The Economy: Synchronized global growth, central bank easy money and politics as usual remain the norm. China finished up its Party Conference and deified Xi alongside Mao and Deng. The ECB and the Fed met and left their respective rates unchanged. No surprise there, as global growth is still viewed as delicate. So Synchronized but delicate would be a more accurate description of global growth. But the Fed is taking the lead in normalizing monetary policy. In October it did shrink its balance sheet by about $10 billion. They also indicated that another interest rate hike was on tap for December. Thursday, Trump is expected to announce Powell as the new Fed Chair. Powell is seen as dovish and if selected is expected to maintain the lower for longer policies we’ve come to know and love.
Food for Thought: Stocks continue to march higher. A week without new records now feels like a personal insult. The rally may continue through year-end as investors pile into the markets to make up for lost time. Algorithms are appearing daily that show how markets will go up for years to come. Everyone is an aggressive risk-taker when they are making money. But how do you feel about losses? Know your risk profile.
Music of The Week: Tim Bowman’s “Circles”
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The Economy: The news has been all about the Fed. Trump made it clear during the election that he wanted to remake both the Supreme Court and the Federal Reserve. Word is that Randy Quarles will be Trump’s nominee as Vice Chair and the Fed’s Bank Supervisor. He comes from the private equity/private investment world. Quarles is considered to be a conservative counterweight to Yellen. Quarles would bring a fresh perspective to the Fed which has become dominated by academicians with little real world experience. Speculation has also focused on replacing Fed Chair Yellen in 2018. Trump’s Fed Chair nominee is expected to be National Economic Council Director Gary Cohn. Cohn comes from the investment banking world and would be the first Fed chair in 40-years who isn’t an economist. Within the Trump administration this is viewed as a plus since Trump wants practical experience over academic credentials. The downside is that Cohn is another Goldman Sachs alumnus; all of whom are detested by Trump’s core followers. Regardless of the accuracy of these reports, it’s obvious that Trump is determined to put a different Fed in place. A Fed that is more oriented towards pro-growth real world experience.
Food for Thought: Whenever we get out in the economy we’re impressed with how robust it looks. Restaurants are packed with diners day and night. Real estate continues to appreciate. New cars flood the streets. Everyone seems to be taking extended vacations. Yet in her Congressional testimony today, Fed Chair Yellen was surprisingly dovish. She expressed concern that inflation was below expectations and implied that the economy wasn’t performing as well as expected. Financial markets loved this narrative as it indicated that Yellen would keep her highly stimulative policies in place rather than continuing to turn off the spigots. But sooner or later the stimulus must end. It’s the human condition to project the recent past into the future; to assume that the future is going to unfold like the past. So it’s always interesting to hear a well-respected figure like Jamie Dimon, CEO JPMorgan speak candidly about the ongoing change in monetary policy. Commenting on the Feds move to end 8+ years of stimulus, he said, “We act like we know exactly how it’s going to happen and we don’t.”
Music of the Week: Josef Franz Wagner’s “Across the Pond”
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: At some point, news on the economy will focus on the fundamentals of data rather on the whims of Central Bankers. But we’re not there yet. So with the Fed meeting next week, life is on hold while we await more dissembling opacity. There is a growing sense that 7-years of monetary policy have failed and that continuing down the same path is a mistake. How this plays out is anyone’s guess. But one thing is certain, markets don’t like uncertainty. Talking heads and other blithering, blathering idiots are having a field day in front of the last Fed meeting prior to the election. Our call remains that the highly politicized Fed will do nothing to diminish the chances of a Clinton victory. So we say, “No Change; Lower for Longer” on interest rates. … continue to kick the can down the road and hope that somehow, the bubble of extreme asset inflation, can be pricked and deflated without an implosion. Tellingly, former Fed Chair Greenspan has said, that this, “… is the worst economic and political environment …” he’s ever seen.
Food for Thought: The equity markets have demonstrated how chaotic and fragile they truly are. Simply the whisper of a ¼ percent rate hike sent markets down over 2% on Friday. On Monday, the whisper that the ¼ percent hike was off the table sent markets up over 1%. On Tuesday, markets dropped again. We don’t think this is a healthy investing environment. We are focused on protecting assets. We continue to sell positions that are at a profit and put the proceeds into the money markets. You want to have funds available for investing when the opportunity presents itself. We’re not doom and gloomers. Rather we’re veterans of several market sell-offs, crashes and bear markets. At this type of inflection point, investments can often be reallocated to take advantage of opportunity or to make up significant losses.
Music of the Week: Big Mountain’s “Resistance”