September 19, 2017, 6:00 pm EST              Invest Alongside Billionaires For $297/Qtr

With 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.

Join our Billionaire’s Portfolio today to get your portfolio in line with the most influential investors in the world, and hear more of my actionable political, economic and market analysis. Click here to learn more. 

8//27/2014

Over the past week, I received hundreds of emails concerning Carl Icahn’s announcement that he took an 8% position in Hertz (HTZ). We know Icahn has already publicly stated he wants to actively engage with Hertz management and its CEO, but there has been no word about Icahn pushing Hertz to merge or sell itself.

Here is why: First, regulators would never approve a Hertz-Avis merger. The two entities represent too large a share of the industry. It would essentially be a monopoly. So a merger with Avis isn’t happening — at least in my opinion.

Though, given the quick 25% run up in Family Dollar (FDO) last month after Icahn forced a merger with Dollar Tree (DLTR), it’s easy to see why investors are hoping for a similar result. Clearly, people don’t want to miss out on the next FDO. On that note, you can read some great analysis of the Family Dollar deal, where my partner and I predicted the merger and picked the bottom in Family Dollar stock (read that here).

But again, this is not going to happen with Hertz. Icahn and numerous other investors are long Hertz. Hertz is actually one of the most popular stocks owned by top billionaire hedge fund managers, because it’s a pure play on the improving economy, and rental car companies have lagged airlines in terms of raising their prices.

So many hedge funds are betting on Hertz increasing its prices, like the airlines did last year, and they are betting that demand will continue to improve with the recovery in the economy. It’s that simple.

Also, this is not a classic Icahn play. He typically comes into a deeply depressed stock selling near its 52-week low or multi-year lows. Icahn purchased Hertz near the stock’s all-time high.

But what Icahn is doing is playing his “change” card. He has recently laid out his evidence, based on his history as an activist investor, of how replacing a CEO is a powerful catalyst for producing shareholder wealth creation. And one of his fellow shareholders in Hertz is already at work on that strategy: Fir Tree Partners is pressuring the board to oust the CEO.

Will Meade
President of The Billionaires Portfolio