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: Super Mario Draghi continues his legacy of Shock and Aw Shucks. We haven’t seen this kind of Italian Brass since Caesar crossed the Rubicon. Today Mario announced an aggressive expansion of ECB stimulus. Interest rates were cut further into deeper negative territory. Quantitative Easing was expanded by 30% from 60 Billion/month to 80 Billion/month. But the biggest change was adding corporate bonds to assets that the ECB can purchase. Global financial markets were not impressed. Moving into private sector debt is a Rubicon. What next? … Central Bank ownership of stocks, then real estate? Perhaps the ECB’s solution to slow growth is for the Central Bank to own all member assets and means of production. Nice way to come back to Marxism. Stalin and Mao must be gloating. Break out the Hammer and Sickle and fire up The Internationale.
Food for Thought: This week marks the 7th anniversary of the Bull Market. Stocks celebrated by trading down and breaking a 5-week rally. We continue to recommend that investors take profits and raise cash. The selloff that marked the first 6-weeks of the year has been arrested. But as we look out over the environment, we find it difficult find the drivers of growth that would power financial markets to meaningful new highs. Selling positions and moving into a money market fund is particularly prudent with retirement plan assets or annuities. In many cases investors can cherry-pick positions to sell within the same mutual fund. This is called a “Versus Purchase” transaction (VSP). We’re into tax season, now is a good time to review and protect your retirement assets. Buy and hold has worked for the past 7-years. Nothing lasts forever.
The Economy: The Fed reports after their meeting tomorrow. We’re going to press without waiting for what will be a non-event. There will be no follow-through to liftoff. Whatever is announced will be more pablum in a global economy awash in oil, terrorism, illegal immigrants and the rants of the U.S. presidential election. The slowing global economy was confirmed by Goldman Sachs who put an unheard of “sell” recommendation on Caterpillar. CAT is a blue chip and core holding for many portfolios. The sell recommendation comes as Goldman evaluates the global slowdown and sees tough times ahead. The slowdown in China just got more interesting with the head of the Chinese Bureau of Statistics arrested for corruption. Think scapegoat. Somebody other than those responsible, has to answer for the fakery and quackery that passes for economic data out of the Celestial Kingdom. Don’t be surprised to see China revise their numbers downwards before drastically devaluing the Yuan. How this plays out in Peoria is anyone’s guess. While U.S. policy makers are resolutely positive about our economy, the folks we talk with are more hesitant and concerned. With the exception of those at the defense department trough, no one is saying, “We’re gonna have a great year and we are hiring like crazy to ramp up for it.”
Food for Thought: Stocks continue to entertain. … better than any roller coaster at 6-Flags … better than canyon carving on a hot sport bike. Most investors have held on through the turmoil. So far. We continue to advise that you have an exit strategy in these interesting times. Call it a “Rubber Band” stock market. One day’s extreme snaps back the next day … only repeat the extreme again. This has been going on for a month now. Will this volatility dampen out and end, or will it continue until things fall apart? If you believe that “the markets always come back,” ask yourself how long you’re willing to wait. 2-years? 5-years? 10-years? The stock market crashed in 1929 and didn’t make new highs until the 1950’s; 20+ years later. Or take a look at Cisco (CSCO). This Dot-Com darling is still down 70% from its high in March of 2000. Some folks have been waiting for 16-years for Cisco to “come back.” Don’t let fear and greed blind you to the need for a sound game plan. Your 401k is particularly susceptible to this mistake. 401k providers and administrators do not provide investment advice. You are on your own. Take a look at your 2015 year end statement and understand what you own. All account statements are notoriously confusing. If you need help, ask. Like your second grade teacher used to tell you, “There are no dumb questions.”
The Economy: Where is Big Data when you need it? Recall that this massive intersection of data gathering and number crunching was supposed to shift the paradigm of existence. Maybe it works for Ashley Madison, the NSA and advertisers wanting to know which type of cinnamon you use, but it ain’t workin’ for making sense out of oil, global economies or financial markets. This week, the numbers were … well … weak. Housing disappointed. Consumer Confidence fell. Durable Goods disappointed. Q3 GDP disappointed. So with all this weakness, the Fed meets and tells us that interest rate Liftoff is still in the cards for December. Jeez! As mentioned previously, because of fiscal year end considerations and the fact that the planet is on vacation in December, the Fed has NEVER raised rates in December; much less embarked on a policy change to tightening. … not during WWI, not during the Great Depression, not during WWII, not during the boom years of the 50s and 60s, not during the Go Go years of the Nifty Fifty, not during Vietnam, not during the Oil Crisis, not during the Greed is Good years of the 80s and 90s, not during the Dot Com Boom, not during the Social Media Boom … but the most Fraidy Cat Fed wants the most highly educated electorate in history to believe Liftoff is a possibility. … so many braying asses in the dark of night. No wonder Central Bankers are despised.
