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 | November 2019

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To no one's surprise, the Federal Reserve cut interest rates on Wednesday by another quarter point for a third consecutive time this year, to a new range of 1.5-1.75%.  
The economic community was mixed as to the need for another dose of monetary easing with the stock market making record highs.  Chairman Powell correctly responded that it is Fed's job to support maximum employment and stable prices - rather than make policy - and that's exactly what the Fed is doing.  In support, he highlighted record unemployment and inflation below the Fed's 2% target for healthy growth.  Hard to believe this is the same Chairman Powell that was bent on raising rates late last year under similar economic circumstance.
So what does a third rate cut mean for you the investor?  Maybe a lot!  Let's discuss.
Third Time's a Charm

If history can be trusted, we could be in for a fantastic stock market ride over the next six to twelve months.  According to LPL, the market tends to extend its gains after three successive interest-rate cuts by 10% over six months, and 20% a year later.

"We've seen periods of economic slowdowns that had three consecutive 25 basis point cuts, most recently in the mid- and late 1990s," said LPL's senior market strategist Ryan Detrick. "The good news is the economy accelerated after the slowdowns and stocks did quite as well." he said.
If the economy is in fact slowing, this rate cut should give the market the shot of adrenaline it needs to move higher.  If the economy is not slowing, it's hard to see a downside to cutting rates.  Either way, if there's one thing we've learned over our many years managing money, it's "Don't Fight the Fed" because markets tend to thrive - notwithstanding the news - when the Fed is cutting rates.
Challenging the Narrative

Last month I had the privilege of attending an exclusive advisor event sponsored by First Trust and TD Ameritrade in Chicago. Without a doubt it was one of the most usefully informative conferences I've attended in several years. Here's a couple of chart gems I think you'll find enlightening.

Tax & Trade

The following two charts show corporate tax rates for the ten largest economies in the world and their average tariff rates.  We believe these two charts clearly demonstrate why corporate taxes and global trade were two fights our President had to pick in order to put the US back on competitive footing with the reset of the world.

In both cases, the US subsidized foreign economies before Trump took over.  Now, American companies can compete on a level playing field.  

Corporate Earnings or QE? 

The following chart reveals that since 2016 the US stock market has continued to rise even though the Fed stopped pumping money into the system. This is due to strong corporate earnings fostered, in our opinion, by a lower corporate tax rates, reduced regulation, technological advances and our independence from foreign oil. And all without creating any meaningful inflation!  Imagine what fair trade will do to this picture?  

In Closing

We've now entered the sweet part of the year (November - April) for the stock market.  The Fed just cut rates for a third time and has indicated that it will do what is necessary to protect the economy, i.e., additional rate cuts and or bond buy backs.  Q3 earning season is underway and appears strong.  Finally, according to Ned Davis Research, since 1900 stocks have gained on average 9.5% in an election year. 

It's safe to assume we are bullish on both stocks and bonds for the moment.  

"Never wrestle with a pig. You both get dirty, but the pig likes it".
George Bernard Shaw

S incerely,

Marty Kerns
President & Chief Executive Officer
Parker Binion
Chief Investment Officer
About Kerns Capital Management

Kerns Capital Management is a leading asset management firm with a focus on quantitative, liquid alternative investment strategies.  We are value-oriented investors in long/short equity, credit and volatility, and apply the same attention to risk in the deployment of capital that has guided us since our inception as a fiduciary investment manager to corporate pensions, trusts and high net worth individuals. Kerns was founded in 1996, and is based in Houston, Texas.

For more information on our products, including fund performance, please visit or contact Martin Kerns or Parker Binion at 1 (800) 945-2125 or

Performance data represents past performance and is not a guarantee of future results.  Performance current to the most recent month-end may be lower or higher, and can be obtained by calling 800-945-2125.

The S&P TR 500 Index is an unmanaged composite of 500 common stocks. This index is widely used by professional investors as a performance benchmark. Total return includes reinvestment of dividends. You cannot invest directly in an index. The Dow Jones Industrial Average is a price-weighted average of 30 of the largest and most widely held stocks traded on the New York Stock Exchange and the Nasdaq. The Nasdaq Composite Index is a market-capitalization weighted index of the more than 3,000 common equities listed on the Nasdaq stock exchange. The types of securities in the index include American depository receipts, common stocks, real estate investment trusts (REITs) and tracking stocks.