Art Cashin discusses what to expect from the Fed today, plus on this day…
On this day…
December 11 (King World News) – Art Cashin: On this day in 1930, American savers, the Federal Reserve and a Republican President all got a nasty surprise. The banking system had been shaky for a year or two but it looked like things might finally be beginning to stabilize. That is until this day.
On this day, a major financial institution, The Bank of the United States went belly up. And, with it went the savings, “in whole or in part”, of over 400,000 depositors.
The Bank of the United States has been a historically unlucky name for several institutions. The first “Bank of the United States” was proposed by no less than Alexander Hamilton. It was a privately held central bank for the United States some 125 years before the Fed was created. It was very controversial as Southerners saw it as a boon and tool of the mercantile North while the South’s main industry, agriculture, didn’t need strong banking. The bank’s charter was allowed to expire and the bank disappeared.
Without a strong central bank, however, the young government had found it very difficult to finance the War of 1812. So, Congress proposed another Bank of the United States. This one succeeded for a while until Andrew Jackson and his Southern coalition determined to kill it. They succeeded and the result, many feel, was the Panic of 1837, one of the worst economic contractions in American history.
Now back to the other Bank of the United States.
In the early 1900’s, immigrants were pouring through Ellis Island and onto the streets of New York. A fellow immigrant and a very successful garment merchant realized they would need a place to put their meager earnings and savings. Perhaps to convey an image of governmental security or even an implied guarantee, he named his enterprise, “The Bank of the United Sates”.
As previously noted, when it went under it had over 400,000 depositors. They all began to scramble for money anywhere which tended to strain the other banks. The large New York garment industry was pushed to the edge and merchants desperately sought credit. Lines began to form at other banks. Soon the nation was sinking into the Depression.
To celebrate meet a couple of auditors at the Olde Resolution Trust Lounge. Have a few perfect Rob Roys and explain that these days’ surprises are federally reserved for things like birthdays – not economic events. Crises, like dinosaurs, are now ancient history. Then have several more sips.
It wasn’t bank runs that roiled markets on Tuesday. Once again it was trade, or, more correctly skepticism about trade that influenced the trading day.
Overnight, stock futures were smartly lower as a lack of apparent movement on trade talks cast a pall over equity trading.
Then a Wall Street Journal headline said that trade representatives felt that December 15th was not an actual deadline. That caused the futures to suddenly reverse and shoot higher, taking the Dow futures back into mild plus territory.
Before the actual opening, however, skepticism began to set in and the futures slipped into mild negative territory. As I told Carl Quintanilla on CNBC’s Squawk on the Street, the stock market had its heart broken too many times as purported trade deals and imminent trade deals turned out not to be true. Now they would wait for some kind of confirmation.
By the opening bell, the skepticism was in full bloom. Stocks opened lower and fell even further in the first few minutes of trading.
The bulls quickly regrouped and got the indices back into mild plus territory. For the balance of the day, stocks went on a roller coaster – albeit the kiddie land version. The Dow saw a minor selloff in the closing minutes. The day’s theme was skepticism and it may have a life that lasts more than one day.
What To Watch For From The Fed – Most expect no surprises from the Fed or from Powell’s statement. Stock traders will watch a couple of areas that could bring a surprise, or two.
First will be the “dot plot”, which you recall is the future estimates (guesses) of rate levels by the individual FOMC members. If the dot plots are strong and project a possible rate cut in 2020 that could spook markets a bit. If so, I feel that would be a mistaken reaction. The FOMC record of dot plots is notoriously bad and given the relationship of the two year note and the Fed funds target, the Fed may need to actually cut again.
Another point to watch will be the Q&A. Given the recent BIS report on the repo flare-up, Powell may be asked about that and about why a large chunk of Fed bill buying is not showing up on the balance sheet. About 60 billion a month in buying – larger than QE at its best. Let’s hope they ask.
Overnight And Overseas – Asian equity markets were somewhat mixed in relatively light trading. Tokyo closed fractionally lower, while Shanghai and India had modest gains, while Hong Kong saw a more significant rally.
Stocks in Europe are also seeing relatively light trading. London is a shade lower and Paris and Frankfurt are seeing some softness.
Among other assets, Bitcoin continues to churn around the $7300 level. Gold is slightly firmer, while crude is a bit softer on larger than expected inventory data. The euro is basically flat against the dollar, while yields are down a tick, or so.
Consensus – British polls hint a tight election tomorrow. It could disrupt markets on Friday.
China trade is still center stage and Navarro hints more tariff moves may, in fact, come Sunday. Let’s see if that takes hold.
Stick with the drill – stay wary, alert and very, very nimble.
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