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#MacroView: Shortest Recession In History Sets Up Next Recession

It’s now official that the recession of 2020 was the shortest in history. 

According to the National Bureau of Economic Research, the contraction lasted just two months, from February 2020 to April 2020. However, during those two months, the economy…

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It’s now official that the recession of 2020 was the shortest in history. 

According to the National Bureau of Economic Research, the contraction lasted just two months, from February 2020 to April 2020. However, during those two months, the economy fell by 31.4% (GDP), and the financial markets plunged by 33%. Both of those declines, as shown in the table below, are within historical norms.

Here it is graphically. The chart shows the historical length of each recession and the corresponding market decline.

However, while the effects of the “recession” were all within historical norms, the recession itself was not. 

Let me explain.

A Non-Standard Recession

The statement from the NBER is as follows:

“In determining that a trough occurred in April 2020, the committee DID NOT conclude that the economy has returned to operating at normal capacity. The committee decided that any future downturn of the economy would be a new recession and not a continuation of the recession associated with the February 2020 peak. The basis for this decision was the length and strength of the recovery to date.”

As I said, the recession was non-standard. Conventionally, the NBER defines a recession as two consecutive quarters of negative GDP growth. Notably, while the recession did technically meet the criteria after GDP fell 5% in Q1, recessions tend to last more than three months historically.

The difference was the massive interventions of 20% of GDP beginning in Q2, which created an “artificial growth surge” in the economy by pulling forward consumptive activity. That led to an explosive recovery in GDP in Q3 of nearly 30%.

It is essential to note that the NBER stated that any subsequent downturn would get labeled as a “new” recession. That view accounts for the recovery driven by massive interventions even though that growth is not sustainable.

As such, the “next recession” may not be as far off as many currently expect.

Why Recessions Are Important

Our discussion must begin with a basic concept: “recessions” are not a “bad thing.” 

It is a given you should never mention the “R” word. People immediately assume you mean the end of the world: death, disaster, and destruction. But, unfortunately, the Federal Reserve and the Government also believe recessions “are bad.” As such, they have gone to great lengths to avoid them.

However, what if “recessions are a good thing,” and we just let them happen?

“What about all the poor people that would lose their jobs? The companies that would go out of business? It is terrible to think such a thing could be good.”

Sometimes destruction is a “healthy” thing, and there are many examples we can look to, such as “forest fires.”

Wildfires, like recessions, are a natural part of the environment. They are nature’s way of clearing out the dead litter on forest floors, allowing essential nutrients to return to the soil. As the soil enrichens, it enables a new healthy beginning for plants and animals. Fires also play an essential role in the reproduction of some plants.

Ask yourself this question: “Why California has so many wildfire problems?” 

Is it just bad luck and negligence? Or, is it decades of rushing to try and stop fires from their natural cleansing process as noted by MIT:

“Decades of rushing to stamp out flames that naturally clear out small trees and undergrowth have had disastrous unintended consequences. This approach means that when fires do occur, there’s often far more fuel to burn, and it acts as a ladder, allowing the flames to climb into the crowns and takedown otherwise resistant mature trees.

While recessions, like forest fires, have terrible short-term impacts, they also allow the system to reset for healthier growth in the future.

No Tolerance For Recessions

Following the century’s turn, the Fed’s “constant growth mentality” not only exacerbated rising inequality but fostered financial instability. Rather than allowing the economy to perform its Darwinian function of “weeding out the weak,” the Fed chose to “mismanage the forest.” The consequence is that “forest fires” are now more frequent.

Deutsche Bank strategists Jim Reid and Craig Nicol previously wrote a report that echos this analysis.

“Actions are taken by governments and central banks to extend business cycles and prevent recessions lead to more severe recessions in the end.” 

, Trying To Prevent Recessions Leads To Even Worse Recessions

Prolonged expansions had become the norm since the early 1970s, when President Nixon broke the tight link between the dollar and gold. The last four expansions are among the six longest in U.S. history .

Why so? Freed from the constraints of a gold-backed currency, governments and central banks have grown far more aggressive in combating downturns. They’ve boosted spending, slashed interest rates or taken other unorthodox steps to stimulate the economy.” MarketWatch

But therein also lies the problem.

