Starting today I’ll have my forecast for 2019. If you want to read the full version with all the details of why I am making my forecast, I’ll have that linked when I post it in about a week or so. And I can’t obviously talk about every little sector and subsector, and I won’t talk individual stock picking, although I might mention particular stocks as an example from time to time.

Also, for regulatory purposes, always make sure to do your own research and speak to your financial advisor, CPA, or lawyer before acting on any information contained in this or any of my content. And finally, this is not intended to be personal and actionable advice specifically tailored to any one person. This is only my opinion of what I think will happen and some of the ways you may be able to profit. But you might lose out instead. Oh yeah, this is not an offer to buy or sell any securities or to engage in business.

Now that all that regulatory stuff is out of the way…we want to know what to expect as well as how to both protect and profit from it all. So here goes.

The first topic of my forecast, which is actually the main event, is the Fed. This is because whatever the Fed does and says will have profound effects on everything else. Literally everything. Until the end of the summer 2018, I was expecting the Fed to make 2–3 rate hikes in 2019, and likely two not three. However, it is becoming increasingly obvious that the Fed will probably pause the rate hike cycle in March, claiming they need more time or data before proceeding. At that time they’ll telegraph a rate hike in June.

I think it is possible the Fed will hike in June, but it is becoming less and less likely, and even Wall Street is on to this already. The Street now sees a 45% chance of no more hikes at all.

See, if the Fed hikes, we’ll have an acceleration of negative data coming in on all fronts, such as unemployment, housing, bond and loan defaults, the ISM, inflation/deflation, job creation, anything you can think of. It will become increasingly negative.

If the Fed actually pauses like I think they will, the dollar will begin to descend, because it will be interpreted that the economy is weak. Once the Street figures out that the economy is weak, the Street will assume that more rounds of easy money policy are coming as well as asset purchases.

Regardless of what the Fed does, conditions will deteriorate and the dollar will fall. The Fed will start with not hiking rates, then when the Fed begins to lower rates that will be coupled with halting asset sales. And then when it becomes obvious to the Fed they aren’t “doing enough” to prop up the economy the Fed will take interest rates straight to 0% and begin buying assets again.

Even that won’t be enough and I expect that the Fed will take interest rates to negative territory and begin with a two-pronged policy of asset purchases. One prong will be massive cash dumps in the form of bail outs for failing banks that are too big to fail or considered systemically important. The second prong will be massive purchases of treasuries and mortgage backed securities, and possibly buying other assets as well. And will quickly ramp up to $200B-$250B per month.

As this is all happening, everyone will be forced to recognize a recession is finally upon us. If you think trillion dollar deficits are bad now, now that the democrats are in charge of The House it will get worse. If we hit a recession those budget deficits will be $2-$3T, which the Fed will monetize as well, and if they win the presidency in 2020 and maintain at least one house of congress, we can expect $4-$5T deficits, again, which the Fed will monetize (buy the debt from the treasury).

To summarize, this Fed is not proactive as it should be. Rather, the reactionary stance of the Fed will be reversing current rate hikes, taking the assets sales off auto-pilot and going back to purchases, and then some very radical moves on interest rates, debt monetization, and monetary stimulus.

As noted I am going to tell you over the next couple days what the reaction of the markets will be this year and how you can profit from it, because like I say at the end of every volume: there’s always a bull market somewhere in the world, and on the opposite side of every crisis lies opportunity.

That’s it for today. Let me know what you think or ask your questions in the comments. Thanks for reading Volume 35 of The Macro Market Wrap Up With The Mad Genius.

#economics #Fed #interestrates #monetarypolicy #investing #quantitativeeasing #toobigtofail #forecast2019