The Economy: The new year is off to a roaring start with tax cut optimism leading the charge. Corporate profits held overseas, estimated in the hundreds of billions, are expected to be repatriated. Stock markets are salivating at the expected new surge in buybacks. Talk from Bulls is that the new round of buybacks will dwarf anything ever seen in history. Bulls anticipate that buybacks will dramatically reduce the number of shares outstanding. Their call is that this is only one of many events that will drive stock prices to dizzying new heights. Small business optimism is at a 32-year high; highest since 1985.
Food for Thought: San Diego feels like a boom-town. Free money, surging stock prices, the Pentagon’s “Pivot to the Pacific”, the hi-tech/med-tech sweep, construction buoyancy and the torrential real estate market have hundreds of thousands of San Diegans walking on air. We toured a new development of $2+ million tract homes that was sold out in record time. Yards small enough that some would call them garden homes and built so close together that you have to hold your breath in order to squeeze between them, real estate bulls are saying they’ll be worth $5 million in just a few years. Bitcoin up 300+% in a few weeks has taken a breather recently. Bitcoin Bulls tout a value of 50,000 to 100,000 in its next run. Jamie Dimon says he regrets calling Bitcoin a fraud. Investor euphoria appears to have arrived.
Music of The Week: Beegie Adair’s “Martini Lounge”
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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”
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The Economy: “Summertime and the livin’ is easy.” Economic data has been scarce. The Fed continues to indicate that they are now in a tightening cycle. We’ll believe it when the stock market has a correction and the Fed actually continues to raise rates; rather than follow their usual action of doing everything possible to support the asset bubble. The Fed has also indicated that they will be shrinking their bloated balance sheet. This will also have a tightening effect. Again, we’ll believe it when we see it. In the meantime, stocks continue to move higher led by the FANGs. Stocks remain a pure-play in central bank manipulation with the Bank of Japan now buying stocks like never before. Oil, on the other hand, entered bear market territory this week; crashing to $42/barrel WTI. The ripple effect has yet to be felt in the economy. A few short weeks ago oil was the biggest bull story around. … goes to show how quickly the story can change.
Food for Thought: We’re officially into summer. Time to find a good read and relax. “The Fourth Turning: An American Prophecy …” by Strauss & Howe frames today’s world in a way that you might find thought provoking. Are we in an era of increasing instability or is it simply a matter of the ever-present media. Most of the time, things tend to change only at the periphery. Occasionally events are life altering: wars, economic collapse, revolution are three macro events that come to mind. It’s all happened before … on numerous occasions … and the world is still turning. We’re cockeyed optimists and far beyond the sky-is-falling. Having said that, we continue to encourage you to have an exit strategy for these financial markets.
Music of the Week: Michael Allen Harrison” “Horray for Hollywood”
The Economy: The U.S. economy appears to be accelerating while the global economy turns in mixed numbers. If this divergence continues, it may be the U.S. that serves as the engine of growth that keeps a global recession at bay. While the U.S. anticipates continued acceleration due to Trump tax cuts and fiscal stimulus, the EU faces more economic uncertainty as Italeave and Irexit appear to be set for a vote. Uncertainty is the bane of financial markets as participants postpone decisions until there is greater clarity. The feedback loop can create a self-fulling prophecy. The upheaval in Washington was reflected in a bond market route that is unlike anything we’ve seen in years. Rapidly rising rates would negatively impact large sectors of our economy such as housing and autos. Uncertainty also surrounds the Fed meeting in December. Though financial markets have supposedly priced-in a ¼ percent interest rate hike, animosity between Fed Chair Yellen and President Elect Trump means that all bets are off. I sent you a letter this week in which I discussed protecting your assets in this environment. Please let me know if I can help you with your money.