The Darwinian Process Of Recessions

As we discussed in our series on “Capitalism,” if allowed to operate, is a “Darwinian System.” As with Darwin’s theory of evolution, corporate evolution has the same essential components as biological evolution: competition, adaptation, variation, overproduction, and speciation. In other words, as an economic system, companies either adapt, evolve, and survive or become extinct. 

However, in 2008, the Government and Federal Reserve began a process of “bailing” out companies that should have been allowed to go “bankrupt.”  The consequence of that process is the failure to enable the system to “clear itself” of the excess debt, which diverts capital away from productive uses.

I have illustrated the continual increases in debt used to create minimal economic growth. Specifically, since 2008, the Federal Reserve and the Government have pumped more than $43 Trillion into the economy. But, in exchange, that debt generated just $3.5 trillion in economic growth, or rather, $12 of monetary stimulus for each $1 of growth. Such sounds okay until you realize it came solely from debt issuance.

Capitalism Equal Corporatism, #MacroView: Capitalism Does Not Equal Corporatism – Pt. 2

As Ruchir Sharma previously penned:

“Modern society looks increasingly to government for protection from major crises. Whether recessions, public-health disasters or, as today, a painful combination of both. Such rescues have their place. Few would deny that the Covid-19 pandemic called for dramatic intervention. But there is a downside to this reflex to intervene, which has become more automatic over the past four decades. Our growing intolerance for economic risk and loss is undermining the natural resilience of capitalism and now threatens its very survival.”

Such is an important concept to comprehend. 

Just as poor forest management leads to more wildfires, not allowing “creative destruction” to occur in the economy leads to a financial system that is more prone to crises.

Structural Fagility

Given the structural fragility of the global economic and financial system, policymakers remain trapped in the process of trying to prevent recessions from occurring due to the extreme debt levels. Unfortunately, such one-sided thinking ultimately leads to skewed preferences and policymaking.

As such, the “boom and bust” cycles will continue to occur more frequently at the cost of increasing debt, more money printing, and increasing financial market instability.

It is clear the Fed’s foray into “policy flexibility” did extend the business cycle. However, those extensions led to higher structural budget deficits. The cancerous byproduct of increased private and public debt, artificially low-interest rates, negative real yields, and inflated financial asset valuations is problematic.

Capitalism Equal Corporatism, #MacroView: Capitalism Does Not Equal Corporatism – Pt. 2

However, these policies have all but failed to this point. From “cash for clunkers” to “Quantitative Easing,” economic prosperity worsened. Pulling forward future consumption, or inflating asset markets, exacerbated an artificial wealth effect. Such led to decreased savings rather than productive investments.

Capitalism Equal Corporatism, #MacroView: Capitalism Does Not Equal Corporatism – Pt. 2

The Fed’s “Moral Hazard”

A growing body of research shows that constant government stimulus is a significant contributor to many of modern capitalism’s most glaring ills. Wealth inequality is the most obvious.

However, another more important but not noticeable side effect is that it keeps alive heavily indebted “zombie” firms. 

When a company is “kept alive,” it comes at the expense of startups, which typically drive innovation. All of this leads to lower productivity which is the prime contributor to the slowdown in economic growth and a shrinking pie for everyone. (See chart above.)

By not allowing “recessions” to perform their natural “Darwinian” function of “weeding out the weak,” it creates a macroeconomic problem. As previously noted by Axios:

“Zombie firms are less productive, and their existence lowers investment in, and employment at, more productive firms. In short, a side effect of central banks keeping rates low for a long time is it keeps unproductive firms alive. Ultimately, that lowers the long-run growth rate of the economy.”

If “recessions” are allowed to function, the weak players will fail. Stronger market players would acquire failed company assets. Bond-holders would receive some compensation for their debt holdings. Shareholders, the ones who accepted the most risk, would get wiped out.

Furthermore, assuming capitalism was allowed to function, investors would require appropriate compensation for the risk when loaning money to companies. As such, credit-related investors would get compensated for their risk rather than the current state of abnormally low yields for junk-rated debt.

Capitalism Equal Corporatism, #MacroView: Capitalism Does Not Equal Corporatism – Pt. 2

The consequence, of course, is that since the “Darwinistic process” of a recession did not occur, and the macroeconomic system is even more fragile than previously, the next downturn could happen sooner than later.

