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”
We Quarterback Money®
The Economy: Politics continue to trump economics; though the numbers continue to show an economy expanding below expectations. August which is supposed to be the sleepy month of vacations has turned out to be action packed. The latest episode of House of Cards opened with the rush to World War 3; narrowly averted when the NOKO Doughboy blinked or The Donald turned a blind eye to further threats; your choice. Financial markets had a fit then recovered from the head-fake. Next up The Charlottesville Brawl and subsequent slugfest masquerading as a press conference. This was followed by the orchestrated exit of business leaders from the administration’s lineup. Two national business advisory councils were then dissolved and the rumor was that Trump’s chief economic advisor, Gary Cohn, was going to resign. Instead, Friday saw the White House departure of Steve Bannon who vied with Vladimir Putin for the administration’s title of “Master Puppeteer.” Again, markets spasmed into another head-fake. Stay on vacation; The Circus will still be in town when your return.
Food for Thought: Just when you hoped that your money would become more interesting, your dreams have been shattered by more fun and games. Except for checking your parachute there’s little to thrill with markets again near all-time highs and Kumbaya sung from every bank, brokerage firm and advisor. This week sees the Jackson Hole confab for the Master of The Universe Wannabes. Super Mario Draghi will croon “I’m Just a Gigolo.” Yellen will speak on “Financial Stability.” Interest rates will be lower for longer and come September there will be more kicking the can down the road because shrinking the Fed balance sheet will be cause for the Fed to sing A Cappella, AC/DCs “Highway to Hell.”
Music of the Week: Daft Punk’s “Random Access Memories”
The Economy: NOKO is the only news that’s fit to print this week. Who cares about GDP, IP or l,m,n,o,p when the fate of humanity may hang in the balance. As a Navy Junior, Veteran, investor, political hack and history buff, it’s fascinating to watch this “situation” unfold. For primers, go watch “Dr. Strangelove” and then “Wag The Dog”. The Chicken Hawks see Munich in every blip in the firmament. Snowflakes believe that the NOKO Doughboy can be cajoled into nice. We’ll list what we see as important considerations for investors: 1) We have a President committed to “America First.” This means geopolitically as well as economically. He has the earmarks of a War Leader … or Monger, depending on your leanings. He’s a Big-Picture guy who plays the long-game. 2) No one has ever crossed the U.S. with impunity: Saddam, dead; Gaddafi, dead; Noriega, dead. Escobar, dead; Mosaddegh, dead. Hitler, dead. Tojo, dead … Doughboy is on the wrong side of history. 3) Nukes are a part our warfighting history and doctrine. We’ve already used them. 4) A non-Nuke surgical strike is probably the opening gambit. With 2 Carrier Task Groups off the coast, there are about 1,000 cruise missiles available to neutralize command and control, air defense, naval and air force assets on short notice. 5) Depending on your persuasion, Just War Theory either does or doesn’t support a pre-emptive U.S. move. 6) The U.S. will be roundly condemned for taking any action before allowing NOKO to nuke American territory. 7) Trump, Cabinet Secretaries, The Joint Chiefs of Staff and the theater commanders will be called war criminals by many in the international community. … Whatever happened to those halcyon days when our only concerns were the central bankers?
Food for Thought: The Trump-Doughboy Cage Fight has put a cloud on the investment horizon. For the first time in months, if not years, “buy the dip” is not happening (though 2-days does not a trend make). Whether the bots are on hold, rewriting their own code before another endless round of buying, or whether living, breathing human beings are exercising prudence in the face of uncertainty, markets have stalled. We’ve counseled caution several times in the past, only to be proven wrong by a market that sees bad news as good news: financial engineering is terrific; financial repression is better; mortgaging your grandchildren’s futures with hundreds of trillions in debt is best. … but we’re George Reeves Superman fans and believe that Truth, Justice and the American Way will out. So we’re skeptical about markets that go up forever. Dow 30,000 … we’ll probably see 5,000 before that happens.
Music of the Week: Jesse Cook’s “Free Fall”
The Economy: Economic data is weak as we go into the Fed’s expected interest rate increase later today. Inflation remains below expectations. Retail sales x-autos is down. Auto sales have begun to disappoint. Bond yields remain stubbornly low as foreign money pours into U.S. Treasuries. Treasuries are a global safe haven with attractive yields. Regardless of what the Fed does to raise interest rates, market forces continue to suppress those levels. The Lesson: “The Market is Always Right.” Even central bankers must bow to Market Gods. They just haven’t figured this out yet … and are too arrogant to learn from history. Stocks?!? … clearly they are going to go up forever with absolutely no risk.
