The Economy: Economic numbers have turned mixed as the hurricane effect kicks in. Whatever economic bump may occur as a result of the disasters will be temporary. The longer-term effect will be a headwind for the economy; though how much is an unknown. Last week the Fed continued tightening monetary policy. Fed Chair Yellen is sounding more hawkish as labor-market hiring is strong and global growth is recovering. As such, odds are for another quarter point rate hike come December. 8-years on, financial markets continue hitting new highs. Neither snow nor rain nor heat nor gloom of night stays these markets. Global Central Banks have bought up a majority of government debt. They have been buying and now own trillions in stocks. Now, on par with The Bilderberg Group and Nibiru, comes word of The Plunge Protection Team (PTT). Hear tell, the PTT is a shadowy coalition of officials and bankers. They rush to the rescue at the slightest sign of market weakness; pumping in billions of taxpayer dollars to keep markets from ever going down. Yep … and I have a bridge in Brooklyn that I’ll sell ya.
Food for Thought: Robotics and demographics are trends with lasting impact. The first generation of bots eliminated factory jobs. The latest generation is replacing CPAs, analysts, doctors and other professionals. Stepford husbands and wives may be next. The economy is increasingly becoming two-tiered: Do it your selfers (DIY) and those willing and able to pay for personal service. Boomers are out and millennials are inheriting the earth. Out with Tim Allen and in with Jenna Marbles.
Music of The Week: Craig Chaquico’s “Shadow and Light”
The Economy: The Fed’s Beige Book, a measure of the national economy, was released last week. It showed a soft economy. The preamble was optimistic but the details were less so. Combined with the economic hit form Harvey and Irma, the Fed is likely on hold through year end. This continues the “lower for longer” interest rate scenario we had for the past several years. The hurricanes have dominated the headlines for the past week. NAFTA, the White House half-life of Gary Cohn and North Korean threats have faded to black … at least for the moment. Since the world didn’t end with either NOKO’s nuclear war threats or the hurricanes, stocks are again on a rocket-ride to infinity and beyond. This despite comments by the following scaredy cats: 2017_09_06: Deutsche Bank Chief Executive Officer John Cryan “We’re now seeing bubbles everywhere”; 2017_09_06 Lloyd Blankfein, CEO, Goldman Sachs: … (world financial markets) “have been going up for too long”; 2017_09_11 Seth Klarman of Baupost Group: “… plans to return capital to investors by year-end due to a lack of opportunities”; 2017_09_12 John Hussman of The Hussman Funds: “I view the market as having no investment merit at all here.” Like I said, scaredy cats! They should be tarred, feathered and run out of town on a rail for thinking that stocks could possibly do anything other than go up forever.
Food for Thought: Taki Magazine reports that in a tip of the hat to globalism, multiculturalism and identity politics, “… the British Broadcasting Company (BBC) has launched a website in Pidgin English. The BBC points out that Pidgin English is ‘an informal lingua franca. It is a language that really unites people and cuts across all sorts of barriers—ethnic, regional and socio-economic.” The new site’s headlines feature Pidgin droppings such as “Indian woman divorce husband because dem get no toilet,” “Why dem dey call Hurricane human being name,” “How Tanzania dey kill mosquito,” and our personal favorite, “Why China dey chop African Donkey.” Nothing new here. Anyone who’s had children in school recognizes this patois as proficient english for graduating seniors. Next up, Gullah.
Music of the Week: Bruno Mars’ “It Will Rain”
The Economy: Uncertainty has increased recently. Hurricanes Harvey and Irma will lower economic numbers going forward. The hydrogen bombs and loose-cannon missiles of the North Korean Crisis create their own questions. The issue of raising the debt ceiling has been kicked out to December. Inflation remains stubbornly below its 2% target. As a result, the Fed is probably on hold for any action for the remainder of the year. Both further interest rate increases and any balance sheet reduction would serve as a brake on an economy that is now more opaque than usual. Lower for longer; so mortgages and loans should remain near their historic lows. Our informal polls continue to confirm that a majority of respondents expect some type of an economic slowdown and a market pull-back. But stock markets continue to toy with their highs and bonds reflect the on/off of the flight-to-quality, safe haven depending on the geopolitical story of the day. September is historically the worst month for stocks. But with the current environment, all bets are off.