The Next Recession

While the interventions certainly salvaged the economy from a more prolonged recessionary event, they also made the economy more fragile. Furthermore, by dragging forward future consumption, the interventions only gave the appearance of economic activity. As excess stimulus fades and assuming interventions don’t repeat, the economy will return its pre-covid growth trend of 2% or less.

Such should not be a surprise given that economic growth is roughly 70% consumption. With wage growth well below inflationary pressures, consumption will get impacted by higher prices.

With Treasury yields dropping and the yield curve reversing, these are early warning signs that economic growth is indeed slowing.

While the NBER declared the 2020 recession the shortest in history, such does not preclude another recession from occurring sooner than later.

All the excesses that existed before the last recession have only worsened since then.

  • Excess Debt
  • High Stock Market Valuations
  • Investor Complacency
  • Financial System Fragility
  • Weak Economic Underpinnings
  • Declining Monetary Velocity
  • Low Interest Rates Detering Productive Activity
  • Financial Liquidity Required To Keep Asset Prices Elevated

Given the dynamics for an economic recession remain, it will only require an unexpected, exogenous event to push the economy back into contraction.

Such is why the NBER is clear in saying they will classify the next downturn as a separate recession.

If you are quick to dismiss the idea, remember no one expected a recession in 2020 either.

But we did warn you about it in 2019.

The post #MacroView: Shortest Recession In History Sets Up Next Recession appeared first on RIA.

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Spread & Containment

Long COVID: double vaccination halves risk of developing long-lasting symptoms

Want to avoid long COVID? Get vaccinated.

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Studio Romantic/Shutterstock

In unvaccinated people, around one in 20 who get symptomatic COVID-19 experience symptoms for at least eight weeks. Around one in 50 have symptoms that drag out for three months or more.

We wanted to know whether COVID-19 vaccines might protect against developing long-lasting symptoms. To find out, we looked at data provided by more than a million regular contributors to the COVID Symptom Study, a project in which members of the public log their symptoms via an app to help with research.

Our latest analysis of the study’s data, covering around 2 million vaccine doses, shows that vaccines significantly reduce the risk of catching COVID-19, with only 0.2% of those fully vaccinated later testing positive for the virus.

Even if you’re unlucky enough to catch the virus after being vaccinated, your chances of falling seriously ill or dying are slashed. Double-vaccinated people are 31% less likely to experience acute COVID-19 symptoms and 73% less likely to be hospitalised – a result that’s borne out in the relatively low hospitalisation and death rates we’re seeing now even as tens of thousands of people are still testing positive every day in the UK.

Reassuringly, for those who did fall ill with COVID-19 after being vaccinated, only around 5% went on to have symptoms that lasted for more than four weeks, meaning their chances of developing long COVID were cut by half. One of the best ways to reduce your risk of getting long COVID is to get fully vaccinated as soon as possible.

However, we did notice that frail older people and those living in more socially deprived areas were more likely to be infected and fall ill with COVID-19 after being vaccinated, especially if they had only had one vaccine dose. This suggests that we should prioritise further vaccination efforts and public health measures such as masking and social distancing among these groups, especially where infection rates are high and people are mixing and moving around.

Vaccines and long COVID

As the UK vaccination programme rolled out, we also started to notice anecdotal reports from people living with long COVID that their symptoms seemed to improve after being vaccinated.

The patient-led LongCovidSOS group chose to investigate this by surveying over 800 long COVID patients early in 2021. More than half of those surveyed noticed an overall improvement in their symptoms after vaccination, which then appeared to be sustained in about half of this group. Around a quarter of the overall respondents reported no difference and one-fifth said their symptoms had got worse. These findings have been released as a preprint, so haven’t yet been reviewed by other scientists, but they’ve been backed up by data from the COVID Symptom Study, which we’ll be publishing soon.

However, while there does seem to be some kind of link between receiving a COVID-19 vaccine and improvements in long COVID, it’s not clear exactly how the two are connected. It could be that the immune response triggered by the vaccine has a direct impact on symptoms.

