A Crack Dealer with a Heart of Gold?

It had to be a true business conundrum. 

Boot your best customer or risk alienating the rest of your market…

I recently read an article about Mike Lindell (the My Pillow guy). It’s fairly common knowledge that he was a crack addict for years. But something I didn’t know was that after a two-week bender, it was actually his dealers who staged his intervention.

Not to legitimize the illegal drug trade, but that’s a crazy dilemma when you think about it. Turn away one of your best customers because, well… overdosing on your product ain’t good for business as a whole. 

Dealers with a heart of gold, I guess.

I mention this because in a lot of ways, the stock market is like a crack addict. Its drug of choice is easy money. And the Fed is its dealer. 

They’ve been supplying the market with its financial crack for years. But their overdose of cash injections has finally led to the threat of some serious inflation.

Like overdosing addicts, massive inflation isn’t good for business.  

So they need to stage an intervention.

What can we expect when they do?

Drug Withdrawals are a B!%(#

We can’t really be sure. The best we can do is take a look at what’s happened in the past. 

Since the crash of 2008, the Fed has basically implemented a policy of zero interest rates.

The last time the Fed decided it wanted to “normalize” interest rates (i.e. raise them back to some realistic levels) was back in December 2015/January2016. Starting in October of 2015, from an irresistible Fed Funds rate of 0.07% they started pushing rates higher.

By January 2016 funds had reached 0.36% where they stayed for most of the year. The initial push caused a dip in the stock market (circled in the chart below) which stabilized after the funds rate leveled off. Then at the end of 2016, they started steadily increasing rates again.

The stock market continued to rally in the face of these rate increases until late 2018 when  (accompanied by a yield increase to 3.23% on the US 10-Year Treasury Note) it decided that rates had risen high enough…

Stocks dumped over 20% in a matter of months.

True to form, the Fed began easing again allowing the market to make one more new high before the COVID-19 lockdown crash hit.

So…

The intervention is coming. 

They can look for reasons to delay it (another COVID-related lockdown) but they can’t put it off forever. 

And when it comes, it’ll just be a matter of time before the withdrawals kick in.

Make the trend your friend,

Bob Byrne
Editor, Streetlight Daily