The Economy: The Holidays are upon us and All is Beautiful. Synchronized global growth, led by the US is producing some of the best economic numbers since the Financial Crisis of 2008. Donald Trump’s foreign policy speech has outlined an America First approach that should produce economic benefits. Congress has passed the first rewrite of the Tax Code in 3-decades. Financial markets are comforted to have another unknown out of the way. Corporate profits that have been held overseas are expected to flow back to the US next year and used for dividends/share buy-backs. Share buy-backs along with the expanding economy should bode well for stock markets in 2018. San Diego continues on its growth trajectory with high/med-tech, military spending, services and tourism helping to keep the downtown skyline full of construction cranes. Pessimists still call for circling the wagons. Optimists see the Endless Summer of perfect barrels.
Food for Thought: Merry Christmas and Happy New Year! Happy Holidays! It’s been a pleasure writing for you this year. … and what a year it’s been! 2017 goes down as one of the most excitement filled years in memory. Good Excitement; Bad Excitement; Real Excitement; Fake Excitement; Lurid Excitement; Questionable Excitement. How’er ya gonna keep ’em down on the farm after all that jazz. With markets heading into the 10th year of their rocket run, US mid-term elections, Brexit moving forward, Japan re-arming, a new Federal Reserve, Draghi on his way out, more central bankers tightening the screws, 2018 will be every bit as exciting as 2017.
Music of The Week: Dean Martin’s “The Dean Martin Christmas Album”
We Quarterback Money®
The Economy: Central Bankers dominated this week with the ECB’s Draghi reiterating that more stimulus is sure-fire Nirvana. Then Yellen and her crew called the stock market expensive while continuing to talk up higher interest rates. They ignore that higher interest rates have been the death knell of every bull market. Now that he’s in the Oval office and staring down the barrel of the Federal debt, The Donald has become an advocate of low interest rates. Higher interest rates jeopardize all of his campaign promises and programs. History teaches us that when the Fed begins to talk about stocks being expensive, the bull has further to run. Yet, we’re perplexed that the Fed would warn of an overpriced stock market. After all, they have finally achieved their objective of a runaway stock market that continues to race higher. Risk has been banished as investors have finally accepted that Central Bankers will always do whatever it takes to keep stocks going up forever. … to infinity and beyond!
Food for Thought: 4th of July! All Citizens are Patriots; regardless of which side of the aisle. Just ask us. So we can safely say, without being accused of hate speech, “My Country right or wrong, still My Country.” Have a great 4th of July!
Music of the Week: Rod Stewart’s “It Had to be You”
The Economy: “Veni Vidi Vici” is the new Black and it couldn’t be more appropriate for the Ides of March. It rightfully belongs with Caesar but this week has seen a bevy of contenders who deserve participation trophies: Shia LaBeouf, Rachel Maddow, John McCain and Bruce Loveless were joined by Fed Chair Yellen. Uber Dove Yellen continued to lead from the rear with a ¼ point interest rate hike. Yellen’s comment to consumers was, “The simple message is the economy is doing well.” 3 or more rate hikes are expected in 2017; roughly one every other meeting till year end. Analysts were quick to call it a Goldilocks Rate Hike with a dovish statement. The Trump Animal Spirits provide the perfect cover for the Fed to reload monetary policy before the next recession hits. Having kept interest rates at zero for almost a decade, the Fed must now scramble to hike rates enough that they have room to ease when the economy eventually slows. Let’s keep those zombies and buglies dancing around the bonfire. Maybe no one will notice that credit is tightening. Bored? Try this Thought Experiment: Enter a Prime Rate of 7% into your operating calculations. What does that that do to your organization? … only a matter of time.
Food for Thought: Quantitative Easing (QE) is alive and well. While the Fed has cut back, nothing is being done to shrink its bloated balance sheet. Equally important, Central Banks continue to pump $200 billion per month into the global financial system. The EU alone pumps $80 billion per month and “We’ll Do Whatever It Takes” Draghi shows no sign of easing off. If global growth is accelerating, why is $2.5 trillion in stimulus still needed? … that is the fly in the Animal Spirits’ ointment. Next up, raising the U.S. Debt Ceiling from its 2008 limit. This used to be cause for government shutdowns and hand wringing. Maybe it’ll get some play when The Donald issues his budget.
Music of the Week: Jimi Hendrix “Axis: Bold As Love”