Food for Thought: We’re music lovers and listen to it throughout the day. If you’re looking for streaming music, try Spotify. Ever since I was knee high to a grasshopper I’ve pursued the twin mandate of the audiophile: Great Sound and Uninterrupted Playtime. There are many streaming music services out there. I’ve tried several of them. Spotify does it for me. There are two levels of service: Free with the occasional commercial and Commercial Free for $10/month. The $10 is well worth it. Spotify not only recommends music, it also allows you to build your own playlists and share those that have been compiled by other subscribers. Check it out: Spotify.com.
The Economy: This is a holiday shortened week with little of note; except for the screams of vertigo fatigued stock market investors. Next week is the Fed Liftoff Meeting that has been the topic du jour for months. “Just Do It” so that we can get on to other things worthy of attention; the direction of hemlines for example. Financial markets may blow a fuse when the Fed finally shakes off its lethargy, but the economy should continue to expand. San Diego is particularly well positioned to move ahead regardless of what Janet and The Jets serve up. Annual tourism brings 35 million people to San Diego to spend and shop till they drop. Defense spending is increasing as the Pacific First strategy continues to unfold. High-Tech/Med-Tech looks bright with the smart set in love with sun, sand and surf. Real estate has recovered from its swoon and records are again being broken. Gentrification is adding value to neighborhoods throughout the county. Scrape and remodel is the old new. Construction cranes again dot the skyline downtown. Optimism is the order of the day.
Food for Thought: 400 point daily moves have become the norm in global stock markets during the past month. Earlier this week, Japan was up 7% one day then down 3% the next. A few weeks ago the Dow was down over 1000 points shortly after the open before staging a comeback. It was the largest drop in history. Tuesday it was up 400 points, Wednesday down 230. Ride ‘em cowboy. With this volatility we continue to maintain large cash reserves; both for protection and for opportunity. If you are still fully invested, taking some money off the table would be a prudent move. Pundits are comparing this roller coaster ride to past meltdowns. I’m not convinced that comparisons are valid. I see time as being more like a corkscrew than a straight line. Events that appear to be repeating are occurring under different circumstances. Buy and Hold was a sound approach in 2009. Beware your own complacency. Contact us if you have questions about how to protect your assets in these volatile times. We Quarterback Money®.
Investing as Entertainment
A headline shouts, “Roger Federer talks … market volatility” and I think, “Here we go again!” CNBC, Bloomberg TV, Fox, CNN and thousands of blogs and websites cater to the investing public. Daddy gave you a quarter for an allowance when you were 5 years old. You’ve been writing and cashing checks for a lifetime. You know money. The internet and the media tell you that you should be investing your own money. You can do it for free. Even a Neanderthal can do it.
Seriously? Can you be a part time astronaut, a part time neurosurgeon, a part time NFL quarterback, a part time Supreme Court Justice? Every successful endeavor requires dedication, discipline, hard work and luck. But the zeitgeist is that investing is for part time fun. The meaningless noise from the Talking Heads is deafening. Not to mention the theatrics of shouted insults, horns, bells, sirens, cream pies and fashion.
The snake oil salesman has been recast as the investing guru screaming at you to gamble with your estate. Why are you listening? As a prudent investor you should avoid the Las Vegas casino mindset. Seek professional advice. At Higgins Capital We Quarterback Money®.
Stocks have had their worst week since the summer of 2011. In 2011 the Fed came to the rescue with another injection of monetary stimulus to prop-up the markets. Stocks dutifully took off to new heights. Now the Fed has indicated that liftoff is around the corner. Thus far, further stimulus appears to be off the table. But we will see. I wouldn’t be surprised to see the Fed back away from tightening. I wouldn’t be surprised to see the Fed inject trillions more into the stock market asset bubble that they’ve come to covet as their special legacy. The proof will be in the pudding as a correction is long overdue. For the past 6-years, the only consistent Fed action has been to prove that Keynesian Economics is sacrosanct. Why should this time be any different?
The Economy: The Fed ended its 2-day meeting yesterday. It was a non-event and the door has been left open to liftoff in September. This morning GDP was released and again confirmed the slow but steady growth that we’ve all come to love. As we look at the future of interest rates, The Asian crisis of 1997/98 might be instructive. During the Asian crisis, the Fed continually talked about raising rates but never did. They “talked the talk but didn’t walk the walk.” In fact, the next Fed move was to cut rates. We don’t see a rate cut this time around, simply because there’s nowhere lower to go. However, we might see a postponement to lift-off into 2016. As we’ve mentioned before, it’s not a matter of if, only when. Plan accordingly.
Food for Thought: Financial markets are sometimes disconnected from the larger economy. We’ve recently seen this in China. Chinese stocks raced ahead while their economy slowed. When the selloff came, the unprecedented intervention by the Chinese government prevented normal market activity. 25% of existing shares are still suspended from trading. Yet, talking heads are now touting Chinese stocks. Beware Chinese markets. Transparency and free markets don’t exist there.