The Economy: Economic data was light last week; what was released was weak. The stream of conflicting data continues unabated with Europe flipping between Teutonic Strength and Greco/Italian Tragedy. Japan is showing strength while dodging North Korean (NK) missiles. China boasts of their booming economy while trying to contain their Haircut-Impaired-NK-Doughboy. Geopolitics again stole the spotlight from the economy as Fed-Speak was absent except for comments from The Bernank. Big Ben opined that the Fed might keep its bloated balance sheet for the foreseeable future. … couldn’t shrink it without tanking the economy. Rumor is that Grandma Yellen is trying to apply the Art of the Deal to The Donald himself. The Trade: She stays at the Fed for another term in exchange for keeping interest rates low. … not bad if she can pull it off … and why not. The Federal budget has little room for an increase in debt service … might take away from all those shiny toys that The Pentagon wants.
Food for Thought: “Peace through strength” was a phrase championed by Ronald Reagan. The current “America First” rhetoric apparently does not mean withdrawal from the world. Rather, it appears to be a policy of strongly protecting American interests, with force. North Korea is problematic but hardly a Gordian Knot. As we look out on the investing landscape we see geopolitical risk as increasingly likely to effect financial markets. Stock markets have stalled as this reality comes home.
Music of the Week: Tom Jones’ “Tom Jones”
The Economy: This holiday shortened week has seen few economic releases. The Donald will have the opportunity to appoint a new Fed governor. This may result in a more hawkish Fed stance. In one public appearance, Fed Chair Yellen congratulated herself on a job well done; clearly the age of “Self praise is no praise” is a thing of the past. Increasingly the Fed is indicating that they’re considering “normalizing” their balance sheet. This means shrinking it over time. If and when this occurs, it will have the effect of further tightening in the credit markets. This prudence all sounds well and good. But the Fed has made it crystal clear that they will do whatever it takes to keep the stock market going up. Give Janet and the Boys a 3% market correction and the spigots are opened full blast as the Fed floods markets with free money. To say this will end badly is to sound like Chicken Little screeching about the sky falling. So we won’t bore you with arcane details like market liquidity, counterparty risk or dark pools.
Food for Thought: The Donald suited up as El Cid and smote the Syrians. It was a grand opening to Easter and Passover Week. The aptly named Tomahawks found their mark. Half of those were fired by the USS Porter (DDG-78). The Commanding Officer of Porter is Navy Commander Andria Slough, Naval Academy ’81. Women in every walk of American life should be proud that one of their own proved to be the cream of the crop in a highly competitive, male dominated, uber-macho profession; no glass-ceiling for her. The positive response, to the strike, from both sides of the aisle was deafening. Overnight, Trump-the-simpleton-Russian-spy-and-Putin-Dupe morphed into Trump-The-Decisive-Embodiment-of-American-Leadership. Then he swore Neil Gorsuch in as the newest Supreme Court Justice. Have a great Holiday!
Music of the Week: George Michael’s “Ladies and Gentlemen”
The Economy: The numbers released this week underscore the difficulty in evaluating the economy. Consumer confidence is at all-time highs; as is bullish sentiment. Auto Sales disappointed. ADP Jobs report on Wednesday were blow-out; far above expectations. Yet the very similar NonFarm Payrolls were far below expectations on Friday. Oil has rallied, dipped and rallied back on each OPEC announcement. Fed Minutes were released and showed a more hawkish stance towards raising interest rates. They also contained a comment that stocks may be overvalued. The nuclear option on Gorsuch was exercised without causing a ripple. This is the conundrum of soft versus hard data. Soft data is about how you feel or what you think. Hard data is information that has some basis in statistics. With the manipulation of statistics you now have to frame hard data in terms of what might be fake news. For example, are any numbers provided by the Chinese Communist Party real? For better or worse, they certainly drive the markets. For the U.S. the consensus is that the Trump rally is intact regardless of the healthcare fail, the headwinds of tax reform, a looming trade war with China and as of today, a possible hot war with Syria/Russia. We continue to hear that regardless of the macro picture, bank lending standards remain tight.
Food for Thought: The relentless upward bias of the stock market stumbled Wednesday when the Fed Minutes were released. Two comments were taken as bearish for stocks. First, further interest rate hikes are coming in 2017. Second, the statement that stocks may be overvalued was viewed as a warning. Together, these comments stopped the rally and caused the largest reversal in 15-months. Markets closed down dramatically. But like so many other issues that should have paused this bull market, the reversal was forgotten overnight. Stocks had a positive day as the prospect of a Syrian war and the adage, “buy on the sound of cannons, sell on the sound of trumpets” was heard. Last week Tillerson indicated that Syria was best left to the Syrians. Today, Trump bombed ‘em. U.S. military intervention in Syria. Perhaps it’s the Art of The Deal, but it seems that there’s a lot of U.S. saber rattling going on. We have U.S. troops in Poland, on the Russian border, for the first time in history. We’ve turned-up the anti-Russian volume on Ukraine. We’re threatening North Korea with unilateral action. We’re flashing the sabers at China over the South China Sea. Perhaps the Central Banker stock market, which has morphed into the Trump Bump market will evolve into the global war market. To Infinity and Beyond.
Music of the Week: Billy Idol’s “Charmed Life”