Marx Brothers Economy | Seeking Alpha

“Who you gonna believe, me or your own eyes?”

Chico Marx asked that question in the classic movie Duck Soup. Someone should have asked it on June 15 at Fed Chairman Powell’s post-rate-hike session with the press.

Happy-talk about a “soft landing” was ludicrous even before the Fed governors met, as wave after wave of data in the preceding weeks confirmed that the economy and the financial markets were taking on water fast. Such talk after the meeting was an embarrassment. Unfortunately, it was an embarrassment unaccompanied by an explanation of why the Fed’s army of economists has been unable to deal with inflation for years. Let’s hope that the folks in the Eccles Building are addressing what has gone wrong with their analyses, and that they plan to share their conclusions in a clear, coherent manner. A thoughtful, reasonable explanation would go a long way toward buttressing the public’s confidence in the central bank.

Where are we now?

The present situation feels like it has a good chance to spiral out of control: investors are shell-shocked; stocks have been reeling despite occasional bounces and there’s no place to hide as correlations go to 1; credit risks are rising, and; inflation is sky high while — ominously — inflation expectations may be becoming embedded. The litany goes on, as the housing market slides, the outlook for consumer demand comes into question, corporate earnings forecasts seem likely to be come under the knife after second-quarter earnings are reported; and worries mount that layoffs loom ahead. A straw in the wind: on June 21, the Wall Street Journal’s Business & Finance section ran stories with these headlines — “Retail Lead Times Spur Inventory Woes”, “‘Soft Landing’ Are a Myth”, and “Central Banks Pose Threats to Markets”.

Meanwhile, things are no better on the political front. Lawmakers from both sides of the aisle are a feckless and irresponsible as ever, and members of the Administration expect their Grouch Marx-like pronouncements to be taken seriously. Listen closely in the days and weeks ahead: the sound you hear could be an important element of the economic, financial or political system breaking.

What’s next for investors?

Traditional wisdom says to start nibbling when it’s most uncomfortable to buy. My gloss on that is to nibble cautiously. One market adage that has stood the test of time is that stocks very often overshoot on the downside. A corollary, based on experience, is that technical analysis is most valuable on the downside; right now, the charts don’t appear to be favorable.

For my part, I’ve sold some stocks and ETFs in which I was fortunate enough to have solid gains, and my cash-and-equivalents position is as high as it’s ever been. The only things I’ve bought so far in this decline are gold, Treasuries, and a few shares of COST, KO, and ALCO (a Florida agriculture and land-management company). When things settle a bit, I might add to existing positions in MRK, ABBV, ENB, BCE, and a few others. My watch list has a few entries, including GS and PRU, but I suspect it’s still too early. I might watch a Marx Brother movie or two while I’m waiting to buy.