Investors are well aware of the Fed’s historic pivot at the end of 2018.

From December 2015 to December 2018, the Fed had been moving ahead with rate hikes. They had taken the fed funds target rate from 0% to 2.25% in small 0.25% increments over three years with occasional “pauses” along the way. Then in late 2017, the Fed began to “normalize” its balance sheet.

In plain English, that means reducing their balance sheet from $4.5 trillion to something closer to $2.5 trillion by burning money. This was quantitative tightening, QT, the exact opposite of QE. The effect of doing both was equivalent to raising rates at about 2% per year off a very low base.

That kind of rate tightening in the absence of inflation was unprecedented. We warned for years that the Fed was tightening into weakness and would produce a recession if they did not back off. They did.

In late December, the Fed made it clear that rate hikes were on pause until further notice. In mid-March, the Fed announced they were tapering their balance sheet reductions and would move the tempo to zero by next September.

Observers quickly concluded that this pivot to relative ease was in response to weak data on U.S. growth. That’s true as far as it goes, but it’s not the whole story. As this article reveals, the slowdown is not confined to the U.S. but is global in nature.

One of the best leading economic indicators is data from shipping. FedEx has reported a material slowdown in shipments and revenues on a worldwide basis. This means that manufacturers, retailers and distributors are finding fewer customers for their goods.

FedEx is like a thermometer that measures the health of the global economy. Right now, the patient looks ill. It’s time for investors to reduce exposures to stocks and other risky assets and reallocate to cash, Treasury notes and gold.

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