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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The Economy: The Holidays are upon us and All is Beautiful. Synchronized global growth, led by the US is producing some of the best economic numbers since the Financial Crisis of 2008. Donald Trump’s foreign policy speech has outlined an America First approach that should produce economic benefits. Congress has passed the first rewrite of the Tax Code in 3-decades. Financial markets are comforted to have another unknown out of the way. Corporate profits that have been held overseas are expected to flow back to the US next year and used for dividends/share buy-backs. Share buy-backs along with the expanding economy should bode well for stock markets in 2018. San Diego continues on its growth trajectory with high/med-tech, military spending, services and tourism helping to keep the downtown skyline full of construction cranes. Pessimists still call for circling the wagons. Optimists see the Endless Summer of perfect barrels.
Food for Thought: Merry Christmas and Happy New Year! Happy Holidays! It’s been a pleasure writing for you this year. … and what a year it’s been! 2017 goes down as one of the most excitement filled years in memory. Good Excitement; Bad Excitement; Real Excitement; Fake Excitement; Lurid Excitement; Questionable Excitement. How’er ya gonna keep ’em down on the farm after all that jazz. With markets heading into the 10th year of their rocket run, US mid-term elections, Brexit moving forward, Japan re-arming, a new Federal Reserve, Draghi on his way out, more central bankers tightening the screws, 2018 will be every bit as exciting as 2017.
Music of The Week: Dean Martin’s “The Dean Martin Christmas Album”
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The Economy: Sex, Taxes and Bitcoin; need I say more? As has been the case for quite a while, the US economy continues to go its own way on slow but steady growth. China is having some type of inscrutable implosion in the commodities sector; the UK is stumbling and fumbling around Brexit and the Middle East continues on its path of peace on earth and goodwill to all. For Americans it’s Ho Ho Ho as the scythe has swept through Hollywood, New York and now Washington. The Emperor has no clothes has taken on literal meaning. Ho Ho Ho on Taxes as Santa’s gift bag rains goodies from the sky. … and of course, HO HO HO for Bitcoin up 50% this month. It’s High Cotton! Merry Christmas, Happy New Year and Happy Holidays!
Food for Thought: Our Thoughts and Prayers go out to those enduring hardship this Holiday Season. From our men and women in uniform, separated from loved ones and facing danger; to those affected by the Southern California fires. Tis the season to count our blessings and be grateful.
Music of The Week: Rod Stewart’s “Merry Christmas”
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The Economy: On the surface things appear to be moving along quite nicely with synchronized global growth still the order of the day. Beneath the surface, changes are coming. Trump has appointed Powell as the next Fed Chair. He’ll take the helm in February 2018 and may not be the same as the old boss. With his Wall Street background, he has a different perspective. Likewise Japan where the government pension system has been authorized to invest hundreds of billions in global stock markets. Saudi Arabia is undergoing change with historic upheaval in the royal family. While the House of Saud may reap a $800 billion windfall from wealth confiscations, the end result may be the unprecedented end of support for terrorism and a rapport with Israel. Brexit continues to muddle through with calls for the end of the world becoming more muted over time. Mankind is in holiday mode as year-end approaches.
Food for Thought: After a rip-snortin’ run, stocks have taken a breather lately. Anything less than daily triple-digit gains are seen by many investors as signs of doom. Whether recent market action is the pause that refreshes or something more significant is best addressed by Donald Rumsfeld’s famous quote: “There are known knowns. There are things we know that we know. There are known unknowns. That is to say, there are things that we now know we don’t know.” Markets will either go up, or they will go down, or they will go sideways. Have a great weekend.
Music of The Week: Tamba Trio “Pure Bossa Nova”
The Economy: Synchronized global growth, central bank easy money and politics as usual remain the norm. China finished up its Party Conference and deified Xi alongside Mao and Deng. The ECB and the Fed met and left their respective rates unchanged. No surprise there, as global growth is still viewed as delicate. So Synchronized but delicate would be a more accurate description of global growth. But the Fed is taking the lead in normalizing monetary policy. In October it did shrink its balance sheet by about $10 billion. They also indicated that another interest rate hike was on tap for December. Thursday, Trump is expected to announce Powell as the new Fed Chair. Powell is seen as dovish and if selected is expected to maintain the lower for longer policies we’ve come to know and love.
Food for Thought: Stocks continue to march higher. A week without new records now feels like a personal insult. The rally may continue through year-end as investors pile into the markets to make up for lost time. Algorithms are appearing daily that show how markets will go up for years to come. Everyone is an aggressive risk-taker when they are making money. But how do you feel about losses? Know your risk profile.
Music of The Week: Tim Bowman’s “Circles”
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The Economy: Eight years into the current economic expansion there is nothing on the horizon likely to disrupt things for the next 6-12 months. Of course this could change at any moment. However we don’t see anything at present. The geopolitical situation could change at any moment. Some unforeseen event could trigger a meltdown in any number of national economies. But at present we see the immediate future as a continuation of the recent economic past. Central banks appear to be on a synchronized path of higher interest rates. Eventually this will impact global stock markets. But when that occurs is an unknown. For every economic number released there are pundits in support and opposed. Choose your poison. We continue to emphasize that you should keep an eye on the horizon while staying focused on your own specific situation.
