Category Archives: EU

Powell is the new Paul Volcker

The Economy: The U.S. economy appears to be powering ahead with unemployment at a 48-year low. There are more jobs available than there are job seekers to fill them. Average hours worked are up; construction spending is up; manufacturing is up; factory orders are up … the list goes on. Economic strength continues to give the Fed leeway to raise rates. Another 25 basis point (1/4%) hike in June is a given. The longer Powell is at the helm of the Fed, the more observers believe that he’s cut from different cloth than we saw with Greenspan, Bernanke or Yellen. Some observers liken Powell to former Fed Chair Paul Volcker. It was Volcker who trounced inflation in the early 1980’s with interest rates in excess of 20%. The economic pain of Volcker’s reign was enormous. But it ended an inflationary cycle that threatened to spiral out of control. It also laid the groundwork for the robust expansion of the 1980s and 90s. The stock market took off with Volcker and has never looked back. The rocket ride accelerated with Greenspan. … almost 40-years of stocks and real estate going up with only the occasional pause. No wonder my doctor friend blithely talks DOW 100,000 as if it’s already here. The trick for Powell will be to keep the good times rolling while simultaneously taking away the moonshine punchbowl of free money.

Food for Thought: The “China Card” is huge; whether you’re talking politics, military or socio-economic. Check out today’s “Video of The Week” below for a compelling take on why culture may limit China’s rise. Then look at how San Diego,riding the crest of a building boom, has about $3.5 billion in downtown projects underway. Papa Doug Manchester’s Pacific Gateway project represents $1.5 billion or 43% of this amount. The Gateway project is the redevelopment of the 12 acres near the Broadway Pier. That aside, housing units are driving much of the building boom as the urban lifestyle is attracting both working folks and retirees. Prices reflect the demand with higher prices the norm. Downtown is happening. While the Gaslamp draws tourists, San Diegans are flocking to Little Italy for its charm, restaurants and the weekly Saturday farmers market.

The Beat Goes On…

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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New Year, Renewed Optimism

The Economy: Happy New Year! … and a happy new year it is for global economic numbers with Germany growing at a blistering pace with the best employment numbers in years. The U.S. economy is likewise continuing to expand with no end in sight. Stocks are up, bonds are up, real estate is up, oil is up, manufacturing is up, optimism is up. Chicken Little is running in circles screaming about high asset valuations. But investors are looking at the Trump income tax trump and singing Happy Days Are Here Again. After all, in addition to the endless self-praise from The Swamp, Central Bankers have proven that at the slightest hiccup, inventive new types of monetary stimulus will rain down like Helicopter Money. Manna!

Food for Thought: Year end and into tax season. Financial planning rewrites. Annual portfolio reviews, document updating. What is the status of your wills, trusts, POAs, medical directives? Get them updated now! We do Monte Carlo Simulations for retirement planning. If we can help, please give us a call.

Music of The Week: Luna Blanca’s “Guitar Island”

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More of the Same with a Shrinking Balance Sheet

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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Bless Her Heart

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.

 

Overpriced Stocks and 4th of July Festivities

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”

Steady as She Goes for the Only Game in Town

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”

Global Economic Improvement, Steep Budget Cuts, and Unfazed Financial Markets

The Economy: Global economies appear to be improving with Germany and France leading the way in Europe. The U.S. continues to present a mixed picture. The Fed released its minutes on Wednesday. They looked through the data to indicate another interest rate increase in June. While some see the Fed as increasingly hawkish, actions speak louder than words and the Fed has been unwilling to inflict the pain that rising rates will bring. With the explosion of information provided by the internet, a solid case can be made for any position that suits your fancy. Believers who warn of bubbles are countered by equally sage adherents on the other side of the argument. While we’re awash in the rhetoric of change, it’s questionable how much will be legislated given all of the animosity. The Trump budget proposes the largest cuts in decades. But like the rest of the agenda it’s so steeped in emotion that its final form is impossible to discern. Add the Special Prosecutor to this witches brew and you can almost hear the wheels of government grinding to a halt.

