The Rate Cut: Five Keys, Five Takeaways (and) Five Stocks
And winning moves you can make right now ...
It’s not often you end up with a super-controversial presidential election and a crucial U.S. Federal Reserve policy meeting in the same week — let alone within two days of each other — but that’s what we’ve got this week.
And while the headlines are focusing on the central bank’s quarter-point rate cut — and the the immediate impact it had on stocks and bonds — I’m tracking bigger game.
I want to evaluate how the election and the Fed meeting fit together, what the two will mean for the economy over the next several years and what Wealth Builders like you and me need to do.
I’m doing all that here today …
I’m going to give you five “key points” from the Fed meeting …
Five “takeaways” that put the election and the Fed in a longer-term context …
And several moves you can make — with five stocks included.
Five key points … five takeaways … five stocks.
So let’s get started.
THE (5) KEYS
I studied the statement Fed Chair Jerome Powell and his team released after their decision-making meeting Thursday. Here’s what I extracted:
Key Point 1: The central bank’s policymaking Federal Open Market Committee (FOMC) unanimously voted to cut the benchmark Fed Funds rate by a quarter point — to a target range of 4.5% to 4.75%
Key Point 2: In its statement, the FOMC said “labor market conditions have generally eased.” And it reiterated that “the unemployment rate has moved up but remains low.”
Key Point 3: It said the employment and inflation risks “are roughly in balance.”
Key Point 4: Unlike the last meeting — when the Fed said it had “gained greater confidence” that inflation was moving toward its 2% target — it now says they’ve “made progress toward the committee's 2% objective but [said that inflation] remains somewhat elevated.”
Key Point 5: Finally, it also stated that the “economic outlook is uncertain” — an ominous statement (and one that’s obvious) but a point whose candor I respect.
FIVE TAKEAWAYS
I got a very nice notice for my analysis of the last Fed meeting — back in mid-September.
So I have a lot to live up to here …
Let’s move next to the five takeaways …
Takeaway No. 1: The Fed’s Not Operating in a Vacuum: This first takeaway reminds me of my Dad, an engineer with two physics degrees, who shared all my hobbies growing up — including restoring and souping up old cars. He’d warn me against unsystematically changing too many parts at the same time, since that could create too many “variables” — meaning if you had a problem (or a performance boost) you wouldn’t know which “change” was responsible. Just days after a historic election that returned Donald Trump to the White House, the Fed is now trying to fine-tune the economy at the same time a brand-new administration is trying to “soup up” the economy with a slate of policy initiatives that remind me of the “variable overload” my Dad warned me about decades ago. Some of those new initiatives could work against the Fed’s attempted balancing act … and some of those policy pushes could even work against each other. As we’ll see next.
Takeaway No. 2: You Can’t Have It All: I was a bit too old for Sesame Street when it debuted in 1969, but my sisters Kathy Ann and Carol Ann weren’t – which gave me the “Older Brother’s Pass” to watch it and still be cool. I can still hear the tune “One of These Things Is Not Like the Other” that was a featured segment on the series. And I’ve been hearing it since President Trump cinched his victory. To be clear, I don’t do politics here. I do economics … and money— my money … and your money. Which is why I’m okay saying that, when I look at the administration’s policy proposals, I think it’ll be tough to achieve them all at once. I mean: Can you cut taxes, cut government spending, boost protectionist tariffs, have strong economic growth and throttle back inflation simultaneously? Especially as the Fed is simultaneously cutting rates? I’ve been doing this for a long time, so I can confidentially say “I don’t think so.” Painful tradeoffs loom. And I’d say that no matter which party was making this pitch.
Takeaway No. 3: Powell’s Continued High-Wire Act: Thanks to my long tenure as a student, reporter, analyst, columnist and stock picker, I’ve seen more Fed heads operate than most of my peers. I hold inflation-crusher Paul Volcker in high esteem. Great Financial Crisis maestro Ben Bernanke gets a gold star, too. And current Fed Chair Jerome Powell, the 16th to hold that post (and the guy who’s operated the stick-and-rudder since 2018), has also done yeoman’s work. Powell navigated the first worldwide pandemic in the “Modern Global Economy.” He also did so as government debt soared to terrifying levels. Now he’s about to fight an economic version of the Battle of the Bulge, where we were once worried that “higher for longer” would become “too high for too long.” But with the new policy initiatives aimed at “souping up” the U.S. economic engine, is it inflation igniting “too fast and too deep” that we need to worry about now?