Food for Thought: Stocks remain on a rocket ride with new records set almost every day. We’re 8-years into what is now the second longest bull market in history. It is crystal clear that regardless of age or valuations, this market will continue to go up until it doesn’t. Like the global economic expansion, there is nothing on the horizon that spells the end. We may see a correction that ushers in a final run to the top. … or there may be several corrections that eventually end the institutionalized Buy-The-Dip reaction to all pullbacks we’ve seen in the past 8-years. Of interest is that on separate occasions I was told by individual investors that the Dow will go to 30,000 before the ride is over; another stated that the Dow would be at 100,000 in 10-years. Reminds me of Ella Fitzgerald’s Blue Skies: “Never saw the sun shining so bright, Never saw things going so right …”
Music of The Week: Ken Navarro’s “Smooth Sensation”
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The Economy: The week’s economic highlight was Wednesday’s release of the Fed’s Beige Book. It showed moderate growth and little inflation. Lower demand in the economy is discussed as being the result of higher healthcare deductibles for consumers. More out of pocket for healthcare means less available for other spending. The Fed remains on track to again raise rates in December. The Beige Book was almost an afterthought to a week of upbeat economic news: Low inflation; retail sales up; manufacturing up; global stocks reaching record highs; investors pouring money into stocks; Industrial production up; housing up; Philly Fed Index up; Bloomberg Consumer Sentiment up. What’s not to like?
Food for Thought: My good friend Sam commented that my “More Money” email appears to be increasingly amazed at the non-stop rampaging bull market. He’s right. … You can slice and dice the metrics, the geopolitical environment and every conspiracy theory out there. Compelling arguments abound. To rest easier and become one with nature, simply accept that stocks will continue to go up until they don’t.
Music of The Week: Ziggy Marley’s “Conscious Party”
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The Economy: “Synchronized Global Expansion” remains the bullish buzzword with 45 countries expanding in lock-step. This is a first in 50-years. Central bank liquidity programs and global debt are fueling the growth. The front cover of The Economist says it all, “The Bull Market in Everything.” Stocks, bonds, real estate, alternative investments, art, wine, automobiles, chopsticks. Everything and the kitchen sink has gone vertical and defies gravity. The relentless upward thrust makes the North Korean missile shoots look boring by comparison.
Food for Thought: Back in the day when there were economic cycles and price discovery, investors looked for nuggets in value or special situations. Today, the bull market steamroller has overruled causality and flattened every bear in sight. Thoughts of correction are dim; of a market crash, non-existent. Cowabunga!
Music of The Week: Shania Twain’s “Now”
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The Economy: “Synchronized Global Expansion” is the latest buzzword describing our global and national economy. While the Fed begins reducing their balance sheet this month, the rest of global central banks continue to print money with abandon; piling on more debt for future generations. How this house of cards ends is anyone’s guess. While we shake our heads in wonder, the flip side of the coin is that the Good Ole USA might actually pull it off. Natural and man-made disasters aside, Armageddon may not occur. Not to sound like a shill, but as a nation we have a history of coming back from the brink. While Americans appear to be more divided than ever before, the numbers show an optimism that can’t be denied. Consumer confidence is at all-time highs. Manufacturing indices are surging. Inflation remains historically low. Last but not least, the stock market continues to set new records. You can argue that the economic expansion is in the 7 or 8th inning. You can debate equity valuations or comparisons. You can read the tea leaves till you’re blue in the face. But one thing is clear; stocks are saying that the good times will continue.
Food for Thought: “Bless her heart” is Southern Belle code. Spoken in sympathetic tones, it translates into “That gal is out of control!” Such is the case of Senator Elizabeth Warren’s quixotic effort to put Wells Fargo out of business because of its ongoing regulatory problems. Bless her heart! Liz confuses herself with Moses and the Golden Calf. Bless her heart. First, there’s the matter of elevation: There is no Mount Sinai; she’s in The Swamp. Second, the Golden Calf is the Federal Reserve which is the Titanium Transformer; stronger than dirt and able to leap tall buildings in a single bound. Bless her heart. Third, hurling tablets don’t work no mo. The good Senator from Massachusetts would be more effective chasing Salem witches than tackling a TBTF bank.
Music of The Week: Tom Petty’s “Southern Accents.” Tom Petty passed away this week at 66.
The Economy: Economic numbers have turned mixed as the hurricane effect kicks in. Whatever economic bump may occur as a result of the disasters will be temporary. The longer-term effect will be a headwind for the economy; though how much is an unknown. Last week the Fed continued tightening monetary policy. Fed Chair Yellen is sounding more hawkish as labor-market hiring is strong and global growth is recovering. As such, odds are for another quarter point rate hike come December. 8-years on, financial markets continue hitting new highs. Neither snow nor rain nor heat nor gloom of night stays these markets. Global Central Banks have bought up a majority of government debt. They have been buying and now own trillions in stocks. Now, on par with The Bilderberg Group and Nibiru, comes word of The Plunge Protection Team (PTT). Hear tell, the PTT is a shadowy coalition of officials and bankers. They rush to the rescue at the slightest sign of market weakness; pumping in billions of taxpayer dollars to keep markets from ever going down. Yep … and I have a bridge in Brooklyn that I’ll sell ya.
Food for Thought: Robotics and demographics are trends with lasting impact. The first generation of bots eliminated factory jobs. The latest generation is replacing CPAs, analysts, doctors and other professionals. Stepford husbands and wives may be next. The economy is increasingly becoming two-tiered: Do it your selfers (DIY) and those willing and able to pay for personal service. Boomers are out and millennials are inheriting the earth. Out with Tim Allen and in with Jenna Marbles.
Music of The Week: Craig Chaquico’s “Shadow and Light”