The Economy: Data continues to confirm that the global economy in general and the US economy in particular are accelerating. Industrial production is the latest metric to blow through expectations. The Fed’s Beige Book also confirms expansion and modest inflation. Euphoria continues to build support for increased consumer/business spending as the US tax cuts bring the bacon home. Not surprisingly, members of the Fed are beginning to voice caution about the economy overheating. The Fed has also expressed concern that markets are ignoring the interest rate tightening cycle which has already increased the Fed Funds rate by 125 basis points. When the Fed raises rates, its intention is to tighten financial conditions. Borrowing gets harder and more costly at all levels. Investors and banks become less willing to lend and borrowers become less reckless. Credit cools off and the economy slows. … not that we’ve seen any of this yet. By contrast we seem to be at the beginning of a new phase of “Damn the torpedoes; full steam ahead” in business.
Food for Thought: Retirement. One of life’s major events. Some start thinking retirement in high school. Others not until AARP comes calling. Most retirees are shocked at how inflexible their overhead is when they retire. The solution for many boomers is to try to make up for lost time by being aggressively invested in this stock market. George Santayana famously said, “Those who cannot remember the past are condemned to repeat it.” Bitcoin is the latest example of how quickly things can change. Bitcoin has lost 50% of its value since reaching a high in December. A 50% loss in less than one month. US stock markets have been on a rocket ride since Trump was elected. Those approaching retirement and those who are retired should be especially cautious of this market. Structuring an income producing portfolio should be your priority.
Music of The Week: Elvis “Elvis Forever”
We Quarterback Money®
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: We end the month of May with a review, since the election, of comments on the economy and the financial markets:
2016_11_09: Jeff Gundlach of DoubleLine: “Buy This Market on Trump, Growth and Inflation.”
2016_11_09: Stanley Druckenmiller: “Buy This Market.”
2017_01_31: Kyle Bass, of Hayman Capital Management: A lower corporate tax rate … will be “extremely stimulative.”
2017_02_02: Dan Loeb Hedgie: “The … election was the most significant event of the year …”
2017_02_08: Larry Fink BlackRock CEO: “I believe we’re in the midst of a slowdown … because of all the uncertainty.”
2017_02_12: Jim Rogers: “We’re about to have the worst economic problems of a lifetime … ”
2017_03_02: Raymond James’ Jeff Saut: “I’ve never seen anything like this market, so I’m not going to play.”
2017_03_09: Bill Gross Janus Capital Group: ”…our highly levered financial system is like a truckload of nitro glycerin on a bumpy road …”
2017_04_01: Jamie Dimon CEO JP Morgan: “It is clear that something is wrong” with the nation.”
2017_05_10: Jeff Gundlach of DoubleLine: “The VIX Is Insanely Low”
2017_05_09: Lloyd Blankfein Goldman Sachs CEO: … low volatility… is not a “normal resting state” for markets.
2017_05_09: Art Cashin, of UBS: “It’s not normal … people are so blasé about what’s happening,”
2017_05_13: Ray Dalio of Bridgewater: “…the downturn … will likely produce much greater social and political conflict than currently exists.”
2017_05_30: Paul Singer of Elliott Management: When, Trump’s pro-growth agenda fails to be implemented, “all hell will break loose” …
2017_05_31: Benjamin Bowler, Bank of America Strategist: …”these markets are very weird”… US equities continue to set long-term records for instability”…
Food for Thought: My original entry for this paragraph was a commentary on Kathy Griffin. However, the Higgins Capital editors/censors, comprised of my wife and daughter, redacted so much of my reaction to Griffin’s wanton act of pure evil and hatred that the result looked like something like this from the CIA: “At__point__. Ultimately__media__internet__; __silent__”high__What’s__Award.” Long story short, my rant on decency and graciousness ended up on the cutting room floor.
Music of the Week: Cat Stevens’ “Tea for the Tillerman”
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: Call it Deer-In-The-Headlights week. First up was The Donald and The Hillary. Each took a turn to be stumped on the stump. But this week’s prize goes to Wells Fargo CEO Stumpf who was grilled, roasted and vilified by lawmakers who wanted Stumpf’s neck on a stump … headlights or no. The fallout from the Wells Fargo morality play is expected to advance the agenda to break up the TBTF banks. The state of California has suspended all official dealings with Wells Fargo following the bank’s scheme that created phony bank and credit-card accounts to collect fees. Oversight committees of other organizations are questioning their relationships with the bank. For the duration, Stumpf has collected more than $250 million in compensation. Senator Elizabeth Warren condemned Stumpf for his “gutless leadership.” Watch the video of the hearings to see the fury of lawmakers. No admission of guilt yet.
Food for Thought: When you change jobs, analyze whether you should take your 401k with you. This is a detail that sometimes falls through the cracks or is postponed. The assets in your 401k belong to you. Your best course of action may be to roll those assets into an IRA. By doing so you exercise more control over your retirement planning. We can help with your analysis. Transferring your 401k is a simple process. Contact us if you have questions.
Music of the Week: JJ Cale’s “Closer to You”