Takeaway No. 4: The U.S. Debt Bomb … Tick, Tick, Tick: Remember those “painful tradeoffs” I mentioned a moment ago? Well, Debt vs Inflation is shaping as the main event in the “cage match” you and I refer to as the U.S. economy. A hundred years ago (1923), public debt stood at $403 billion. It was $33.17 trillion last year and $35.26 trillion in August of this year —about double what it was 15 years ago. Think of it like you’re carrying a big balance on a personal credit card with a variable rate: If rates go higher, your payments rise in kind; if they fall, your payments do, too. Interest on that debt has soared to $3 billion a day (including weekends) — triple the $1 billion daily interest costs before the pandemic, Torsten Slok, chief economist at Apollo Global Management, told Morningstar. The Congressional Budget Office (CBO) recently projected that interest payments on public debt will account for 34% of federal revenue by 2054 — meaning interest payments would dwarf even Social Security payouts. Longer-term (and, again, I acknowledge that I’m oversimplifying this), there there will be pressure to keep rates lower — no matter what inflation does. Some folks advocate “inflating away” the debt. But you’re talking a whole different level of pain there: Research says we’d need to get to an inflation rate of 6% to reduce debt by 20% — though that ignores a host of factors that make it a challenge. In short, there’s no easy answer here.
Takeaway No. 5: It’s Back to the Future: Remember my comments about Fed Chair Volcker? The plot of the latest addition to the Marvell universe of Fed flicks — Jerome Powell: Central Bank Superhero — points to a predictable outcome: The arch enemy — inflation — wins. As author and financial historian Mark Higgins told me: “The problem is that financial history strongly suggests that the Fed has inappropriately discounted the risk that rate cuts will allow inflation to reignite and then require even more draconian policies to extinguish it if it does.” More on that below.
INFLATION: THE ULTIMATE “WEALTH KILLER”
Inflation is one of the biggest Wealth Killers of all — especially because it kills you slowly, meaning you really only see it after it has already inflicted terminal damage.
Higgins, author of the 2024 book Investing in U.S. Financial History, who joined me here for an interview last month, reiterated again that the threat we face today reminds him a lot of the late 1960s and early 1970s — the last time we really experienced virulent inflation.
“That’s right, Bill: This period reminds me of the late 1960s and early 1970s in many ways,” he said in relation to this week’s central bank meeting. “First, I believe the Fed is prematurely abandoning monetary policy tightening, which creates far too much risk of allowing inflation to reignite. It appears they are acting in this manner because they are placing too much emphasis on the ‘maximum employment’ side of their mandate and too little emphasis on the ‘price stability’ side of their mandate. Although the underlying reasons are somewhat different today, the Fed made the same fundamental error in the late 1960s and 1970s. At the time, the Fed also placed undue emphasis on maximum employment due to lingering fears of double-digit unemployment during the Great Depression, as well as intense political pressure from politicians. The result was the Great Inflation of 1965-1982. This was an especially miserable era of American history. In fact, the economist, Arthur Okun, constructed an economic index called the ‘Misery Index’ to describe the impact of the Great Inflation. What made the misery all the worse was that most Americans did not realize that inflation was the source of their misery. Workers received higher paychecks but suffered significant losses of real income; home loans and commercial loans were often unaffordable; and the cost of basic necessities just kept rising.”
Heck, we're already feeling the squeeze. And because of the obsession with the month-to-month figures ... folks miss the real picture.
And that real picture is "cumulative inflation” — or the "total pain picture."
Since February 2020, consumer prices have increased 21.4% — WAY above average.
We're only talking four years here. But prices rose 18.9% in the full decade of the 2010s, 28.4% in the 2000s and 32.4% in the 1990s, says the U.S. Bureau of Labor Statistics and Bankrate.com. So what cost you a grand to buy before the pandemic now costs you $1,214.
Granted, some items have declined in that span.
But we've seen big jumps in car repairs (47.5%), car insurance (47.3%) and pet services (35.6%).
But food prices inflicted real pain. At the 2024 mid-point, grocery prices (in general) were up nearly 25%. Also up: margarine (56.8%) and eggs (50%) — with beef roasts, flour and sugar each up more than a third.
And don't forget carbonated beverages (+32.1%) and canned fruits and vegetables (up 31.6%).
I wrote about this early this year — calling it “Whac-A-Mole Inflation.”