Alternatively, it could just be that time has continued to pass since these people were originally infected and they’re experiencing a natural recovery from the virus. Or it could be a bit of both. Either way, more research is needed to tease out what’s going on.

A woman with long COVID lying on a bed, covering her face
There isn’t a definitive answer yet on whether vaccines can relieve people’s long COVID symptoms. True Touch Lifestyle/Shutterstock

What we can say is that COVID-19 vaccines certainly aren’t harmful for people with long COVID. What’s more, because we know that it’s possible to be reinfected with the virus, there’s a risk that catching it a second time could exacerbate symptoms for people living with long COVID and set them back even further. It’s therefore vital that we encourage anyone with long COVID who has not been vaccinated to do so as soon as possible, to help protect themselves and those around them.

A serious threat

Although the chances of developing long COVID after being vaccinated are small, this is a numbers game and a small percentage of a big number can still be substantial. As long as we are seeing tens of thousands of cases every day, we can still expect to see a substantial number of people living with lingering symptoms over the coming months.

This is particularly important for younger people, who may be less worried about hospitalisation or death, yet who can still be susceptible to the debilitating long-term effects of the virus. A lot can happen in a few months when you’re young, and long COVID can mean that people miss out on life-changing opportunities, like sitting an exam or taking up a new job, as well as the social activities that bring joy and wellbeing to life.

It’s likely that we’ll all be living with COVID-19 for some time to come. But with a combination of vaccination and public health measures where necessary, we can help to make sure that as few people as possible have to directly live with its life-limiting long-term effects.

Claire Steves consults for ZOE Ltd which is the company which developed the COVID Symptom Study together with King's College London. She receives funding from the Medical Research Council, the National Institute for Health Research, the Wellcome Trust and Chronic Disease Research Foundation.

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Stock Market News For Today September 22, 2021

Investors await Fed’s monetary policy update and new economic projections in the stock market today.
The post Stock Market News For Today September 22, 2021 appeared first on Stock Market News, Quotes, Charts and Financial Information | StockMarket…

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Stock Market Futures Edge Higher As Evergrande Bankruptcy Fears Ease

Stock market futures are on the rise early on Wednesday morning. This came after China’s Evergrande said it would make its interest payment on schedule, offering some relief to the jittery markets. Some investors are also expecting the Chinese government to step in to mitigate potential spillover effects that could weigh on global economic recovery. For example, the short-term cash injection from China’s central bank has helped soothe the nerves of the stock market. While there has been speculation that this could be China’s ‘Lehman moment’, many experts believe the comparison is unjustified.

There’s been a fair bit of concern about the possibility of contagion,” analysts at New York-based Bespoke wrote in a research note on Tuesday. “But so far that concern isn’t showing up in parts of the credit markets that have served well as red flags for broader credit crunches in the past.

Investors are also awaiting an update to the Fed’s monetary policy and economic projections. Jerome Powell is expected to speak to the media at 2.30 p.m. ET today. Investors could expect the Fed to lay the groundwork for a near-term announcement and when the tapering would take place. Recall that Powell previously said it could begin as soon as this year. But some investors are now speculating that it won’t happen this soon. As of 6:45 a.m. ET, the Dow, S&P 500, and Nasdaq are up by 0.64%, 0.58%, and 0.34% respectively.

[Read More] What Stocks To Buy Today? 5 Tech Stocks To Watch

Marin Software (MRIN) Stock Surges On New Google Agreement 

Marin Software (NASDAQ: MRIN) stock is spiking higher in pre-market trading today. This came after the announcement that the company entered into a revenue share agreement with Alphabet (NASDAQ: GOOGL) to develop its enterprise tech platform and software products. The revenue share agreement will take effect on October 1. For some context, the company provides marketing software to advertising agencies. Its MarinOne product is an e-commerce advertising platform, and its Marin Search is for managing advertising campaigns.

top tech stocks (MRIN stock)

Last month, the company revealed that its system is now integrated into Criteo’s Commerce Media Platform. Essentially, that opens up the option of wider use of the company’s MarinOne platform.

Chris Lien, CEO of Marin Software, is also highly optimistic about the news. In his own words, “Commerce media is one of the most exciting and fastest-growing areas of digital marketing. With this integration, we can tap into Criteo’s commerce data and intelligence to further our mission of providing advertisers with seamless access to customers across their customer journey, from the top of the funnel to the point of purchase.

