Tag Archives: Google

The Fed’s Tightening Cycle and Market Vulnerability

The Economy: The U.S. economy appears to be accelerating from its modest expansion over the past several years. While purists may argue the validity of the numbers that are released, they are the numbers that move markets and investors. After years of insisting that inflation is too low, we may be seeing that monster rearing its ugly head. The Fed’s Beige Book shows inflation increasing across a broad range. Consistent with increasing inflation, the Fed is now warning that higher interest rates are on the way. They have 4 hikes planned for 2018 and are leaving the door open for more. In the meantime, information overload is the order of the day. The actionable news is further confirmation that the Fed is in a tightening cycle. Loans of all types will continue to become more expensive. Those economic sectors that benefited from a decade of low rates may see increasing headwinds as rates continue to ratchet up.

Food for Thought: Stock markets are suddenly a hot topic of conversation. After years of the lockstep rise in global asset values, stocks have shown that they can go down as well as up. But let’s face it, making changes to an investment portfolio is like watching paint dry when compared to wine tasting or hiking Nepal. Sailors know that a rising tide floats all boats … and the reverse is true. The last bear market showed that diversification is no protection when all asset classes are getting crushed. But that message will have to be relearned. The FANGs may be particularly vulnerable. Regulatory issues could loom as Americans are waking up to the privacy/government surveillance/freedom of speech issues posed by big tech and social media. Anti-trust happened to the railroads, big oil, autos and airlines.

Music of The Week: Govi’s “Andalusian Nights”

We Quarterback Money®

The Markets, The Mooch, and More Predictions

The Economy: The news this week has been all about Q2 corporate earnings … with a nod to the Fed’s 2-day meeting and announcement … and of course the Circus on the Potomac. Earnings have been strong with most beating expectations. The FANGS have led the way. Whether earnings justify stock valuations is up to you. Goldman Sachs thinks the market is overvalued with the market PE at 22.1 versus a 10-year average of 16.7. The other side of the coin are those saying, “This time it’s different.” The Fed’s 2-day meeting was a non-event. On Wednesday they announced no change in interest rates with a hazy comment about normalizing the balance sheet. In short the Dovish Fed is firmly committed to doing nothing. The Circus on the Potomac has continued its dazzling performance in the Theater of The Absurd. The Republicans were given a mandate to do something but seem to be incapable. Amazing. The Donald is moving closer to firing Apprentice Jeff Sessions. Sean Spicer is toast and The Mooch is sharpening his knives for future victims. There are no Summer Doldrums.

Food for Thought: As the poker player says, “Read ‘em and Weep.”

The Overvalued Market

This Time Is Different

Einhorn down 4% Q2

David Stockman on Peak Bull

A Bearish Citi Warns

Passive Investing poses risk

Music of the Week: Don Henley’s “Building The Perfect Beast”

 

Oil Production Caps

The Economy: The Fed Beige Book was released today. It confirmed the “New Normal” of our slow growth economy. The Fed found the consumer healthy and spending. Ironically, the Commerce Department released the Retail Sales numbers today. Their numbers showed a decline in consumer spending with a sharp drop in automobile sales. Right Hand; Left Hand. Oil ministers meet this weekend in an attempt to prop-up the price of oil with a production cap. Iran is considered to be the linchpin in this effort but their oil minister will not be attending. Like a wedding with a runaway bride, the meeting is DOA without Iran. The Fed minutes and Yellen’s recent comments have been parsed for read-the-tea-leaves guidance to monetary policy. “Global” and “uncertain” were repeatedly used by Yellen to describe issues facing the Fed. One pundit noted that the Fed has never publically used the term “uncertain.” So again, the end of the world is nigh. We continue to temper our concerns for slow-growth megatrends. Demographics and student loans may be problematic but we don’t think entitlement laden Americans are anywhere near rioting in the streets as some talking heads have opined. After all, this Sunday is Opening Day at the San Diego Yacht Club.

Food for Thought: The Department of Labor (DOL) has released its proposed “fiduciary” rules. The proposed rules have significant impact on 401ks. Many 401ks and deferred compensation plans haven’t been reviewed since they were implemented. Now is a good time to get that review process going. Contact us if you would like help with this issue.

Proverbs 11:1

Life is fragile, be positive.

Do well by doing good.

You deserve everything you have.

If you are not making mistakes you are not alive.

See with your eyes,

There’s no shame in fear; there’s shame in being paralyzed by fear.

You have free will.

Make the choice not to be cynical.

You are as lucky and as blessed as you can be.

Never trifle with someone.

The hardest three words: “I am wrong.”

Resentment cripples you.

Create your universe.

The most important decisions are the things you decide not to do.

Deals with the devil never work out,

Evil consumes itself.

Victims are permanently disappointed.

Understand the snobbery of the poor.

Summertime Ennui

The Economy: Housing posted good numbers this week. Otherwise, the noise remains deafening. Chalk it up to summertime ennui. The international situation remains the same with Greece being lauded for repaying loans with more borrowed money. … used to be called “robbing Peter to pay Paul.” Now it’s called sound fiscal policy. China is again touting its financial markets after 3-weeks of unprecedented intervention demonstrating that open and transparent markets simply do not exist there. Iran was hailed by John Kerry as the new prodigal nation. The Iranian Supreme Leader’s celebratory speech of U.S. friendship was punctuated with shouts of “Death to America.” With the proper spin, these would all make for a great Monty Python movie. As it is, this noise obscures the indications that deflation appears to a be mounting global issue. Multi-year lows in commodities may be confirming  this. Slow growth here and abroad seems to be the order of the day. For many businesses and public agencies this means flat revenue that continues below the 2007 peak.

Food for Thought:  Here’s perspective on the stock market: Google (GOOG) jumped in price last Friday. The jump increased its market capitalization by $62 Billion in one 6 ½ hour trading session. Apple (AAPL) reported earnings yesterday and the stock fell. It lost $50 Billion in value after hours. Facebook (FB) now has a larger market cap than General Electric (GE). Facebook has $12 Billion in revenues and 10,000 employees. GE has $145 Billion in revenues and 300,000 employees. Yep, it’s a rational market.