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”
We Quarterback Money®
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”