Food for Thought: Families with a net worth of $10 million or more have special needs. Taxes of all kinds, especially estate taxes are a major concern. Intergenerational wealth transfer is another issue. Many families are asset rich and cash poor. Wills, trusts, insurance and family businesses further cloud prudent action. Fees for these services frequently run to 6-figures. But the return is often several times that amount. Think about it.
Music of the Week: Peter White’s “Smile”
The Economy: The numbers were again mixed and eclipsed this week by politics. Housing starts and building permits were down. Jobless claims up, Industrial Production down. Fed minutes were, as usual, a sleeper … watching Yellen kick the can down the road is tedious at best. The excitement was reserved for the NOKO Doughboy, who blinked; for the rewriting of U.S. history that occurred in North Carolina and for the continuing Circus on the Potomac. With the exit of Steve Bannon from the White House, Chief of Staff John Kelly appears to have consolidated his control. If true, we may begin to see a unified message from the Trump Administration. Even if that message is via tweet, it may be an improvement over the noise that has become a distraction. With the uncertainty of the past few weeks, stocks have weakened while bonds have been in a holding pattern.
Food for Thought: Stocks are making some investors nervous. After relentlessly moving up this year, markets have stalled. Is it because August is usually a weak month, or is something else at play? U.S. markets have failed to hold their highs and the FANGs are down about 10%. Bulls see Dow 30,000 around the corner. Bears are salivating for a 20% correction. Central Banks continue to pump trillions into the global economy. As long as Fed Policy is “Free Money Forever” there will be an upward bias to stocks. Yet warnings abound. Fiscal policy along with Trump Initiatives are DOA. Political gridlock under Obama was astonishing; under The Donald it is simply unbelievable. Clearly stocks can’t go up forever. This begs the question for investors who are on the sidelines or short, “Do you want to be right or do you want to make money?” Which of course leads to the caveat, “Markets can remain irrational longer than you can remain solvent.”
Music of the Week: Shakira’s “Can’t Remember to Forget You”
The Economy: Amidst weak economic numbers the DOW punched through 22,000 and is holding as we go to press. The Fed, which backed off their intent to normalize monetary policy, has provided another leg up to the markets. During the election Trump castigated Yellen for keeping interest rates abnormally low. Now he supports lower for longer. Likewise stock market valuations. During the election Trump called stocks, “a big fat ugly bubble.” Now he’s taken ownership and claims credit for the surge since the election. Yellen, who is decidedly anti-Trump has the power to crush this market. Yet she also has her legacy to think about. Trump has vowed to replace her in 2018. The question is, “Does she want her legacy to be that of the Fed Chair that crashed the market or is she going to manipulate things so that her successor has to face the music?”
Food for Thought: Shoot the Messenger! The MSM is aflutter about the blowout earnings season. But the Financial Times has this to say in the section titled, ’Reasons to be Skeptical About the Earnings Recovery,’ “These are far from reassuring numbers. The picture they reinforce is that US large companies have been able to grow earnings through financial engineering even though their cash flows are flat, or even declining. …the apparent earnings recovery of large US listed companies … may have been something of a mirage.” For example, the DOW is a price weighted average, so Boeing (BA), with its $235 price has been responsible for ¾ of the DOW’s recent 278 point increase. After eight years of the bull market, no one is thinking about risk anymore.
Music of the Week: Dean Martin’s “Italian Love Songs”
The Economy: Central Banks have again re-emerged as the biggest influence on financial markets. This follows a period, earlier this year, when global politics ruled. Since then, global and national politics have resumed their traditional role of all talk, no action; all hat, no cattle. Gridlock. Obstructionist, Stumblebum Democrats. Obstructionist, Stumblebum Republicans. “This time is different” turned on its head once again. So we’re back to relying on Fed Chair Yellen to provide us with our daily diet of comedic relief. This year the Fed has convinced markets that interest rates were going up to preserve the integrity of the financial system. In last week’s Congressional testimony, Yellen backtracked on that carefully crafted plan. Now markets are convinced that we’ll see lower for longer in interest rates. The Fed’s inability to adhere to any type of Monetary Policy other than whimsy, has again proven to be the case. Stocks and real estate continue their run to infinity and beyond.
