For today’s edition of Inside Wall Street, I recorded another short video update for you instead of my usual written commentary.
Last Thursday, Federal Reserve chairman Jerome Powell sent out a smoke signal to the markets.
He said the Fed is likely to raise interest rates by 50 basis points at its meeting next week. And he said further such rate hikes may follow after that.
Remember, in March, the Fed raised interest rates for the first time since 2018.
It had to be seen to do something… Inflation had just topped 7% for the first time since the 1980s. And it was showing no signs of stopping there.
But at 25 basis points, or a quarter of a percent, the March hike was much less than the Fed had flagged in advance. Which meant the markets had already priced it in… and recovered quickly.
And they’re doing the same now. Markets immediately reacted to Powell’s comments last week. The S&P 500, the Dow, and the Nasdaq all closed the week down about 4% since Powell’s comments.
But don’t let the cat-and-mouse game between the Fed and the markets fool you.
History shows us that the financial market will rebound… because the Fed always has its back. This cozy relationship goes back over a century.
And this week, in my latest video update, I show you why it’s important to look at what the Fed does, not what it says. And to be alert to the opportunities this knowledge brings you.
Click on the image below to watch it. It’s just over four minutes long. And as always, I’ve also included a transcript below.
I hope you enjoy the video. Let me know what you think at [email protected].
Happy investing, and I’ll be in touch again soon.
Editor, Inside Wall Street with Nomi Prins
Hi, everyone. Nomi here. I’m coming to you from the great southern city of Atlanta, Georgia.
I’m standing in front of the Candler Hotel. This incredible piece of architecture was built by the founder of Coca-Cola. The sign’s actually right behind me.
This 17-story building was Atlanta’s first steel skyscraper. It was completed in 1906. It was a landmark achievement at the time.
Today, it’s owned by Hilton Hotels. They’ve done a fantastic job of preserving its historic feel.
Back in 1888, Asa Griggs Candler bought the rights and the exclusive recipe to a sweet-flavored, carbonated soft drink. That drink, of course, was Coca-Cola. To this day, Coca-Cola is headquartered here in Atlanta.
That same year, J.P. Morgan, the most famous – or infamous – banker of all time, was riding a speculative stock market boom. He also saw value in grandeur, construction, and legacy. He completed his famed Morgan Library, also in 1906, in New York City.
But, as so often happens during speculative frenzies, the market was about to crash. The next year would see the Panic of 1907 unfold on Wall Street and all across the country.
During that crisis, Candler helped calm the real estate panic by making large purchases of land here in Atlanta.
The Panic of 1907 was ignited by poor banking decisions, faulty loans, and a rigged trading system in the copper markets. That triggered a chaos of withdrawals, or bank runs, as the public lost faith in the banks. People wanted their money out where they could see it.
Amidst that chaos, J.P. Morgan sprung to action of his own. His goal was to rescue his Wall Street friends and his own bank.
Leveraging his connections and his elite status, he managed to convince President Teddy Roosevelt to give him $25 million to bail out Wall Street.
And then, he doled that money out to his elite friends and business associates, acting as a sort of one-man central bank.
The Federal Reserve system was established just a few years later, partly because Morgan did not want to rely on the U.S. government again during crisis.
[Editor’s Note: A couple of months ago, Nomi sent out an excerpt from her 2014 book, All the Presidents’ Bankers. This excerpt showed how the influential Wall Street bankers of the time pushed the White House to create America’s central bank, the Federal Reserve. If you missed it, click here to catch up.]
The blueprints were created by a group of elite bankers and politicians. They met secretly off the coast of Georgia, on Jekyll Island. I went there to do research for my book, All The Presidents’ Bankers.
The truth, then as now, is that the Fed’s goal was never to protect normal, everyday people. It was to protect the interests of wealthy elites.
Today, the Fed is one of the biggest actors in our financial distortion. That’s why we want to watch both what it says and what it does.
Next week, we’re going to get results from the Federal Open Market Committee (FOMC) meeting. That will take place on May 3 and 4 in Washington, D.C.
Wall Street’s forecasting an extremely hawkish Fed. I’m less convinced about those hawkish predictions.
See, as the U.S. faces inflation at a 40-year high, which is tough, political pressure is being put on the Fed to cool off prices. Many believe that the Fed could hike rates by 50 basis points and take immediate steps to cut its near-$9 trillion balance sheet.
But the markets and Wall Street won’t be happy with a hawkish Fed. They want cheap money. That money is the distortion between markets and the real economy.
So, we’re going to keep seeing markets dip and high-flying stocks take hits every time a Fed official says anything hawkish.
But in the end, the Fed’s allegiance is to the markets. And even if the Fed raises rates and reduces the size of its book, massive amounts of fabricated money will remain in the markets.
Look, I know down days in the markets are stressful. I get it. But they’re also natural. They’re even healthy because they create opportunity.
So, what does this mean for you and your money?
Well, a pattern of this choppy behavior between Fed meetings is going to keep going on this year.
And each dip is going to be met by rallies as the market processes what the Fed signals versus what it actually does.
But taking history lessons from people like J.P. Morgan and Candler, we can see that these down days are opportunities to be selective about investment strategies.
For us, that’s along our five themes of New Energy, Infrastructure, Transformative Technology, Meta-Reality, and New Money.
So, in these distorted times, stay calm. Buy on dips, if you’ve got some money aside.
And know that we’re going to navigate these choppy waters together.
Happy investing, and I’ll talk to you soon.