncertain. The corporations, which create the paper money, cannot be relied upon to keep the circulating medium uniform in amount.

In times of prosperity, when confidence is high, they are tempted by the prospect of gain or by influence of those who hope to profit by it to extend their issue of paper beyond the bounds of discretion and the reasonable demands of business; and when these issues have been pushed on from day to day, until the public confidence is at length shaken, then a reaction takes place, and they immediately withdraw the credits they have given, suddenly curtail their issues and produce an unexpected and ruinous contraction of the circulating medium, which is felt by the whole community. The banks by this means save themselves, and the mischievous consequences of their imprudence or cupidity are visited upon the public. Nor does the evil stop here. These ebbs and flows in the currency and these indiscreet extensions of credit naturally engender a spirit of speculation injurious to the habits and character of the people. We have already seen its effects in the wild spirit of speculation in the public lands and various kinds of stock which within the last year or two seized upon such a multitude of our citizens and threatened to pervade all classes of society and to withdraw their attention from the sober pursuits of honest industry.

Recent events have proved that the paper-money system of this country may be used as an engine to undermine your free institutions, and that those who desire to engross all power in the hands of a few and to govern by corruption or force are aware of its power and prepared to employ it. Your banks now furnish your only circulating medium, and money is plenty or scarce according to the quantity of notes issued by them. While they have capitals not greatly disproportioned to each other, they are competitors in business, and no one of them can exercise dominion over the rest; and although in the present state of the currency these banks may and do operate injuriously upon the habits of business, the pecuniary concerns and the moral tone of society, yet, from their number and dispersed situation, they cannot combine for the purposes of political influence, and whatever may be the dispositions of some of their power of mischief must necessarily be confined to a narrow space and felt only in their immediate neighborhoods.

We are not left to conjecture how the moneyed power thus organized and with such a weapon in its hands, would likely to use it. The distress and alarm which pervaded and agitated the whole country when the Bank of the United States waged war upon the people in order to compel them to submit to its demands cannot yet be forgotten. The ruthless and unsparing temper with which whole cities and communities were oppressed, individuals impoverished and ruined, and a scene of cheerful prosperity suddenly changed into one of gloom and despondency ought to be indelibly impressed on the memory of the people of the United States. If such was its power in a time of peace, what would it not have been in a season of war, with an enemy at your doors? No nation but the freemen of the United States could have come out victorious from such a contest; yet, if you had not conquered, the government would have passed from the hands of the many to the hands of the few, and this organized money power from its secret conclave would have directed the choice of your highest officers and compelled you to make peace or war, as best suited their own wishes. The forms of your government might for a time have remained, but its living spirit would have departed from it.

Things will pick up after we dump The Fed.

You are correct about the FED. Monetary policy as well as BS reports by them can have huge consequences.

People will read all of the lies as to why the markets turned down sharply. It’s all lies. Here is a probable real reason: The Democrats pulled every string possible to manipulate our markets down for leverage in dealing with Trump on the budget deal coming up Feb. 8. Guess the pundits all conveniently forgot about that.

Ahh, Andrew Jackson. You got to love that guy. Apparently some assassin tried to kill him and his gun misfired, or he missed or something, anyway, Jackson’s aides had to pull Jackson off the guy before he beat him to death with his cane. Love stories like that.

Thanks for that, much appreciated. Apparently there are a great number of similarities between Trump and Jackson...hair being the least of them.

Main Reasons for this selloff are as follows:
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The Trump Administration and the Fed need to stop this fast-paced selloff and stabilize the markets quickly. This selloff is feeding on itself and they need to stabilize the stock market today-Tuesday. In the longer run, the Treasury Dept. has to take a long look at high-frequency trading systems and I’ll post a comment about that subject later. But today the key goal should be to stabilize the stock market and slow it down to a much slower speed of price changes.
...
While trying to sound erudite and such, I’ve been investing for a long time, supply and demand laws can be manipulated...so, you think Yellen, who is part of Obama’s cabal has interest in calming the markets? Do you not think this is a coordinated attack by billionaire liberals?

In the real world of PDJT TDS, things like this happen. Foolish to think otherwise. Those things you list are academics...they happen and are thought to be causes, but only AFTER AFTER AFTER the triggers were pulled by the cabal. Yes, they have that much power and influence to affect supply and demand laws. Yellen, really???