[Read More] Best Lithium Battery Stocks To Buy Now? 4 To Know

Adobe (ADBE) Stock Falls As Recurring Revenue Barely Top Estimates

Adobe’s (NASDAQ: ADBE) fiscal third-quarter earnings and sales beat expectations, but the results weren’t enough to lift ADBE stock in the extended trading. From its quarterly report, revenue came in 22% higher year-over-year to $3.94 billion. In fact, it was a quarterly sales record for Adobe, topping Wall Street’s consensus estimate of $3.89 billion, according to FactSet. 

top software stocks to buy (ADBE stock)

On top of that, Chief Executive Officer Shantanu Narayen also pitched new creative software tools to continue Adobe’s steady 20% revenue growth. As part of that effort, Adobe said last month it would acquire Frame.io, a startup that makes video collaboration software, for $1.3 billion. By and large, the current tailwinds behind Adobe’s core offerings persist along with the pandemic. With all this in mind, the real question is whether or not Adobe can maintain its current momentum.

On Monday, Wells Fargo (NYSE: WFC) reiterated its Overweight rating on ADBE stock ahead of its earnings call. The firm even hailed Adobe as “one of the crown jewels of software”, citing solid core positioning and industry tailwinds as major growth factors. Wells Fargo recommends Adobe “as a long-term core holding in any large-cap tech portfolio“. Last week, the company also announced a partnership with PayPal (NASDAQ: PYPL). This partnership aims to add more payment services to its e-commerce platform. Thus, merchants will be able to accept credit cards and other ways of paying. Considering all these, would the current dip in ADBE stock present an opportunity for bargain hunters?

[Read More] Top Stocks To Buy Now? 4 Renewable Energy Stocks For Your Watchlist

BlackBerry Set To Report Earnings After The Stock Market Closes Today

Gone were the days when BlackBerry (NYSE: BB) tops the global smartphone market. But that doesn’t keep investors away from investing in this well-respected software security company. The company is set to report its earnings after the stock market closes today. Naturally, a lot of the attention will be on BlackBerry stock today. Many investors and analysts are highly bullish on the company’s untapped potential in the cybersecurity space. If you have been following Reddit’s chatter, you would also know that’s a meme stock that gets speculated on by investors.

communication stocks to buy now (BB stock)

The company provides intelligent security software and services to enterprises and governments around the world. As you may be aware, Microsoft (NASDAQ: MSFT) participated in a meeting at the White House last month regarding the need to address cybersecurity threats as a country. With BlackBerry as a partner, a lot of focus will be on BB stock moving forward. 

Other positive catalysts include the increased proliferation of BlackBerry’s systems in China’s automotive space. On August 26, the company announced that Chinese carmaker Great Wall Motors would use an advanced digital cockpit controller platform developed by BlackBerry and its partner Nobo. If anything, it shows that BlackBerry and its partner continue to be making progress in the huge Chinese auto market. With all that in mind, is BB stock a buy ahead of its earnings report?

Other Notable Earnings On Tap Today

Not to mention, several other major companies are looking to report their earnings today. For those looking to jump on some pre-market earnings action, we have General Mills (NYSE: GIS) and Gaotu Techedu (NYSE: GOTU) on tap.

Alternatively, in case you are keener on earnings after the closing bell, there is a good mix of names to consider as well. Namely, Blackberry, KB Home (NYSE: KBH), and H.B. Fuller (NYSE: FUL) among others would be in focus. Whether you are anticipating the Fed’s announcement or keeping up with earnings, one thing remains. There is no shortage of exciting news to note in the stock market now.

The post Stock Market News For Today September 22, 2021 appeared first on Stock Market News, Quotes, Charts and Financial Information | StockMarket.com.

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Government

The Market is Deeply Oversold And Looking For A “Dovish” Fed

As we will discuss, the market is deeply oversold and looking for a "dovish" Fed to spark buying. Traders and investors will be laser-focused on the Fed meeting adjourning at 2 pm ET. Of importance, the decision on taper and their characterization of…

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As we will discuss, the market is deeply oversold and looking for a “dovish” Fed to spark buying. Traders and investors will be laser-focused on the Fed meeting adjourning at 2 pm ET. Of importance, the decision on taper and their characterization of the economic recovery and inflation. If they do elect to announce a taper schedule, the pace of tapering and any caveats that may delay tapering will be of utmost importance.

