Tag Archives: The US Economy

The Fed’s Tightening Cycle and Market Vulnerability

The Economy: The U.S. economy appears to be accelerating from its modest expansion over the past several years. While purists may argue the validity of the numbers that are released, they are the numbers that move markets and investors. After years of insisting that inflation is too low, we may be seeing that monster rearing its ugly head. The Fed’s Beige Book shows inflation increasing across a broad range. Consistent with increasing inflation, the Fed is now warning that higher interest rates are on the way. They have 4 hikes planned for 2018 and are leaving the door open for more. In the meantime, information overload is the order of the day. The actionable news is further confirmation that the Fed is in a tightening cycle. Loans of all types will continue to become more expensive. Those economic sectors that benefited from a decade of low rates may see increasing headwinds as rates continue to ratchet up.

Food for Thought: Stock markets are suddenly a hot topic of conversation. After years of the lockstep rise in global asset values, stocks have shown that they can go down as well as up. But let’s face it, making changes to an investment portfolio is like watching paint dry when compared to wine tasting or hiking Nepal. Sailors know that a rising tide floats all boats … and the reverse is true. The last bear market showed that diversification is no protection when all asset classes are getting crushed. But that message will have to be relearned. The FANGs may be particularly vulnerable. Regulatory issues could loom as Americans are waking up to the privacy/government surveillance/freedom of speech issues posed by big tech and social media. Anti-trust happened to the railroads, big oil, autos and airlines.

Music of The Week: Govi’s “Andalusian Nights”

We Quarterback Money®

The Artist Formerly Known as Prince

The Economy: As has been the case for a while, economic data has been mixed. Examining the data results in the Rabbit Hole story getting curiouser and curiouser. For example, blow-out automobile sales were recently reported. But then you find that sub-prime auto loans are at all-time highs. So auto makers are moving product in the same risky way that the housing market was propped-up with sub-prime loans before the financial crisis. The economy continues to expand at a historically slow pace. But after 7-years of zero interest rates you’d expect something more. Central bankers have embraced negative interest rates without consideration to the damage being done to savers or financial institutions. Now the vaunted US consumer may be voting with his/her feet. The retail sector has been reporting first quarter earnings this week. Most have been dismal. Nordstrom missed earnings with the stock getting crushed in the after market; down 17%. Pundits are beginning to wonder if the consumer is pulling in its horns. While there are sectors that are doing well, it’s very much a case by case basis. With the current economic environment look to your specific organization and region.

Food for Thought: The Artist Formerly Known As Prince recently died without a will. He left a $250 million estate that will now be fought over for years. Absurd. Get your will done or updated. Create or update your trust while you’re at it. The Grim Reaper doesn’t respect the loose ends in your estate planning. The larger your estate the more it will draw bums and gold diggers out of the woodwork. Spare your family and your estate.

Music of The Week: Strunz & Farah’s Album “Primal Magic”