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BR caricatureWith a Fed decision queued up for tomorrow, let’s take a look at how the rates picture has evolved this year.

The Fed has continued to act like speculators, placing bets on the prospects of fiscal stimulus and hotter growth. And they’ve proven not to be very good.

​Remember, they finally kicked off their rate “normalization” plan in December of 2015.  With things relatively stable globally, the slow U.S. recovery still on path, and with U.S. stocks near the record highs, they pulled the trigger on a 25 basis point hike in late 2015.  And they projected at that time to hike another four times over the coming year (2016).

​Stocks proceeded to slide by 13% over the next month.  Market interest rates (the 10 year yield) went down, not up, following the hike — and not by a little, but by a lot.  The 10 year yield fell from 2.33% to 1.53% over the next two months.  And by April, the Fed walked back on their big promises for a tightening campaign.  And the messaging began turning dark.  The Fed went from talking about four hikes in a year, to talking about the prospects of going to negative interest rates.

​That was until the U.S. elections.  Suddenly, the outlook for the global economy changed, with the idea that big fiscal stimulus could be coming.  So without any data justification for changing gears (for an institution that constantly beats the drum of “data dependence”), the Fed went right back to its hawkish mantra/ tightening game plan.

​With that, they hit the reset button in December, and went back to the old game plan.  They hiked in December.  They told us more were coming this year.  And, so far, they’ve hiked in March and June.

​Below is how the interest rate market has responded.  Rates have gone lower after each hike.  Just in the past couple of days have, however, we returned to levels (and slightly above) where we stood going into the June hike.

But if you believe in the growing prospects of policy execution, which we’ve been discussing, you have to think this behavior in market rates (going lower) are coming to an end (i.e. higher rates).

As I said, the Hurricanes represented a crisis that May Be The Turning Point For Trump.  This was an opportunity for the President to show leadership in a time people were looking for leadership.  And it was a chance for the public perception to begin to shift.  And it did. The bottom was marked in Trump pessimism.  And much needed policy execution has been kickstarted by the need for Congress to come together to get the debt ceiling raised and hurricane aid approved.  And I suspect that Trump’s address to the U.N. today will add further support to this building momentum of sentiment turnaround for the administration. With this, I would expect to hear a hawkish Fed tomorrow.

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December 6, 2016, 4:30pm EST

As we’ve discussed the Trump administration has been very good for the broad stock market.  It’s been even better for certain industries, and certain stocks that have been drawn into the periphery of the administration.

Goldman Sachs has been well represented in the auditions for cabinet members.  And now we have an incoming Treasury Secretary with a Wall Street background as a partner at Goldman.  That stock is up 27% since November 8th.

Today, the President-elect met with the Japanese billionaire investor Masayoshi Son.  Over the past 35 years, Son has built one the largest and most powerful technology conglomerates in the world, a company called Softbank.  He told the new incoming President that he planned to invest $50 billion into U.S. companies behind Trump’s economic plan.

dec 6 trump

So what does Son own that could benefit from a good relationship with the Trump administration?  He owns the wireless carrier Sprint.  In fact, he (Softbank) owns more than 80% of the company.  No coincidence, Sprint was up 4% today on the news of his successful meeting.

Son is likely posturing put a Sprint/T-Nobile merger back on the table.  Sprint walked away from efforts to acquire T-Mobile in 2014 after it was clear it would be blocked under increased antitrust enforcement under the Obama administration.

The combined entity would slingshot a “Sprint/T-Mobile” into a three way horse race for first place in the wireless carrier industry.   Though the market is only valuing the combined entity at 15%, rather than one-third of the market. That makes both stocks potential doubles. We own Sprint in our Billionaire’s Portfolio.
dec 6 mkt sharej


The Obama administration had its winners and losers (among the winners, outright funding to Tesla, Solarcity … partnerships with Uber and Facebook).  Trump will as well.  Keeping an eye on who walks into Trump Tower seems to be a good clue.

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