The Economy: The Fed’s Beige Book, a measure of the national economy, was released last week. It showed a soft economy. The preamble was optimistic but the details were less so. Combined with the economic hit form Harvey and Irma, the Fed is likely on hold through year end. This continues the “lower for longer” interest rate scenario we had for the past several years. The hurricanes have dominated the headlines for the past week. NAFTA, the White House half-life of Gary Cohn and North Korean threats have faded to black … at least for the moment. Since the world didn’t end with either NOKO’s nuclear war threats or the hurricanes, stocks are again on a rocket-ride to infinity and beyond. This despite comments by the following scaredy cats: 2017_09_06: Deutsche Bank Chief Executive Officer John Cryan “We’re now seeing bubbles everywhere”; 2017_09_06 Lloyd Blankfein, CEO, Goldman Sachs: … (world financial markets) “have been going up for too long”; 2017_09_11 Seth Klarman of Baupost Group: “… plans to return capital to investors by year-end due to a lack of opportunities”; 2017_09_12 John Hussman of The Hussman Funds: “I view the market as having no investment merit at all here.” Like I said, scaredy cats! They should be tarred, feathered and run out of town on a rail for thinking that stocks could possibly do anything other than go up forever.
Food for Thought: Taki Magazine reports that in a tip of the hat to globalism, multiculturalism and identity politics, “… the British Broadcasting Company (BBC) has launched a website in Pidgin English. The BBC points out that Pidgin English is ‘an informal lingua franca. It is a language that really unites people and cuts across all sorts of barriers—ethnic, regional and socio-economic.” The new site’s headlines feature Pidgin droppings such as “Indian woman divorce husband because dem get no toilet,” “Why dem dey call Hurricane human being name,” “How Tanzania dey kill mosquito,” and our personal favorite, “Why China dey chop African Donkey.” Nothing new here. Anyone who’s had children in school recognizes this patois as proficient english for graduating seniors. Next up, Gullah.
Music of the Week: Bruno Mars’ “It Will Rain”
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: The news has been all about the Fed. Trump made it clear during the election that he wanted to remake both the Supreme Court and the Federal Reserve. Word is that Randy Quarles will be Trump’s nominee as Vice Chair and the Fed’s Bank Supervisor. He comes from the private equity/private investment world. Quarles is considered to be a conservative counterweight to Yellen. Quarles would bring a fresh perspective to the Fed which has become dominated by academicians with little real world experience. Speculation has also focused on replacing Fed Chair Yellen in 2018. Trump’s Fed Chair nominee is expected to be National Economic Council Director Gary Cohn. Cohn comes from the investment banking world and would be the first Fed chair in 40-years who isn’t an economist. Within the Trump administration this is viewed as a plus since Trump wants practical experience over academic credentials. The downside is that Cohn is another Goldman Sachs alumnus; all of whom are detested by Trump’s core followers. Regardless of the accuracy of these reports, it’s obvious that Trump is determined to put a different Fed in place. A Fed that is more oriented towards pro-growth real world experience.
Food for Thought: Whenever we get out in the economy we’re impressed with how robust it looks. Restaurants are packed with diners day and night. Real estate continues to appreciate. New cars flood the streets. Everyone seems to be taking extended vacations. Yet in her Congressional testimony today, Fed Chair Yellen was surprisingly dovish. She expressed concern that inflation was below expectations and implied that the economy wasn’t performing as well as expected. Financial markets loved this narrative as it indicated that Yellen would keep her highly stimulative policies in place rather than continuing to turn off the spigots. But sooner or later the stimulus must end. It’s the human condition to project the recent past into the future; to assume that the future is going to unfold like the past. So it’s always interesting to hear a well-respected figure like Jamie Dimon, CEO JPMorgan speak candidly about the ongoing change in monetary policy. Commenting on the Feds move to end 8+ years of stimulus, he said, “We act like we know exactly how it’s going to happen and we don’t.”
Music of the Week: Josef Franz Wagner’s “Across the Pond”