The Economy: Economic numbers come in two broad categories: 1) Hard data such as trade balances or housing starts and 2) Soft data such as sentiment or confidence surveys. Hard data is based on numbers. Soft data is based on how the respondent is feeling at that moment in time. You can dispute the numbers but the argument will remain grounded in statistics. Surveys based on feelings are completely subjective and should be taken with a dose of skepticism. Numbers this week neatly fell into these two categories. Hard data was mixed with initial jobless claims up, existing home sales and durable goods down. Soft data and surveys were positive with optimism and odds of a December rate hike falling below 50%. Geopolitical concerns have continued to weigh on markets as NOKO, Iran and trade wars remain unresolved. Stocks swooned over the Italians … But it’s officially summertime so don’t worry be happy. Grab the beach toys and head for the water.
Food for Thought: In keeping with the never-ending 73-year old Italian Opera Buffa, check out the Video of the Week link below. Few know that Christopher Walken is an accomplished hoofer. Lighten your day and watch him here or there. Courage! The latest Sign of the Apocalypse is another Italian Meltdown. Financial markets are having a hissy fit. It’s almost as if traders are trying to stay relevant in a world where the only thing that matters is what the Central Banks are doing. … and that remains unchanged . The 2012 ECB vow that they will do “whatever it takes” to keep the punchbowl full of moonshine remains in force. With the exception of the Fed, global central banks remain committed to free-money, for all, forever. How this ultimately plays out is anybody’s guess. Many investors see asset bubbles in both stocks and real estate. Others see compelling bargains. Both have seen years of gains. But while we know that all trends reverse, we don’t see anything to indicate an inflection point. Pick your poison. … onward into the Summer Doldrums.
Music of The Week: Beegie Adair’s “Dancing in the Dark”
Video of The Week: Christopher Walken Dances
We Quarterback Money®
The Economy: US economic acceleration continues with no recession bells ringing. This gives the Fed leeway to continue with its two pronged tightening action of raising interest rates and shrinking its balance sheet. This double whammy has never happened before so all bets are off as to how this will play out. Will the asset bubble slowly deflate or will it burst? This is the only question that investors need think about. This is the tide that raises or lowers all boats. Understand that we are wildly optimistic and bullish on America. We can make a sound case that this is still the American Century and will continue to be long into the future. The China Supremacy narrative ignores massive challenges. Beyond the glittering new cities are a billion peasants living in abject poverty and farming with medieval hand tools. After decades of the 1-child policy, the population is ageing faster than the economy can handle. With lowest-cost labor now in Southeast Asia, many unemployed Chinese workers are leaving the cities and returning to the already impoverished countryside. As Jordan Peterson is fond of saying, “Never underestimate the Americans. They are the most robust people the world has ever known.”
Food for Thought: Ageing parents are a concern for Boomers. Deteriorating mental and physical health is only the tip of the iceberg. Even the soundest financial plan can be destroyed by unplanned expenses … and they are going to occur. The dark side of extended lifespans is the incredible expense of living incrementally longer. Forewarned is forearmed. Unless you abandon your parents to the street, you are going to be involved. Plan accordingly. Having a plan is based on knowing what is where. Google: “family inventory worksheet” for checklists that will provide guidance. Remember the old Chinese proverb: “The beginning of wisdom is to call things by their right names.” Use the Family Inventory as a basis for helping your parents.
The Economy: Continued economic expansion is the order of the day with San Diego benefitting from Pentagon spending, tourism and hi-med tech. Defense/State Departments “Pivot to the Pacific” is in full swing with no slowdown in sight. Air, land, sea and sub-sea drones are expanding at an increasing pace with projections that pilots are the next dinosaurs to face extinction. The Trump administration’s goal of sharpening military readiness plays into this evolution. Trump continues to act on campaign promises and realign years of US policy: Paris climate accord gone. TPP gone. UN under review. Marginal allies re-evaluated. Iran nuke deal gone. Torpedoes be damned; business be damned. Yet, despite cries that armageddon is nigh, the economy continues to expand and stocks continue to hold fast. As we go to press, the major indices have turned positive for the year. … could change any time but the rally of the past week, led by oil, has been impressive. Year over year oil is up 50%. This time around oil is rallying on geopolitical instability and not demand. Think global, act local.
Food for Thought: Long time readers know that we’re not fans of the central banks. But to deny their impact is supreme idiocy. We look askance at market manipulations, chronic bailouts of TBTF banks, central bank crony capitalism and other signs that the Illuminati are hand in glove with the Giant Vampire Squid. However, don’t stand in the open and fruitlessly curse the weather. So we continue to warn that with the Fed on a tightening cycle, investors should have an exit strategy. Signs continue to accumulate that this is a late stage bull market in stocks. The inverse relationship in bond-land is a fact of life. Buy and hold has worked since 2009. We’re cockeyed optimists like only San Diegans can be. But nothing lasts forever.