As we witnessed this week, the monetary mandarins in the Eccles Building are divided over interest rate policy.
The Federal Reserve maintained its dovish stance and announced another interest rate cut Wednesday, but the reduction fell short of the wishes of Wall Street and the White House. Therein lies the contradiction. Think of the quarter-point reduction as a "hawkish rate cut."
One person who's unhappy with the Fed's actions is President Trump.
Donald Trump attacked Fed Chair Jerome Powell after the Fed's rate cut proved less dovish than Trump wanted. "Jay Powell and the Federal Reserve Fail Again," the president tweeted shortly after the Fed reduced its federal funds rate on Wednesday by 0.25 points. He also lambasted Powell as a "terrible communicator."
Nonetheless, interest rates in the U.S. are extremely low. Not as low as in Europe, though.
The following chart provides perspective. The European Central Bank (ECB) lowered the interest rate for main refinancing operations to 0.00 in March 2016, where it has stayed. The U.S. experienced eight rate hikes before cuts began in August, of which seven occurred after Trump took office in January 2017.
Trump wants the Fed to mimic the extreme dovishness of its counterpart the ECB. However, the U.S. central bank's actions are governed by different realities. Inflation is rising (modestly) in the U.S., whereas the euro zone is threatened by deflation.
During his post-meeting press conference, Powell struck a cautiously optimistic tone and indicated the Fed stood ready with additional stimulus if warranted by hard economic data.
You should tune out the political squabbles. They come and go. We're in this for the long haul, to make you money. Putting aside the noisy disagreements over monetary policy, what investment moves should you make under these conditions?
Rate sensitive sectors such as utilities and real estate benefit from rate cuts. Dividend stocks also benefit, because their yields become more attractive compared to bonds and other income-generating assets.
I also advise you to tap into unstoppable trends that will unfold far into the future, regardless of economic cycles. One such trend is the roll-out of 5G, the "fifth generation" of wireless technology that provides faster and broader bandwidth than 4G.
Read This Story: 5G: The Fight for the Future
One of the surest ways to make money is to invest in unstoppable trends largely immune to headline risk. 5G is one such trend.
Another is robotics/automation. Increasingly integrated with artificial intelligence, robotics/automation is permeating a wide variety of industries.
The International Federation of Robotics (IFR) estimates that over 2.5 million industrial robots are at work this year, representing an average annual growth rate of 12% between 2016 and 2019. But it's not just manufacturing; programmable robots are spreading through myriad aspects of daily life.
The fact is, a recession is coming and the sectors I've just mentioned are recession-resistant.
In a one-on-one interview this week, I asked my colleague Amber Hestla about the odds of a recession occurring soon and how investors should prepare. Amber is the chief investment strategist of the trading services Income Trader, Profit Amplifier and Maximum Income. Her response:
"Within the next 12-18 months, a recession is almost certain. Definitely more than 50% and most likely greater than 75%."
Amber also touted the investment virtues of investing in the companies that are meeting the booming demand for medical and recreational marijuana. As she put it:
"The marijuana industry will be worth hundreds of billions soon and I'm finding new ways to invest in the sector all the time, as more and more companies add products."
Amber will be part of a special online event, scheduled for September 24, that will pinpoint money-making opportunities in marijuana. Learn more about her event by clicking here.
From marijuana to the Middle East...
I received these two letters Thursday about the roller-coaster energy sector:
"I thoroughly enjoy reading your Mind Over Markets column. You help put the unpredictable policies of the Trump administration into proper perspective, but you do so without political bias. Your advice is consistently spot on…Your column provides honest advice and straight answers.
Question: Will volatility in the energy sector ease anytime this year? When can we expect equilibrium to return to the energy patch?" - Paul L.
"Your daily column is a joy to read. Thanks for your reporting and original insights. I'm worried about the saber rattling in the Middle East. Will the dust ever settle in the energy sector and what opportunities do you see in energy right now? Keep up the good work." - Alex Z.
Paul and Alex, a crisis is brewing in the domestic energy patch and it affects all investors. The volatility is exacerbated by the drone missile attacks last weekend against Saudi Arabia's key oil installations.
Read This Story: Is Global "Oilmegeddon" On the Way?
Oil prices spiked this week following the terrorist attacks against Saudi Arabia, but after the Saudis pledged to restore production, crude has resumed its decline. The roller coaster won't anytime soon, as the U.S. and Saudis accuse Iran of launching the attacks.
The White House stated Thursday that it was forging a multinational coalition to deter Iran from further attacks. The administration is drawing up a list of potential targets in Iran, in case the conflict becomes a shooting war. Iran on Friday warned against military action, vowing that any aggression against the country would be met with overwhelming response. These rising tensions in the Persian Gulf are tailwinds for the price of crude oil.
The upshot: Over the long haul, well-positioned and undervalued energy plays (especially refiners) are poised to benefit from long-term demand for oil. But brace yourself for severe ups and downs along the way.
What's on your mind? Send comments and questions to: mailbag@investingdaily.com
John Persinos is the managing editor of Investing Daily.
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