The Economy: Central Bankers dominated this week with the ECB’s Draghi reiterating that more stimulus is sure-fire Nirvana. Then Yellen and her crew called the stock market expensive while continuing to talk up higher interest rates. They ignore that higher interest rates have been the death knell of every bull market. Now that he’s in the Oval office and staring down the barrel of the Federal debt, The Donald has become an advocate of low interest rates. Higher interest rates jeopardize all of his campaign promises and programs. History teaches us that when the Fed begins to talk about stocks being expensive, the bull has further to run. Yet, we’re perplexed that the Fed would warn of an overpriced stock market. After all, they have finally achieved their objective of a runaway stock market that continues to race higher. Risk has been banished as investors have finally accepted that Central Bankers will always do whatever it takes to keep stocks going up forever. … to infinity and beyond!
Food for Thought: 4th of July! All Citizens are Patriots; regardless of which side of the aisle. Just ask us. So we can safely say, without being accused of hate speech, “My Country right or wrong, still My Country.” Have a great 4th of July!
Music of the Week: Rod Stewart’s “It Had to be You”
The Economy: “Summertime and the livin’ is easy.” Economic data has been scarce. The Fed continues to indicate that they are now in a tightening cycle. We’ll believe it when the stock market has a correction and the Fed actually continues to raise rates; rather than follow their usual action of doing everything possible to support the asset bubble. The Fed has also indicated that they will be shrinking their bloated balance sheet. This will also have a tightening effect. Again, we’ll believe it when we see it. In the meantime, stocks continue to move higher led by the FANGs. Stocks remain a pure-play in central bank manipulation with the Bank of Japan now buying stocks like never before. Oil, on the other hand, entered bear market territory this week; crashing to $42/barrel WTI. The ripple effect has yet to be felt in the economy. A few short weeks ago oil was the biggest bull story around. … goes to show how quickly the story can change.
Food for Thought: We’re officially into summer. Time to find a good read and relax. “The Fourth Turning: An American Prophecy …” by Strauss & Howe frames today’s world in a way that you might find thought provoking. Are we in an era of increasing instability or is it simply a matter of the ever-present media. Most of the time, things tend to change only at the periphery. Occasionally events are life altering: wars, economic collapse, revolution are three macro events that come to mind. It’s all happened before … on numerous occasions … and the world is still turning. We’re cockeyed optimists and far beyond the sky-is-falling. Having said that, we continue to encourage you to have an exit strategy for these financial markets.
Music of the Week: Michael Allen Harrison” “Horray for Hollywood”
The Economy: Economic data is weak as we go into the Fed’s expected interest rate increase later today. Inflation remains below expectations. Retail sales x-autos is down. Auto sales have begun to disappoint. Bond yields remain stubbornly low as foreign money pours into U.S. Treasuries. Treasuries are a global safe haven with attractive yields. Regardless of what the Fed does to raise interest rates, market forces continue to suppress those levels. The Lesson: “The Market is Always Right.” Even central bankers must bow to Market Gods. They just haven’t figured this out yet … and are too arrogant to learn from history. Stocks?!? … clearly they are going to go up forever with absolutely no risk.
Food for Thought: Global central banks continue to pump $30-billion/month into the global economy; $1.5-trillion so far this year. As a result, there are reports of global recovery. A recovery based on massive debt … and we are assured that debt is irrelevant. Venezuela is bankrupt, Puerto Rico is bankrupt, Illinois is bankrupt, Stockton is bankrupt … because of debt. But central bankers continue to spout that debt is irrelevant at the global level. Good luck with that myopic nonsense. The debt of Louis XIV bankrupted France and Louis XVI got the French Revolution. The Debt of WWI bankrupted Germany and Weimar got the hyper inflation where 1 million Marks bought a loaf of bread. The Debt of WWII bankrupted Great Britain and the U.S. muscled past the Brits and into the position as the pre-eminent super power. Bread and circuses for the masses. Contact us for innovative help with your money.