THOSE FIVE (PROMISED) STOCKS
I share this for a reason — not to engage in minutiae, but to show you why it’s smart to avoid it: Making bets on near-term catalysts — especially during periods of great uncertainty — is a move for Wealth Killers. It’s best to focus on the long term. That’s what winning investors do.
That said, there are moves you can make in the wake of this Fed move — because they will position you for the long haul.
Here are some good ones … with five stocks (and a bonus) tucked inside.
Move No. 1: Tune Out “The Noise” – And Go Long: I worked in U.S. newsrooms for nearly a quarter century. So I know how headline driven – the “story du jour” — we’ve become. And it’ll keep getting worse. You need to tune out this moment-to-moment “noise.” And you need to focus on the long-term. One great way to do this is by focusing on the strongest storylines — the narratives you know will last for years – because those will also point you to the very best stocks. And when storylines “intersect” … that’s even better. Two storylines we’re following are the Artificial Intelligence (AI) Era and the New Cold War. One company drawing power from both storylines is Palantir Technologies Inc. PLTR 0.00%↑ (Stock No. 1) whose AI technology is a “force multiplier” for Western armed forces and a technology leverage play in the commercial world. Another favorite: Broadcom Inc. AVGO 0.00%↑ (Stock No. 2), a chipmaker that I’ve followed for years (I recommended it — and its predecessors — to subscribers at my Private Briefing newsletter more than a decade ago). And it’s a company I’ve been talking about here. William Blair analyst Sebastien Naji recently said the $12 billion in AI chip revenue Broadcom is projecting this year is just the start for “continued steady growth.” Current target prices range from $192 to $240. And earnings are projected to grow at an average annual pace of more than 21% over the next five years.
Move No. 2: Grab Yield: If you haven’t already (as I’ve been advocating), move now to lock in strong-yielding income investments — ahead of the next round(s) of rate reductions and ahead of the $12.5 trillion “Reinvestment Tsunami.” One income play to consider: AGNC Investment Corp. AGNC 0.00%↑ (Stock No. 3), whose recent yield was 13.6%. Also look at Angel Oak Financial Strategies Income Term Trust FINS 0.00%↑ (Stock No. 4), a Big Board-listed, closed-end fund that invests primarily in mortgage-backed securities. It aims to keep at least 50% of its holdings invested in investment-grade debt. And it also buys financial-sector stocks — both common and preferred. FINS currently trades at about $13 — putting it up near the top of its 52-week range of $11.71 to $13.30. Its current payout of $1.31 a share — doled out as monthly 11-cent dividends – equates to a yield of 10.2%.
Move No. 3: Be Opportunistic: I’m a big fan of “Special-Situation” stocks — especially breakup/spinoff plays. Industrial heavyweight DuPont de Nemours Inc. DD 0.00%↑ (Stock No. 5) is planning a corporate breakup that’ll be tax-free to shareholders and create standalone plays in advanced materials, semiconductors and water treatment — all businesses I like. Indeed, I like this entire deal: It’s a rare three-for-one breakup, creates companies in sectors with strong underlying storylines and will let each of these units go after business with fervor and focus. The company announced the breakup in May and aims to execute it by late next year or early 2026. At a recent price of $86, this is a stock – and an opportunity – that intrigues me a lot. (SPC Premium members: Remember that your unlimited access to a portfolio of 10 “special-situation stocks” to check out for further opportunities is available here.)
Move No. 4: Metal Is Armor: I’m a “stock jockey” at heart — hence the Stock Picker’s Corner moniker. But I’m also a longtime “Silver Bug” — or, as folks say today, a “Silver Stacker.” My Dad got me interested in coin collecting when I was little and growing up near Pittsburgh. I started with Lincoln pennies. And then I branched out to Depression-era silver – and, more recently, Canada Maple Leafs and U.S. Silver Eagles. Close friend Peter Krauth, publisher of The Silver Stock Investor newsletter and an expert on the “Other Precious Metal,” said silver’s post-election sell-off is a massive buying opportunity for a commodity that’s going to keep marching higher because of the “triggers” I’ve outlined here today. MS70-grade coins are a nice addition to your holdings. And consider Wheaton Precious Metals Corp. WPM 0.25%↑ (Bonus Stock), a royalty “streamer” that will benefit in silver’s rebound.
So there you have it … Five Keys … Five Takeaways … and Five Stocks.
See you next time;
Great to see our previous share of your blog post on the FED rate cut mentioned in your new post about the FED! We’re thrilled to see this, and once again, you’ve met our high expectations with your insightful content. Keep up the fantastic work!