The Economy: The economic numbers have been dwarfed by bungee jumping global stock markets. However, economic numbers do not support all the gloom and doom talk generated by the wild ride in stocks. Global and U.S expansion remains steady. Global and U.S. monetary policies remain very accommodative. In spite of 5 interest rate hikes in the U.S., inflation adjusted interest rates remain at historic lows. Tax cuts, stimulative deregulation and a Federal Reserve committed to supporting the stock market should continue to juice U.S. economic expansion.
Food for Thought: The Bungee Jumping stock markets have been dominated by money managers, pension funds, hedgies and other professionals. Individual investors have remained firm in their belief that markets will rebound and continue to move higher. The brief 2-day, 10% drop is already forgotten. That 10% drop is seen as nothing more than as having eliminated the “no 5% pullback in 400+ days” boogeyman. The assumption, based on a decade of monetary policy stimulus, is that the way is now clear for the next leg up in stocks. However, as I pointed out yesterday in my special report, investors approaching retirement should be increasingly cautious. The market volatility of the past few days are rumblings that shouldn’t be ignored by those who no longer have decades to recoup losses. The zeitgeist is that stocks will go up forever … so you have to stay on the dance floor. We simply recommend that you dance closer to the exit door.
Music of The Week: Lara & Ryes’ “Exotico”
We Quarterback Money®
The Economy: The State of The Union clearly showed the sharp divide in the U.S. electorate. Pick your flavor. Markets have cheered Trump since the election. Given the ongoing economic expansion, expect the Fed to continue to tap-the-brakes with further interest rate hikes. Jay Powell replaces Yellen as Fed Chair at cob today. Yellen was the most dovish Fed Chair in history. Powell, by contrast is on record as saying, “… it is not the Fed’s job to stop people from losing money.” This in itself will be a sea-change, if there is follow through, since the Fed has been stock market driven since the Financial Crisis. Markets, the media and investors in particular have been enamored with synchronized global growth, tax cuts, profit repatriation, one-time bonuses and historically low unemployment. The Fed interest rate moves have created every expansion and every recession; every bull and every bear market. Party on Garth!
Food for Thought: What is your long-game? Gonzo Hunter Thompson spoke for some when he said, “Life should not be a journey to the grave with the intention of arriving safely in a pretty and well preserved body, but rather to skid in broadside in a cloud of smoke, thoroughly used up, totally worn out, and loudly proclaiming “Wow! What a Ride!” For most however, there are more prosaic goals such as planning for retirement, creating an estate or other bequeaths to family, friends and charitable organizations. Annuities may be the appropriate way to achieve funding needs. Contact us if you have questions about Annuities.
Music of The Week: Chaka Khan “Chaka”
We Quarterback Money®
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”
We Quarterback Money®
The Economy: The global economy appears to be on the mend. While we’re optimistic, we’re cautious because there’s been so much financial engineering and Central Bank intervention since the financial crisis. Every developed economy has engaged in currency manipulation and all government statistics are suspect. Nevertheless, this is the playing field. The Fed minutes were released this week; a non-event. The usual, “perhaps, maybe, somehow, if only, somewhere” had the Talking Heads all aflutter. The rest of the planet yawned and went about its business. After a decade of having the headlines to themselves, Central Bankers have taken a back seat to politics. … and what a show it is. Brexit is proceeding; France is Frexit; Italy is rudderless; Greece is broke; Russia is conniving; China is posturing, North Korea is flexing. Through it all, Trump is pumping, humping and dumping.
Food for Thought: Global financial markets are enthralled with all this uncertainty and excitement. In an alternate universe there might be concern. Not now, not nowhere. This time is different!
Music of the Week: Kim Waters “Midnight Love”
The Economy: At some point, news on the economy will focus on the fundamentals of data rather on the whims of Central Bankers. But we’re not there yet. So with the Fed meeting next week, life is on hold while we await more dissembling opacity. There is a growing sense that 7-years of monetary policy have failed and that continuing down the same path is a mistake. How this plays out is anyone’s guess. But one thing is certain, markets don’t like uncertainty. Talking heads and other blithering, blathering idiots are having a field day in front of the last Fed meeting prior to the election. Our call remains that the highly politicized Fed will do nothing to diminish the chances of a Clinton victory. So we say, “No Change; Lower for Longer” on interest rates. … continue to kick the can down the road and hope that somehow, the bubble of extreme asset inflation, can be pricked and deflated without an implosion. Tellingly, former Fed Chair Greenspan has said, that this, “… is the worst economic and political environment …” he’s ever seen.
