The Economy: Eight years into the current economic expansion there is nothing on the horizon likely to disrupt things for the next 6-12 months. Of course this could change at any moment. However we don’t see anything at present. The geopolitical situation could change at any moment. Some unforeseen event could trigger a meltdown in any number of national economies. But at present we see the immediate future as a continuation of the recent economic past. Central banks appear to be on a synchronized path of higher interest rates. Eventually this will impact global stock markets. But when that occurs is an unknown. For every economic number released there are pundits in support and opposed. Choose your poison. We continue to emphasize that you should keep an eye on the horizon while staying focused on your own specific situation.
Food for Thought: Stocks remain on a rocket ride with new records set almost every day. We’re 8-years into what is now the second longest bull market in history. It is crystal clear that regardless of age or valuations, this market will continue to go up until it doesn’t. Like the global economic expansion, there is nothing on the horizon that spells the end. We may see a correction that ushers in a final run to the top. … or there may be several corrections that eventually end the institutionalized Buy-The-Dip reaction to all pullbacks we’ve seen in the past 8-years. Of interest is that on separate occasions I was told by individual investors that the Dow will go to 30,000 before the ride is over; another stated that the Dow would be at 100,000 in 10-years. Reminds me of Ella Fitzgerald’s Blue Skies: “Never saw the sun shining so bright, Never saw things going so right …”
Music of The Week: Ken Navarro’s “Smooth Sensation”
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The Economy: The week’s economic highlight was Wednesday’s release of the Fed’s Beige Book. It showed moderate growth and little inflation. Lower demand in the economy is discussed as being the result of higher healthcare deductibles for consumers. More out of pocket for healthcare means less available for other spending. The Fed remains on track to again raise rates in December. The Beige Book was almost an afterthought to a week of upbeat economic news: Low inflation; retail sales up; manufacturing up; global stocks reaching record highs; investors pouring money into stocks; Industrial production up; housing up; Philly Fed Index up; Bloomberg Consumer Sentiment up. What’s not to like?
Food for Thought: My good friend Sam commented that my “More Money” email appears to be increasingly amazed at the non-stop rampaging bull market. He’s right. … You can slice and dice the metrics, the geopolitical environment and every conspiracy theory out there. Compelling arguments abound. To rest easier and become one with nature, simply accept that stocks will continue to go up until they don’t.
Music of The Week: Ziggy Marley’s “Conscious Party”
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The Economy: NOKO is the only news that’s fit to print this week. Who cares about GDP, IP or l,m,n,o,p when the fate of humanity may hang in the balance. As a Navy Junior, Veteran, investor, political hack and history buff, it’s fascinating to watch this “situation” unfold. For primers, go watch “Dr. Strangelove” and then “Wag The Dog”. The Chicken Hawks see Munich in every blip in the firmament. Snowflakes believe that the NOKO Doughboy can be cajoled into nice. We’ll list what we see as important considerations for investors: 1) We have a President committed to “America First.” This means geopolitically as well as economically. He has the earmarks of a War Leader … or Monger, depending on your leanings. He’s a Big-Picture guy who plays the long-game. 2) No one has ever crossed the U.S. with impunity: Saddam, dead; Gaddafi, dead; Noriega, dead. Escobar, dead; Mosaddegh, dead. Hitler, dead. Tojo, dead … Doughboy is on the wrong side of history. 3) Nukes are a part our warfighting history and doctrine. We’ve already used them. 4) A non-Nuke surgical strike is probably the opening gambit. With 2 Carrier Task Groups off the coast, there are about 1,000 cruise missiles available to neutralize command and control, air defense, naval and air force assets on short notice. 5) Depending on your persuasion, Just War Theory either does or doesn’t support a pre-emptive U.S. move. 6) The U.S. will be roundly condemned for taking any action before allowing NOKO to nuke American territory. 7) Trump, Cabinet Secretaries, The Joint Chiefs of Staff and the theater commanders will be called war criminals by many in the international community. … Whatever happened to those halcyon days when our only concerns were the central bankers?
Food for Thought: The Trump-Doughboy Cage Fight has put a cloud on the investment horizon. For the first time in months, if not years, “buy the dip” is not happening (though 2-days does not a trend make). Whether the bots are on hold, rewriting their own code before another endless round of buying, or whether living, breathing human beings are exercising prudence in the face of uncertainty, markets have stalled. We’ve counseled caution several times in the past, only to be proven wrong by a market that sees bad news as good news: financial engineering is terrific; financial repression is better; mortgaging your grandchildren’s futures with hundreds of trillions in debt is best. … but we’re George Reeves Superman fans and believe that Truth, Justice and the American Way will out. So we’re skeptical about markets that go up forever. Dow 30,000 … we’ll probably see 5,000 before that happens.
Music of the Week: Jesse Cook’s “Free Fall”
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: The global economy appears to be on the mend. While we’re optimistic, we’re cautious because there’s been so much financial engineering and Central Bank intervention since the financial crisis. Every developed economy has engaged in currency manipulation and all government statistics are suspect. Nevertheless, this is the playing field. The Fed minutes were released this week; a non-event. The usual, “perhaps, maybe, somehow, if only, somewhere” had the Talking Heads all aflutter. The rest of the planet yawned and went about its business. After a decade of having the headlines to themselves, Central Bankers have taken a back seat to politics. … and what a show it is. Brexit is proceeding; France is Frexit; Italy is rudderless; Greece is broke; Russia is conniving; China is posturing, North Korea is flexing. Through it all, Trump is pumping, humping and dumping.
Food for Thought: Global financial markets are enthralled with all this uncertainty and excitement. In an alternate universe there might be concern. Not now, not nowhere. This time is different!
Music of the Week: Kim Waters “Midnight Love”