Food for Thought: Free money continues to be the official policy of the Fed. Savers have gotten crushed for 8-years. Markets have levitated. According to some, the FANGs now account for 30% of stock market returns. We saw it in the 60s with the Nifty Fifty. Stocks and real estate have been immune to shocks of any kind. So there is now an entire generation of investors who are convinced that markets only go up. There are bold investors and there are old investors but there are no bold, old investors. We continue to see a disconnect between an expanding economy and the need for unceasing stimulus. More Cowbell! It is a no-win situation. With markets relentlessly rising you have to stay on the dance floor. Keep dancing but do it closer to the door.
Music of the Week: Steely Dan’s “Everything Must Go”
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: “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: We end the month of May with a review, since the election, of comments on the economy and the financial markets:
2016_11_09: Jeff Gundlach of DoubleLine: “Buy This Market on Trump, Growth and Inflation.”
2016_11_09: Stanley Druckenmiller: “Buy This Market.”
2017_01_31: Kyle Bass, of Hayman Capital Management: A lower corporate tax rate … will be “extremely stimulative.”
2017_02_02: Dan Loeb Hedgie: “The … election was the most significant event of the year …”
2017_02_08: Larry Fink BlackRock CEO: “I believe we’re in the midst of a slowdown … because of all the uncertainty.”
2017_02_12: Jim Rogers: “We’re about to have the worst economic problems of a lifetime … ”
2017_03_02: Raymond James’ Jeff Saut: “I’ve never seen anything like this market, so I’m not going to play.”
2017_03_09: Bill Gross Janus Capital Group: ”…our highly levered financial system is like a truckload of nitro glycerin on a bumpy road …”
2017_04_01: Jamie Dimon CEO JP Morgan: “It is clear that something is wrong” with the nation.”
2017_05_10: Jeff Gundlach of DoubleLine: “The VIX Is Insanely Low”
2017_05_09: Lloyd Blankfein Goldman Sachs CEO: … low volatility… is not a “normal resting state” for markets.
2017_05_09: Art Cashin, of UBS: “It’s not normal … people are so blasé about what’s happening,”
2017_05_13: Ray Dalio of Bridgewater: “…the downturn … will likely produce much greater social and political conflict than currently exists.”
2017_05_30: Paul Singer of Elliott Management: When, Trump’s pro-growth agenda fails to be implemented, “all hell will break loose” …
2017_05_31: Benjamin Bowler, Bank of America Strategist: …”these markets are very weird”… US equities continue to set long-term records for instability”…
Food for Thought: My original entry for this paragraph was a commentary on Kathy Griffin. However, the Higgins Capital editors/censors, comprised of my wife and daughter, redacted so much of my reaction to Griffin’s wanton act of pure evil and hatred that the result looked like something like this from the CIA: “At__point__. Ultimately__media__internet__; __silent__”high__What’s__Award.” Long story short, my rant on decency and graciousness ended up on the cutting room floor.
Music of the Week: Cat Stevens’ “Tea for the Tillerman”
The Economy: Global economies appear to be improving with Germany and France leading the way in Europe. The U.S. continues to present a mixed picture. The Fed released its minutes on Wednesday. They looked through the data to indicate another interest rate increase in June. While some see the Fed as increasingly hawkish, actions speak louder than words and the Fed has been unwilling to inflict the pain that rising rates will bring. With the explosion of information provided by the internet, a solid case can be made for any position that suits your fancy. Believers who warn of bubbles are countered by equally sage adherents on the other side of the argument. While we’re awash in the rhetoric of change, it’s questionable how much will be legislated given all of the animosity. The Trump budget proposes the largest cuts in decades. But like the rest of the agenda it’s so steeped in emotion that its final form is impossible to discern. Add the Special Prosecutor to this witches brew and you can almost hear the wheels of government grinding to a halt.
Food for Thought: Financial markets are unfazed by this circus and continue their 8-year bull run. Interest rates remain at historic lows. Bond yields remain suppressed. Investors are convinced that Central Banks will continue to inflate asset bubbles into the foreseeable future. Terrorism remains a blight; though the vernacular has morphed from calling them Freedom Fighters to calling them Losers. That’s an accurate step in the right direction. Never give in; never give up; never stop dreaming; never stop believing. Enjoy your Memorial Day Holiday!
Music of the Week: Bob Mamet’s “Day Into Night”