Food for Thought: The equity markets have demonstrated how chaotic and fragile they truly are. Simply the whisper of a ¼ percent rate hike sent markets down over 2% on Friday. On Monday, the whisper that the ¼ percent hike was off the table sent markets up over 1%. On Tuesday, markets dropped again. We don’t think this is a healthy investing environment. We are focused on protecting assets. We continue to sell positions that are at a profit and put the proceeds into the money markets. You want to have funds available for investing when the opportunity presents itself. We’re not doom and gloomers. Rather we’re veterans of several market sell-offs, crashes and bear markets. At this type of inflection point, investments can often be reallocated to take advantage of opportunity or to make up significant losses.
Music of the Week: Big Mountain’s “Resistance”
The Economy: Benign economic numbers continue to support the view that the U.S. economy is expanding at a moderate pace of about 2% annually. In the past this would be the cause of recession concerns. In today’s world 2% growth is cause for celebration. As we’ve said before, your personal experience, in this economy, remains your best indicator for how the economy is doing. Part of the difficulty in seeing consistency in the economic numbers, is that the numbers were designed decades ago to measure capital intensive industries like automobile manufacturing. It’s difficult to evaluate the information economy using tools designed for a different age. For example, despite the huge sums pouring into San Diego County from Pentagon and tourism spending, a recent survey found that the San Diego economy has contracted for the first time in years. Another sign of a possible slowdown is that Venture Capital spending appears to have peaked. … but June Gloom is gone and the sun sparkled surf is calling. So to quote Scarlett O’Hara, “I’ll think about it tomorrow.”
Food for Thought: No ho-hum dog days of summer this year. Brexit, Terrorism, Turkish Coups and the U.S. Presidential Conventions are providing a roller coaster of uncertainty. The uncertainty translates into more global monetary stimulus for longer. The tsunami of loose money flows into global stock markets. TINA is the new black. TINA (There Is No Alternative) makes the world go round. With interest rates at unprecedented lows, investors are chasing yield by jumping into stocks … because There Is No Alternative. As an investment philosophy, TINA is second only to Buy the Dip as the opiate of the masses. But, hey! … while you’re in the stratosphere swilling Cristal the ride is exhilarating. The sky is not falling, but we remain cautious about buying this market.
Music of The Week: Dave Brubeck’s “Time Out”
We Quarterback Money®.
The Economy: The Fed’s Beige Book was released today. The Beige Book is produced 8-times a year. It is a summary of current economic conditions in the U.S. Today’s Beige Book highlighted “modest growth.” There’s no real news here. The U.S. has had modest growth since 2009. What we should be seeing by this time in the economic cycle is an economy that’s in danger of overheating. We don’t have overheating. Instead, we have a Fed that is uncertain of continued economic expansion and terrified that another quarter point interest rate hike will destroy American capitalism. On the contrary, our informal street poll tells us that even a 2% rise in interest rates wouldn’t change people’s buying habits. Is the confidence we encounter on the street due to life in the sunny California Fast Lane? As we’ve noted previously, California is a dynamic Pacific Rim Country. The Golden State is flush with Defense dollars, booming high-tech/med-tech, enviable tourism, manufacturing and agriculture. Most Californians appear to be doing just fine. So why the national wailing and moaning? Are we missing something out here on the Left Coast?
Food for Thought: The interesting thing about the current economy is that many Americans are still talking about the 2008 financial crisis almost a decade after the fact. By contrast, in the late 1980s nobody was still talking about Paul Volker and struggle to end runaway inflation. In the late 1990s, nobody was still talking about the Savings and Loan crisis. At the peak of the last economic cycle in 2007, no one was still talking about the Dot-Com bust of 2000. Yet today people still talk about the Financial Crisis and its lasting effects. Perhaps this is because median family net worth for the middle class is 30% below its 2000 peak and lower than it was in 2002. Perhaps it’s because the internet has created an information explosion manned by screaming click-bait gadflys who are obsessed with sensationalizing the negative.
Music of The Week: Van Morrison’s “Astral Weeks”
The Economy: With the exception of consumer confidence, economic numbers have disappointed this week. Is this the pause that refreshes, or is it the beginning of the end, or is it the end of the beginning? You choose. We remain cautious. It’s important to understand that financial markets have been disconnected from the economy for a while now. Your organization or business may be doing better or worse than the numbers spewing out of Wall Street and Washington. Global trade appears to be slowing as China’s economy decelerates. The energy sector is sluggish. Mining and raw materials have hit a speed bump. Fortress America has remained largely untouched by these developments. The consumer confidence numbers tell us that Americans are happy as clams. That’s good for business. Buy now; tell me how.
Food for Thought: The third quarter is history … and never too soon. After 4-years of unbridled euphoria stocks took a beating in August and September. Markets are down about 11% from their highs; 8% in the past 2-months. While we still see this as a healthy correction, we encourage you to have an exit strategy. The “I’m ready to bail at any moment” crowd is out in force. Hope is not a strategy and planning to hold losing positons through a major downturn is a recipe for disaster. Murphy’s Law is alive and well. Letting the market turn your 401k into a 101k is not sound financial planning. Contact us if you’d like help. We Quarterback Money®.