The Economy: High jinx at the Circus on the Potomac highlighted this week. On Tuesday, Wells Fargo’s CEO was excoriated by Senator Elizabeth Warren. Her roasting included comments that the CEO should resign and that he should face criminal prosecution. She pointed out that he has made hundreds of millions as a result of the fraudulent account shenanigans at Wells. But if the 2007-2008 Financial Crisis is a guide, the Wells Fargo board will probably give their guy a raise and millions of additional stock options. Today saw the Fed report out of their latest 2-day meeting with no change in interest rates. This was the expected outcome. Asked if this was a political move inspired by the upcoming presidential election, Fed Chair Yellen denied that she leads a Clinton Fed. Lower for longer remains the name of the game.
Food for Thought: Financial markets usually lead the real economy both up and down. Here in San Diego, our ongoing street poll has begun to show weakness is some sectors of the San Diego economy. There is some evidence that the uncertainty in the financial markets is bleeding over into the real San Diego economy. What we’re hearing is that new money is slowing down. Business owners and executives appear to be taking more of a wait and see attitude towards new endeavors. Increasingly we’re hearing folks say, “I’m waiting for the other shoe to drop.” A recent San Diego Regional Chamber of Commerce poll shows San Diego business confidence at a 3-year low.
Music of the Week: Atlantic Five Jazz Band’s “Bar Music Moods – The Piano Edition Vol. 1”
The Economy: Economic numbers continue to show a U.S. economy that is slowly expanding. The Fed’s Beige Book was released today and confirmed the “moderate growth” that has become the standard for the past several years. Observers continue to wait to see if growth will accelerate or slow. It’s now been 7-years without some type of confirmation that things are getting better all around. Instead of a sense of wellbeing, we have pockets of folks doing well versus groups who are still waiting for their lives to pick-up. In San Diego, outside of defense and tourism, our informal polling indicates that for most business owners and executives “things are flat; about like they were last year.” Overheard in a restaurant yesterday was the comment, “I don’t think this economy is doing as well as we’re supposed to believe.” Waiting for Godot.
Food for Thought: The proposed Chargers Stadium continues to polarize San Diego voters as the election approaches. One wag was heard to comment that, “I have a problem with billionaires asking for public assistance, so that millionaires can play a game that rich people watch.” Other business owners have been heard to ask, “When do I get my handout from the city for my business?”
Music of the Week: Charlie Byrd’s “The Best of Charlie Byrd”
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”