Food for Thought: To put a fine point on it, it’s been a week of over-the-tops: First Up, Cornell University hosts a “Cry-In” for students traumatized by the Trump victory. Not a Sit-In. Not a Laugh-In. Not a Love-In. A Cry-In. While 300,000 teenagers serve in our military, the Cornell Masters of The Universe huddle with their barista supplied hot chocolates and bawl. Our take: All you overweened please decamp for Canada immediately. Second Up, Numerous people who were too preoccupied to vote have taken to the streets to protest the “Not My President” Trump election. Our take: You’ve successfully auditioned for The Kardashians. Third Up: This week a San Diego hi-tech entrepreneur threatened Donald Tump in a Facebook post. Facebook! Our take: The Peter Principal confirmed and the Wrath of The Secret Service, Homeland Security and the NSA shall rain down upon you. Kiss any more Venture Capital goodbye forever. The President of the U.S. has an annual salary of $400,000. Trump has announced that he will forgo the salary. Not a word from the mainstream media. The Greatest Show On Earth continues its unprecedented run! … and like you, I patiently wait for common sense and social grace to return to our Great Land. Thanks for reading More Money. If I can help you in any way please contact me at email@example.com. We Quarterback Money®.
Music of the Week: Tina Turner’s “Twenty Four Seven”
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: Economic numbers have surprised to the downside this week. Oil is off 20% from its high of a few weeks ago. Home ownership is at its lowest since 1965. GDP came in 50% below expectations. Some are saying the U.S. economy is stalling. Central bank activity has likewise been muted. The Bank of England and the Bank of Japan were both supposed to initiate massive stimulus programs. It didn’t happen. The Fed met this week and did nothing. Ennui, exhaustion or summertime blues, no matter. Financial markets took the poor numbers as confirmation that slowing economies would keep interest rates lower for longer. Poor economic numbers should keep the monetary printing presses running full-out.
Food for Thought: Thank you Talking Heads, Supreme Court Justices, former Mayors and other professional blowhards. We get it. The Donald is dangerous and The Hillary is a criminal. The Donald is the most dangerous man in the history of the planet. Worse than Cain, worse than Attila, worse than Stalin. The Hillary is the worst criminal in the history of the planet. Worse than Jezebel, worse than Bloody Mary Queen of Scots, worse than Bonnie Parker. That’s why as Americans we’ve selected them to be our Champions. Because warts and all, they are Our Champions. Now, let’s get on with it.
Music of the Week: The Essential Etta James.
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”
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The Economy: The Fed concluded its 2-day meeting today with its usual inaction. This time it was because “the labor market has slowed.” Next month it’ll be due to the shrinking icepack in Antarctica. TGISummerTime. The dull, monotone of the Fed press conference seemed to confirm that no-one expects anything from these Amos and Andy dissimulators. Financial markets rallied into the Fed’s press conference then reversed course and sold off at its conclusion. It was as if markets were rattling their sabers and shouting, “enough with the tofu, give us some real meat.” The message remains the same: The Fed doesn’t believe that the economy is strong enough to survive without continued support. If the Fed is right, then financial markets have no business being near all-time highs. If the Fed is wrong then markets should be much higher than they are. So who’s on first?
Food for Thought: BREXIT!!!!!!!!!!! British Exit. Next Thursday, June 23, our cousins across the pond will vote on whether to remain in the European Union (EU). Global markets will go haywire, regardless of the vote, before settling back into their somnambulant complacency. The EU was founded in 1951 and has never had a member state leave the club. Brexit will shatter the illusion of Union. It will also establish a guidebook for other nations itching to ditch Brussels. Great Britain has always had a love/hate relationship with its EU membership. Polls show about a 50-50 split on the issue with screamers on both sides saying it’ll be the end of the world. Britain has always been of Europe but not in Europe. So their disenchantment with EU monetary policy, immigration and unelected EU officials ruling by diktat has been brewing for a long time. Take note then retire to the beach to enjoy the summer.
Music of The Week: The Beatles “Rubber Soul”
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”