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: Holiday Cheer continues for the 6th week with global financial markets hitting levels of euphoria not seen in years. Donald Trump’s election was supposed to unleash Forces of Darkness that would obliterate life as we know it. Instead, optimism and euphoria have taken hold of financial markets around the world. Even oil markets are screaming higher on production agreements that ignore the OPEC’s history. The Fed ended its meeting and raised interest rates ¼% as expected. The call is that the Age of Central Bankers is drawing to a close with Trump’s fiscal spending to take the lead in pumping up the economy. Global markets have priced-in immediate results for the Trump agenda. As the post-election rally continues to hit new all-time highs, the Shiller cyclically adjusted P/E (CAPE) ratio now stands at 27. This reading is only exceeded by 1929 and 2000. Stocks are getting expensive.
Food for Thought: The Fed tightening unleashed a selloff in financial markets. Stocks tanked; Mortgage rates jumped to the highest in 2 ½ years. In her press conference Fed Chair Yellen indicated that 3 rate hikes were in store for 2017. Markets were expecting 2. Higher mortgage rates will eventually put a damper on real estate. Higher treasury yields will eventually begin to compete with stocks. But one day does not a market make. The Trump rally took taken a breather today but it may continue upwards till the inauguration on January 20, 2017.
Music of the Week: Elvis Presley “Elvis Christmas Album”
The Economy: The Holiday Cheer keeps coming. Last week it was Happy Holidays! It’s all good: Home prices up 5% year over year. The U.S. economy expanding at the fastest pace in 3-years. Consumer confidence far above expectations. This week it’s Happy Holidays Again!! It’s all good again: ISM non-manufacturing index rose to 57.2 in November; above consensus. October factory orders rose 2.7% also above expectations. Durable goods posted a 4.6% increase once again above expectations. JOLTS revised higher. The incoming administration has a Santa Bag full of action items to move the US in new directions: Obama Care, immigration, deregulation tax code, infrastructure, trade, education, defense, foreign policy. Financial markets have priced in immediate passage and implementation of every utterance. What comes out of the sausage making we call the legislative process, is anyone’s guess.
Food for Thought: Rock On! Markets have been on a roll since the Trump election. This has the feel of a Triple: Post election relief rally, Year-end performance chasing and the traditional Santa Clause rally. Trump supporters have the stage as they advocate a sea change. Hillary fans continue the fight with promises of disruptions in the Electoral College. I’m all for Dedication to The Cause but that’s why we call tilting at windmills Quixotic. After 2-years of flat returns, stocks have jumped to new highs in the past 4-weeks. The markets took 3-days to shake off-Brexit, 3-hours to shake-off the Trump election and 3-minutes to shake-off the Italian election. We’re on track for the next event to have 30-seconds of impact. Complacency Rules so remember Icarus and don’t fly to close to the sun. Have a Great Holiday!
Music of the Week: Dean Martin’s “A Winter Romance”
The Economy: Happy Holidays! It’s all good. Home prices up 5% year over year. The U.S. economy expanding at the fastest pace in 3-years. Consumer confidence far above expectations. On the near horizon: Votes in Italy and Austria that may see more exits from the EU. Expectations that the Electoral College will confirm the U.S. Presidential Election. Anticipation of a ¼% Fed interest rate hike in mid-December. Prospects that we’re on the verge of another leg up in equities.
Food for Thought: Holiday joy is offset by the aftermath of the election. Partisans on both sides have sharpened their knives and created their lists. Though Republicans have The Hill and the White House, no one is calling it a mandate with the popular vote having eluded them. However, Trump is a man of a different color; arguably the first Man on Horseback since Teddy Roosevelt. Obama has established the precedent of rule by Executive Order; bypassing the Constitution, Congress and the Courts. Expect this to continue; first with the unwinding of the Obama agenda and then with its replacement. As The Circus leaves town, it looks to be replaced by The Wild West Show.
Music of the Week: Elwood Brothers “Jazz Tannenbaum”