The Economy: After being dissed and dormant for a decade, inflation is front and center for financial markets. Concerns are being voiced by many. Fed members are among the loudest. Is inflation real or is the Fedspeak a stalking horse? Only your hairdresser knows for sure. While technology has driven labor and hardware costs down, a comparison of basic items in the grocery stores shows price increases of 40% or more over the past decade. The “Lies, Damned Lies and Statistics” crowd is complaining that economic numbers don’t measure the appropriate output. One recently asked how we could have tight labor markets with no wage growth. The cry is that the laws of supply and demand don’t seem to apply in the Goldilocks Economy. Meanwhile, stocks are off their January highs and moving sideways. This breather is either the calm before the storm or the pause that refreshes. Regardless of the metrics, the only thing that matters is whether you can sleep at night. Watch inflation; watch the Fed.
Food for Thought: China has a new Emperor. It took a few years after the death of Emperor Mao. But the song remains the same: a thousand years of dynasties with the occasional disruption. The Qing Dynasty ended in 1912. More than three decades of internal strife between warlords followed. Then the communist warlord Mao Zedong assumed The Mantle. A new Imperial Chinese dynasty was born: the Communist Dynasty. Now a successor to Mao has emerged: Emperor Xi. Likewise Russia. The Romanov Dynasty ended in 1917. Eventually the warlord Stalin emerged as the new Tsar. Then Brezhnev and now Tsar Putin. Triumvirate Great Power politics reignited. Will Turkey make it a fourplay? The investment opportunities are countless.
Music of The Week: Atlantic 5 Jazz Band’s “Bar Music Moods – The Piano Edition Vol. 1”
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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: The Fed finished its two day meeting today with historic action: They announced a specific plan for shrinking their bloated balance sheet. This is a tightening of monetary policy. The plan goes into effect next month; October. The details are straight forward and, in an economist’s perfect world, would result in interest rates moving up. However, the economist’s model doesn’t account for market forces. One reason that U.S. interest rates have remained stubbornly low is because of those very market forces. U.S. Treasuries are treated as a safe-haven in an increasingly volatile world dominated by the lowest interest rates in history. Global demand for Treasuries drives prices up and yields down.
Food for Thought: Bitcoin has been in the spotlight as the best-known of the cryptocurrencies. But rather than focus on which cryptocurrency will eventually emerge as the benchmark, focus on the underlying technology which is Blockchain. Blockchain is the next example of technology’s creative destruction. When you hear Blockchain think “Trust.” Blockchain technology will dramatically reduce or eliminate the plague of knockoffs and false or hard to verify information that has corrupted our everyday lives. Blockchain technology users will have access to an independently verifiable trail that allow anyone to validate the subject at hand. Examples are consumer products, food, shipping data, news, trade data, financial information, personal information … the list is endless. All verifiable to whatever granularity you desire. Blockchain technology is trust. Cryptocurrencies will validate Blockchain just as email validated the internet. Bitcoin may prove to be like the Netscape Navigator. Focus on Blockchain.
Music of the Week: Elton John’s “Rocket Man” from the album “Honky Chateau”