Like yesterday markets are opening up a half to one percent higher. Will they hold onto the gains, unlike yesterday? The answer likely lies with the Fed at 2 pm.

What To Watch Today

Economy

  • 7:00 a.m. ET: MBA Mortgage Applications, week ended September 17 (0.3% during prior week)
  • 10:00 a.m. ET: Existing home sales, month-over-month, August (-1.7% expected, 2.0% in July)
  • 2:00 p.m. ET: FOMC policy decision

Earnings

Pre-market

  • 7:00 a.m. ET: General Mills (GIS) is expected to report adjusted earnings of 89 cents per share on revenue of $4.30 billion

Post-market

  •  4:10 p.m. ET: KB Home (KBH) is expected to report adjusted earnings of $1.62 per share on revenue of $1.57 billion
  • 5:05 p.m. ET: BlackBerry (BB) is expected to report adjusted losses of 7 cents per share on revenue of $166.80 million

Politics

Market Deeply Oversold – Looking For Some “Dovish” Tones

The rolling correction over the last 3-weeks has pushed the market into deeply oversold conditions on a short-term basis. Such provides plenty of “fuel” for a decent rally over the next month or two given some news to spark buying. Today, the Fed could do the trick with Jerome Powell delivering his post-FOMC press conference with a “dovish” tone. With Congress battling over the debt ceiling, the Treasury running out of money, and the risk of a Government “Shutdown” looming, the Fed has all it needs to provide plenty of “caveats” to its “taper” plans.

Fear Greed Index Near Lows

Another reason for near-term bullish optimism, is that both the AAII bullish allocation and the “Fear/Greed” index are near their respective lows. Combined with the oversold market conditions, such typically provides a buying catalyst as traders reposition themselves in equity risk.

Trading Game Plan for the S&P 500

The markets are trading well in overnight trading following yesterday’s flat-trading day. The bounce provides us with another set of levels, in addition to the 50, 100, and 200-dmas, to guide our trading. The graph below shows the Fibonacci retracements from the recent high to low. If this rally proves to be a bull trap, it is likely to give up between the 38% retracement (4395) and the 62% retracement (4451). There is also a gap between 4400 and 4430.

It is common for such gaps to fill and then reverse direction. If the market surges higher through the gap and retracement levels, the outlook becomes more bullish. A rally above the 4451 retracement level and well through the 50dma (4436) will likely lead to new highs. Conversely, the 50 dma (4436) may prove to be resistance. The first line of support is yesterday’s lows and the 100dma (4328). A break of the recent low leaves a target of 4106, the 200dma.

Follow Up to Monday Market Mayhem

Easy Lending Standards

Employment and inflation tend to get the headlines as far as rationales for the Fed to take action. As we consider what the Fed may do tomorrow, we should also consider lending standards. The graph below shows the lending standards for large banks’ credit card customers are as easy as they have been in 20 years. On its own, very easy lending standards, as we have, push the Fed toward a more hawkish stance. Easy borrowing conditions incentivize personal consumption. More consumer activity, especially given current supply line problems, is likely to further agitate inflationary conditions.

Chinas & Evergrande. Will They or Won’t They?

In addition to concerns with China, Evergrande, and possible contagion, the markets are also grappling with Wednesday’s Fed meeting. In what was likely a purposeful leak last week, the WSJ laid the groundwork for a taper announcement Wednesday and the reduction in asset purchases in November. With the U.S. and foreign markets skidding yesterday some are asking how the Fed might react. In a Bloomberg interview, ex-New York Fed President, Bill Dudley, warns “They’re not going to react to small market moves and defer the tapering on that basis. They have to change their economic forecast,” he said Monday during an interview on Bloomberg Television with Lisa Abramowicz, Tom Keene and Jonathan Ferro. “At this point, it’s really premature to reach that conclusion.”

The post The Market is Deeply Oversold And Looking For A “Dovish” Fed appeared first on RIA.

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