Food for Thought: Financial markets are unfazed by this circus and continue their 8-year bull run. Interest rates remain at historic lows. Bond yields remain suppressed. Investors are convinced that Central Banks will continue to inflate asset bubbles into the foreseeable future. Terrorism remains a blight; though the vernacular has morphed from calling them Freedom Fighters to calling them Losers. That’s an accurate step in the right direction. Never give in; never give up; never stop dreaming; never stop believing. Enjoy your Memorial Day Holiday!

Music of the Week: Bob Mamet’s “Day Into Night”

The Death of Risk

The Economy: Caution best describes the economy. Mixed economic data is being released into the most toxic political environment in decades. Global central bankers continue to add liquidity at unprecedented rates. $1 trillion in liquidity was injected into the global system in the first quarter 2017. Central bankers are committed to supporting real estate and stock markets at all costs. Tens of billions of dollars have flowed into U.S. stock markets from European Central bankers. As with the binary political landscape, economists and investors are split on how the economic landscape will play out. Will there be a day of reckoning based on historic metrics or have interconnected global markets evolved to a new and unknown model. The result of this is that each data release creates more questions than it answers. Banks are easing lending standards but loan demand is down. Why? The Fed is tightening into the weakest recovery in history. Why? Automakers are coming off a huge selling cycle; but incentives and liar loans have fueled sales. Why? The EU is reporting record growth in many areas yet the ECB keeps interest rates at historic lows while continuing to pump record stimulus. Why? Consumer confidence is up but retailers are closing stores at a record pace. Why? These macro questions eventually filter down to local decision making. Hence our emphasis on how your organization views the horizon.

Food for Thought: The S&P 500 Volatility Index (VIX) is known as The Fear Index. It’s used as an indication of investor complacency. The VIX is now at multi-decade lows; recently touching lows not seen since 1993. In the course of the past 8-years Central Bankers have rescued stock markets with such frequency that “Buy The Dip” has become a sound strategy for many investors. After a 3% pullback stock markets have regularly rebounded to new highs. Black Swans have ceased to be meaningful as investors have accepted that Central Bankers will always, successfully come to the rescue. Investors have the constitutional right to make money by investing in stocks and real estate. The Four Horsemen of the Apocalypse have been replaced by The Four Horsemen of Guaranteed Investment Profits. Risk is Dead and markets will go up forever. Yet, as Bob Farrell famously noted, “When all the experts and forecasts agree – something else is going to happen.”

Music of the Week: Dire Straits’ “Dire Straits”

The Economy Improves

The Economy: Consumer confidence surged; Everything home-building looking positive. The US continues to post impressive economic numbers. Though nay-sayers shout “Fake News” with every number that’s posted. All news is good news with individual investors finally beginning to pour money into stocks. Brexit, Trump, the rise of populism, the assault on globalism, immigration and the environment are no reason to slow financial markets still feasting on $200 billion a month in central bank stimulus. Repealing and replacing Obamacare was to provide billions in tax savings. Those savings were to be factored into the overhaul of the tax code. The narrative was that passage was a slam dunk. The subsequent fail produced a new narrative that Tax Overhaul would sail through regardless. Markets were thrilled that billions in lost tax savings no longer mattered. True to form, a massive rally followed the fail.

Food for Thought: The Trump phenomenon continues to unfold in stark black and white. Love him or hate him he is a phenomenon. Polarizing in the extreme, he’s brought out the worst in many. The main stream media (MSM), Hollywood, the UN, NATO and foreign governments seem to be the most shocked. Sacred Cows everywhere are in retreat. All concerned are becoming aware that POTUS is a brawler who enjoys taking the fight to the street. As a businessman The Donald understands that the best way to gut a program or department is to decapitate administration and cut or curtail funding. No money, no staffing, no decisions, no activity, no continuation of programs outside the Trump Agenda. Brilliant or Brutal depending on your persuasion. How this ultimately plays out is anyone’s guess. How the financial markets respond is also anyone’s guess. With the stroke of a pen, Trump is undoing decades of U.S. policy and redirecting national priorities and resources. Markets continue to treat these unprecedented events as a win for all sectors of the economy. The prime example is Climate Change. The administration’s position is, “We’re not going to spend any more money on that.” Yet the response of financial markets is that the trillions invested in this sector are going to continue on the same growth trajectory as when they were darlings. Reminds us of PT Barnum’s “There’s a sucker born every minute.”

Music of the Week: Jack Johnson’s “Jack Johnson”