Music of the Week: Heart’s “Tell it Like It Is”
The Economy: Steady as she goes with our heads firmly planted in the sand … or elsewhere that the sun doesn’t shine. Global economies continue to report they are expanding … with the ongoing Central Banks stimuli of hundreds of billions. So the logical question is, “How healthy is the patient in an induced coma with 9-IVs and a ventilator?” The answer is that it depends on who you’re talking with. A sunny, weekend walk around La Jolla shows streets paved with gold, crowded with exotic cars, full of laughing shoppers swilling $4,500 Haut Brion while lighting their smokes with $100 bills. The local lululemon says that business has never been better. But the company founder says the stock has crashed and wiped $10 billion in equity off the books. Chicanery or the drunken revelry of those untouched by hardship, convinced of their moral superiority? If a tree falls in the forest and no one hears it, did it make noise? The smart money didn’t pay attention to Vulcan at his anvil inside Vesuvius either.
Food for Thought: You can run but you can’t hide. The consensus is that financial markets are insane but still the only game in town. … game being the operative. Central Banks have manipulated markets beyond any point of recognition. So what happens next? Good question. Everyone agrees that when things end it will be the Mother of All Ugly (MOAU?!?). Everybody except you is going to be wiped out. You’re going to be in cash when the end comes and then jump into the greatest buying opportunity in history. Of course, everyone is planning to do this. So beware Bob Farrell’s Rule #9 “When all the experts and forecasts agree — something else is going to happen.”
Music of the Week: Steven Kummer’s “Nice ‘N Easy”
The Economy: We end the month of May with a review, since the election, of comments on the economy and the financial markets:
2016_11_09: Jeff Gundlach of DoubleLine: “Buy This Market on Trump, Growth and Inflation.”
2016_11_09: Stanley Druckenmiller: “Buy This Market.”
2017_01_31: Kyle Bass, of Hayman Capital Management: A lower corporate tax rate … will be “extremely stimulative.”
2017_02_02: Dan Loeb Hedgie: “The … election was the most significant event of the year …”
2017_02_08: Larry Fink BlackRock CEO: “I believe we’re in the midst of a slowdown … because of all the uncertainty.”
2017_02_12: Jim Rogers: “We’re about to have the worst economic problems of a lifetime … ”
2017_03_02: Raymond James’ Jeff Saut: “I’ve never seen anything like this market, so I’m not going to play.”
2017_03_09: Bill Gross Janus Capital Group: ”…our highly levered financial system is like a truckload of nitro glycerin on a bumpy road …”
2017_04_01: Jamie Dimon CEO JP Morgan: “It is clear that something is wrong” with the nation.”
2017_05_10: Jeff Gundlach of DoubleLine: “The VIX Is Insanely Low”
2017_05_09: Lloyd Blankfein Goldman Sachs CEO: … low volatility… is not a “normal resting state” for markets.
2017_05_09: Art Cashin, of UBS: “It’s not normal … people are so blasé about what’s happening,”
2017_05_13: Ray Dalio of Bridgewater: “…the downturn … will likely produce much greater social and political conflict than currently exists.”
2017_05_30: Paul Singer of Elliott Management: When, Trump’s pro-growth agenda fails to be implemented, “all hell will break loose” …
2017_05_31: Benjamin Bowler, Bank of America Strategist: …”these markets are very weird”… US equities continue to set long-term records for instability”…
Food for Thought: My original entry for this paragraph was a commentary on Kathy Griffin. However, the Higgins Capital editors/censors, comprised of my wife and daughter, redacted so much of my reaction to Griffin’s wanton act of pure evil and hatred that the result looked like something like this from the CIA: “At__point__. Ultimately__media__internet__; __silent__”high__What’s__Award.” Long story short, my rant on decency and graciousness ended up on the cutting room floor.
Music of the Week: Cat Stevens’ “Tea for the Tillerman”