Food for Thought: Global central banks continue to pump $30-billion/month into the global economy; $1.5-trillion so far this year. As a result, there are reports of global recovery. A recovery based on massive debt … and we are assured that debt is irrelevant. Venezuela is bankrupt, Puerto Rico is bankrupt, Illinois is bankrupt, Stockton is bankrupt … because of debt. But central bankers continue to spout that debt is irrelevant at the global level. Good luck with that myopic nonsense. The debt of Louis XIV bankrupted France and Louis XVI got the French Revolution. The Debt of WWI bankrupted Germany and Weimar got the hyper inflation where 1 million Marks bought a loaf of bread. The Debt of WWII bankrupted Great Britain and the U.S. muscled past the Brits and into the position as the pre-eminent super power. Bread and circuses for the masses. Contact us for innovative help with your money.
Music of the Week: Heart’s “Tell it Like It Is”
The Economy: Economic data was light last week; what was released was weak. The stream of conflicting data continues unabated with Europe flipping between Teutonic Strength and Greco/Italian Tragedy. Japan is showing strength while dodging North Korean (NK) missiles. China boasts of their booming economy while trying to contain their Haircut-Impaired-NK-Doughboy. Geopolitics again stole the spotlight from the economy as Fed-Speak was absent except for comments from The Bernank. Big Ben opined that the Fed might keep its bloated balance sheet for the foreseeable future. … couldn’t shrink it without tanking the economy. Rumor is that Grandma Yellen is trying to apply the Art of the Deal to The Donald himself. The Trade: She stays at the Fed for another term in exchange for keeping interest rates low. … not bad if she can pull it off … and why not. The Federal budget has little room for an increase in debt service … might take away from all those shiny toys that The Pentagon wants.
Food for Thought: “Peace through strength” was a phrase championed by Ronald Reagan. The current “America First” rhetoric apparently does not mean withdrawal from the world. Rather, it appears to be a policy of strongly protecting American interests, with force. North Korea is problematic but hardly a Gordian Knot. As we look out on the investing landscape we see geopolitical risk as increasingly likely to effect financial markets. Stock markets have stalled as this reality comes home.
Music of the Week: Tom Jones’ “Tom Jones”
The Economy: No news is … no news. The Fed released their July minutes last week. It was met with a yawn. Lower Forever remains the mantra. Though Fed targets have been consistently met, Lower Forever is the only game in town for interest rates. Likewise stocks will go up forever or as Buzz Lightyear put it, “To infinity and beyond.” This week is the Central Bank Lovefest in Jackson Hole. Fed Chair The Janet caps the frenzy with a speech on Friday. Talking heads are blathering about a breakthrough policy speech. We disagree. The Fed is no more apolitical than The Supremes as witnessed by Justice Ginsberg’s inappropriate comments. The Janet is a partisan of The Hillary so no tightening will occur that might adversely affect financial markets. They will do nothing to upset markets until after her preordained ascension and the firm establishment of a hereditary American political dynasty. With 75 days till the Greatest Show on Earth closes, there’ll be no action on interest rates till at least December … if then. Further supporting our call is that The Donald has said that he’ll replace The Janet if he’s elected. So she’ll do nothing to increase his odds of a win.
Food for Thought: A MIRVed Chicxulub asteroid taking out the 100 largest cities on the planet wouldn’t change the complacency in global financial markets. The asteroid strike would elicit cheers from investors as Central Bankers opened the floodgates to eternal easy money. Negative interest rates would be expanded throughout the land and the disappearing middle class would be forced, by our militarized police, to pay the Too Big To Fail Banks on funds deposited. Absurd, yes; farfetched no. In Japan, sales of home safes are skyrocketing as depositors chose to stash money at home rather than pay banks to hold it. If this isn’t a grassroots revolt against centralized planning, then what is? Meanwhile, The Janet is said to have a proposal to double the Fed balance from $4 trillion to $8 trillion in the next round of Quantitative Easing. The message from on high: Debt is good, crushing debt is better, debt that impoverishes our great-great-grandchildren is best.
Music of the Week: Paul Taylor’s “Burnin'”