The Economy: Good News/Bad News. The numbers continue to show an economy that is slowly expanding. On the whole, this has been the case for the past few years. You know you’re heading into a recession when the economic numbers are consistently negative. None of that for the U.S. The bad news, Hurricane Harvey will adversely affect the economy in a variety of ways. Rebuilding aside, natural disasters are never good for any economy. So Harvey is a negative and most likely more so than Katrina since Houston has a bigger economic/industrial footprint than New Orleans. Other bad news: The NOKO Doughboy continues to poke The Donald with a sharp stick. This time around, the POTUS reaction was more restrained than in previous instances. A focus on the domestic priority of Houston is one reason. Another possible reason is that WH Chief of Staff Kelly may have imposed some order on the spontaneity of WH communications. Regardless, financial markets have simply loved the Houston disaster and the increasing tensions with NOKO. Sensing that monetary policy will remain unchanged at the September FOMC meeting, stocks have rallied in anticipation of lower interest rates for longer … and more can kicking on shrinking the Fed balance sheet. To Infinity and Beyond!
Food for Thought: Life Insurance is probably only second to having your teeth pulled as a topic to avoid. It’s essential but infrequently attended to. September is National Life Insurance Awareness Month. So it’s a good time to evaluate your life insurance needs. If you have any questions or specific insurance needs, please contact us. The uses of life insurance have become more creative over time. Don’t leave home without it. Call us.
Music of the Week: Toni Braxton’s “Pulse”
The Economy: Politics continue to trump economics; though the numbers continue to show an economy expanding below expectations. August which is supposed to be the sleepy month of vacations has turned out to be action packed. The latest episode of House of Cards opened with the rush to World War 3; narrowly averted when the NOKO Doughboy blinked or The Donald turned a blind eye to further threats; your choice. Financial markets had a fit then recovered from the head-fake. Next up The Charlottesville Brawl and subsequent slugfest masquerading as a press conference. This was followed by the orchestrated exit of business leaders from the administration’s lineup. Two national business advisory councils were then dissolved and the rumor was that Trump’s chief economic advisor, Gary Cohn, was going to resign. Instead, Friday saw the White House departure of Steve Bannon who vied with Vladimir Putin for the administration’s title of “Master Puppeteer.” Again, markets spasmed into another head-fake. Stay on vacation; The Circus will still be in town when your return.
Food for Thought: Just when you hoped that your money would become more interesting, your dreams have been shattered by more fun and games. Except for checking your parachute there’s little to thrill with markets again near all-time highs and Kumbaya sung from every bank, brokerage firm and advisor. This week sees the Jackson Hole confab for the Master of The Universe Wannabes. Super Mario Draghi will croon “I’m Just a Gigolo.” Yellen will speak on “Financial Stability.” Interest rates will be lower for longer and come September there will be more kicking the can down the road because shrinking the Fed balance sheet will be cause for the Fed to sing A Cappella, AC/DCs “Highway to Hell.”
Music of the Week: Daft Punk’s “Random Access Memories”
The Economy: The numbers were again mixed and eclipsed this week by politics. Housing starts and building permits were down. Jobless claims up, Industrial Production down. Fed minutes were, as usual, a sleeper … watching Yellen kick the can down the road is tedious at best. The excitement was reserved for the NOKO Doughboy, who blinked; for the rewriting of U.S. history that occurred in North Carolina and for the continuing Circus on the Potomac. With the exit of Steve Bannon from the White House, Chief of Staff John Kelly appears to have consolidated his control. If true, we may begin to see a unified message from the Trump Administration. Even if that message is via tweet, it may be an improvement over the noise that has become a distraction. With the uncertainty of the past few weeks, stocks have weakened while bonds have been in a holding pattern.
Food for Thought: Stocks are making some investors nervous. After relentlessly moving up this year, markets have stalled. Is it because August is usually a weak month, or is something else at play? U.S. markets have failed to hold their highs and the FANGs are down about 10%. Bulls see Dow 30,000 around the corner. Bears are salivating for a 20% correction. Central Banks continue to pump trillions into the global economy. As long as Fed Policy is “Free Money Forever” there will be an upward bias to stocks. Yet warnings abound. Fiscal policy along with Trump Initiatives are DOA. Political gridlock under Obama was astonishing; under The Donald it is simply unbelievable. Clearly stocks can’t go up forever. This begs the question for investors who are on the sidelines or short, “Do you want to be right or do you want to make money?” Which of course leads to the caveat, “Markets can remain irrational longer than you can remain solvent.”
