The Economy: Consumer confidence surged; Everything home-building looking positive. The US continues to post impressive economic numbers. Though nay-sayers shout “Fake News” with every number that’s posted. All news is good news with individual investors finally beginning to pour money into stocks. Brexit, Trump, the rise of populism, the assault on globalism, immigration and the environment are no reason to slow financial markets still feasting on $200 billion a month in central bank stimulus. Repealing and replacing Obamacare was to provide billions in tax savings. Those savings were to be factored into the overhaul of the tax code. The narrative was that passage was a slam dunk. The subsequent fail produced a new narrative that Tax Overhaul would sail through regardless. Markets were thrilled that billions in lost tax savings no longer mattered. True to form, a massive rally followed the fail.
Food for Thought: The Trump phenomenon continues to unfold in stark black and white. Love him or hate him he is a phenomenon. Polarizing in the extreme, he’s brought out the worst in many. The main stream media (MSM), Hollywood, the UN, NATO and foreign governments seem to be the most shocked. Sacred Cows everywhere are in retreat. All concerned are becoming aware that POTUS is a brawler who enjoys taking the fight to the street. As a businessman The Donald understands that the best way to gut a program or department is to decapitate administration and cut or curtail funding. No money, no staffing, no decisions, no activity, no continuation of programs outside the Trump Agenda. Brilliant or Brutal depending on your persuasion. How this ultimately plays out is anyone’s guess. How the financial markets respond is also anyone’s guess. With the stroke of a pen, Trump is undoing decades of U.S. policy and redirecting national priorities and resources. Markets continue to treat these unprecedented events as a win for all sectors of the economy. The prime example is Climate Change. The administration’s position is, “We’re not going to spend any more money on that.” Yet the response of financial markets is that the trillions invested in this sector are going to continue on the same growth trajectory as when they were darlings. Reminds us of PT Barnum’s “There’s a sucker born every minute.”
Music of the Week: Jack Johnson’s “Jack Johnson”
The Economy: “Veni Vidi Vici” is the new Black and it couldn’t be more appropriate for the Ides of March. It rightfully belongs with Caesar but this week has seen a bevy of contenders who deserve participation trophies: Shia LaBeouf, Rachel Maddow, John McCain and Bruce Loveless were joined by Fed Chair Yellen. Uber Dove Yellen continued to lead from the rear with a ¼ point interest rate hike. Yellen’s comment to consumers was, “The simple message is the economy is doing well.” 3 or more rate hikes are expected in 2017; roughly one every other meeting till year end. Analysts were quick to call it a Goldilocks Rate Hike with a dovish statement. The Trump Animal Spirits provide the perfect cover for the Fed to reload monetary policy before the next recession hits. Having kept interest rates at zero for almost a decade, the Fed must now scramble to hike rates enough that they have room to ease when the economy eventually slows. Let’s keep those zombies and buglies dancing around the bonfire. Maybe no one will notice that credit is tightening. Bored? Try this Thought Experiment: Enter a Prime Rate of 7% into your operating calculations. What does that that do to your organization? … only a matter of time.
Food for Thought: Quantitative Easing (QE) is alive and well. While the Fed has cut back, nothing is being done to shrink its bloated balance sheet. Equally important, Central Banks continue to pump $200 billion per month into the global financial system. The EU alone pumps $80 billion per month and “We’ll Do Whatever It Takes” Draghi shows no sign of easing off. If global growth is accelerating, why is $2.5 trillion in stimulus still needed? … that is the fly in the Animal Spirits’ ointment. Next up, raising the U.S. Debt Ceiling from its 2008 limit. This used to be cause for government shutdowns and hand wringing. Maybe it’ll get some play when The Donald issues his budget.
Music of the Week: Jimi Hendrix “Axis: Bold As Love”
The Economy: Government statistics continue to show an expanding economy with healthy employment and inflation that will support a near certain interest rate hike next week, when the Fed meets. Fake news? Who knows! Who cares? How do things look from your place in the firmament? Economists and analysts are evenly opposed on the question. David Rosenberg, the economist who coined the phrase the “New Normal” is a case in point. Regardless of glowing reports, Rosenberg remains skeptical that the outlook is so rosy. The noise from both sides of this issue is only exceeded by the screams of the Social Justice Warriors and their nemeses, the Deplorable Populists. For all the racket about how bad things are, I see full restaurants, crowded malls, private schools with waiting lists and growing numbers of happy new car owners who’ve forked over 6 or 7 figures for their piece of the American Dream. If this is a bubble, then the lambs are the happiest campers in history.
Food for Thought: I had hip replacement surgery last week. Was walking around the same day. Was back home 24-hours after surgery and back in the office less than 48-hours after surgery. … I only lasted an hour in the office before my body demanded immediate and total bedrest for the next 4-days. Call it a jock’s hope over experience. Nevertheless, the speed of my recovery has amazed me and I’m now up and about on a full schedule. I’ll have the other hip done as soon as I can get it scheduled. The miracles of modern medicine don’t need my riff. What does is the observation that all aspects of Health Care will be a growth industry as far into the future that we can see. The sector has taken a breather while the new administration brings its plans to fruition, but the space is built on boomer demographics.
Music of the Week: Peter White’s “Smile”