The Economy: Comrades Unite! Commissar Chairman Powell has arrived … and in the famous last words of Alexander Haig, “is in control.” The Star Chamber Bucking Bronco that we know as the Federal Reserve showed its new face to The Swamp today. In a welcome break with hoary tradition, Powell has real world experience as a businessman. Imagine the folly of having a businessman run the central bank of the greatest capitalist country in the history of the planet. But alas our joy, like a second marriage, may be the triumph of hope over experience. In his appearance on The Hill, Powell stated that 1) Further QE remains as viable monetary policy (All Hail Mammon); 2) The Fed saved the Post-Crisis World (All Hail Self-Praise); 3) Banking regulations are pillars of strength (All Hail TBTF). Long story short; The Beat Goes On. … the economy continues to expand; some indicators positive; some negative … .
Food for Thought: It’s human nature to assume that the future is going to look like the immediate past. So stocks and real estate will go up forever. Interest rates will remain low forever. Central Bankers will be able to manipulate the global economy forever. The political pendulum will swing left forever. China is a benevolent capitalist player forever. The dollar will remain the world’s reserve currency forever. Renewable energy subsidies will remain forever. The Manchurian Candidate has landed and Vlad Rules forever. The crypto-currencies world should be ignored forever. … If you see chinks in any of this armor, that is where “the next big thing” is shining like a diamond in the rough.
Music of The Week: Paul Carrack’s “Live at the London Palladium”
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The Economy: The CPI and PPI prints were hotter than expected and have helped to juice the stock market indices to a 50% rebound. The feel good mood has been further enhanced by the Olympics. Winners all. Inflation indicators watched by the Fed are are heating up. … and bond vigilantes seem to be on the loose with interest rates accelerating higher. As has always been the case, the Fed will follow the markets. There are few consumers who remember interest rate hikes that crimp economic activity. Fewer still who remember being priced out of a home or auto loan because interest rates moved against them. … remember when an 8% home mortgage was to die for? How many real estate players could handle those metrics today. How about those halcyon days of 16% home mortgages? Fun!
Food for Thought: Annuities and life insurance have evolved in ways that work well with investors seeking income or the possibility of establishing an estate. In specific situations they may be a prudent investment for retirees. Contact us if you have questions about creating or supplementing your retirement income.
Music of The Week: Sade’s “Lovers Rock”
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The Economy: The economic numbers have been dwarfed by bungee jumping global stock markets. However, economic numbers do not support all the gloom and doom talk generated by the wild ride in stocks. Global and U.S expansion remains steady. Global and U.S. monetary policies remain very accommodative. In spite of 5 interest rate hikes in the U.S., inflation adjusted interest rates remain at historic lows. Tax cuts, stimulative deregulation and a Federal Reserve committed to supporting the stock market should continue to juice U.S. economic expansion.
Food for Thought: The Bungee Jumping stock markets have been dominated by money managers, pension funds, hedgies and other professionals. Individual investors have remained firm in their belief that markets will rebound and continue to move higher. The brief 2-day, 10% drop is already forgotten. That 10% drop is seen as nothing more than as having eliminated the “no 5% pullback in 400+ days” boogeyman. The assumption, based on a decade of monetary policy stimulus, is that the way is now clear for the next leg up in stocks. However, as I pointed out yesterday in my special report, investors approaching retirement should be increasingly cautious. The market volatility of the past few days are rumblings that shouldn’t be ignored by those who no longer have decades to recoup losses. The zeitgeist is that stocks will go up forever … so you have to stay on the dance floor. We simply recommend that you dance closer to the exit door.
Music of The Week: Lara & Ryes’ “Exotico”
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