Music of the Week: Shakira’s “Can’t Remember to Forget You”
The Economy: NOKO is the only news that’s fit to print this week. Who cares about GDP, IP or l,m,n,o,p when the fate of humanity may hang in the balance. As a Navy Junior, Veteran, investor, political hack and history buff, it’s fascinating to watch this “situation” unfold. For primers, go watch “Dr. Strangelove” and then “Wag The Dog”. The Chicken Hawks see Munich in every blip in the firmament. Snowflakes believe that the NOKO Doughboy can be cajoled into nice. We’ll list what we see as important considerations for investors: 1) We have a President committed to “America First.” This means geopolitically as well as economically. He has the earmarks of a War Leader … or Monger, depending on your leanings. He’s a Big-Picture guy who plays the long-game. 2) No one has ever crossed the U.S. with impunity: Saddam, dead; Gaddafi, dead; Noriega, dead. Escobar, dead; Mosaddegh, dead. Hitler, dead. Tojo, dead … Doughboy is on the wrong side of history. 3) Nukes are a part our warfighting history and doctrine. We’ve already used them. 4) A non-Nuke surgical strike is probably the opening gambit. With 2 Carrier Task Groups off the coast, there are about 1,000 cruise missiles available to neutralize command and control, air defense, naval and air force assets on short notice. 5) Depending on your persuasion, Just War Theory either does or doesn’t support a pre-emptive U.S. move. 6) The U.S. will be roundly condemned for taking any action before allowing NOKO to nuke American territory. 7) Trump, Cabinet Secretaries, The Joint Chiefs of Staff and the theater commanders will be called war criminals by many in the international community. … Whatever happened to those halcyon days when our only concerns were the central bankers?
Food for Thought: The Trump-Doughboy Cage Fight has put a cloud on the investment horizon. For the first time in months, if not years, “buy the dip” is not happening (though 2-days does not a trend make). Whether the bots are on hold, rewriting their own code before another endless round of buying, or whether living, breathing human beings are exercising prudence in the face of uncertainty, markets have stalled. We’ve counseled caution several times in the past, only to be proven wrong by a market that sees bad news as good news: financial engineering is terrific; financial repression is better; mortgaging your grandchildren’s futures with hundreds of trillions in debt is best. … but we’re George Reeves Superman fans and believe that Truth, Justice and the American Way will out. So we’re skeptical about markets that go up forever. Dow 30,000 … we’ll probably see 5,000 before that happens.
Music of the Week: Jesse Cook’s “Free Fall”
The Economy: Amidst weak economic numbers the DOW punched through 22,000 and is holding as we go to press. The Fed, which backed off their intent to normalize monetary policy, has provided another leg up to the markets. During the election Trump castigated Yellen for keeping interest rates abnormally low. Now he supports lower for longer. Likewise stock market valuations. During the election Trump called stocks, “a big fat ugly bubble.” Now he’s taken ownership and claims credit for the surge since the election. Yellen, who is decidedly anti-Trump has the power to crush this market. Yet she also has her legacy to think about. Trump has vowed to replace her in 2018. The question is, “Does she want her legacy to be that of the Fed Chair that crashed the market or is she going to manipulate things so that her successor has to face the music?”
Food for Thought: Shoot the Messenger! The MSM is aflutter about the blowout earnings season. But the Financial Times has this to say in the section titled, ’Reasons to be Skeptical About the Earnings Recovery,’ “These are far from reassuring numbers. The picture they reinforce is that US large companies have been able to grow earnings through financial engineering even though their cash flows are flat, or even declining. …the apparent earnings recovery of large US listed companies … may have been something of a mirage.” For example, the DOW is a price weighted average, so Boeing (BA), with its $235 price has been responsible for ¾ of the DOW’s recent 278 point increase. After eight years of the bull market, no one is thinking about risk anymore.
Music of the Week: Dean Martin’s “Italian Love Songs”