Tag Archives: We Quarterback Money®

Party on Garth

The Economy: The economy appears to be expanding quite nicely and business optimism continues to rise as it approaches new records. The Left Coast, with its gateway to Asian trade, technology and Pentagon spending continues to boom along. Construction cranes fill the skies. New homes are stuffed into every nook and cranny. Roadwork and infrastructure projects are everywhere. New cars abound. Recently launched multi-million dollar yachts overwhelm the docks. Planes are jammed. Restaurants are packed. Exotic vacations are booked years ahead. The stock market confirms this rock ‘n roll fantasy narrative with many indices at or near their highs. Understand that only 3 tech stocks account for 70% of index gains this year. So the question is, “Can you be a cockeyed optimist and a contrarian at the same time?” The answer is yes. Now we’re entering earnings season with projections for year-over-year increases of 20%, Is this the beginning, the end of the beginning or the beginning of the end. Only Elon Musk knows for sure. China, Russia, North Korea, Syria, Turkey, UN, NATO, Trade Wars, Immigration Wars, SCOTUS Wars, Mid-Term Election Wars, Culture Wars, Religious Wars … and rising interest rates. Not to worry.

Food for Thought: Youth is wasted on the young and the wisdom of the ages is simply wasted. We will continue to emphasize the importance of interest rates and what the yield curve is telling us. While there will always be a bull market somewhere, most investors have a significant portion of their financial assets in fixed income. The old saw, “Stocks, bonds and cash.” The beginning point for most portfolio allocations is about 40% in fixed income; e.g. the bond market. So when I emphasize having an exit strategy, I’m particularly talking about having an exit strategy for fixed income.  Contact me if you have questions on how to risk proof your portfolio.

Watch Inflation; Watch the Fed; Watch the Global Stage

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”

We Quarterback Money®

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”

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The Beat Goes On…

The Economy: Comrades Unite! Commissar Chairman Powell has arrived … and in the famous last words of Alexander Haig, “is in control.” The Star Chamber Bucking Bronco that we know as the Federal Reserve showed its new face to The Swamp today. In a welcome break with hoary tradition, Powell has real world experience as a businessman. Imagine the folly of having a businessman run the central bank of the greatest capitalist country in the history of the planet. But alas our joy, like a second marriage, may be the triumph of hope over experience. In his appearance on The Hill, Powell stated that 1) Further QE remains as viable monetary policy (All Hail Mammon); 2) The Fed saved the Post-Crisis World (All Hail Self-Praise); 3) Banking regulations are pillars of strength (All Hail TBTF). Long story short; The Beat Goes On. … the economy continues to expand; some indicators positive; some negative … .

Food for Thought: It’s human nature to assume that the future is going to look like the immediate past. So stocks and real estate will go up forever. Interest rates will remain low forever. Central Bankers will be able to manipulate the global economy forever. The political pendulum will swing left forever. China is a benevolent capitalist player forever. The dollar will remain the world’s reserve currency forever. Renewable energy subsidies will remain forever. The Manchurian Candidate has landed and Vlad Rules forever. The crypto-currencies world should be ignored forever. … If you see chinks in any of this armor, that is where “the next big thing” is shining like a diamond in the rough.

Music of The Week: Paul Carrack’s “Live at the London Palladium”

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Inflation Indicators Heating Up

The Economy: The CPI and PPI prints were hotter than expected and have helped to juice the stock market indices to a 50% rebound. The feel good mood has been further enhanced by the Olympics. Winners all. Inflation indicators watched by the Fed are are heating up. … and bond vigilantes seem to be on the loose with interest rates accelerating higher. As has always been the case, the Fed will follow the markets. There are few consumers who remember interest rate hikes that crimp economic activity. Fewer still who remember being priced out of a home or auto loan because interest rates moved against them. … remember when an 8% home mortgage was to die for? How many real estate players could handle those metrics today. How about those halcyon days of 16% home mortgages? Fun!

Food for Thought: Annuities and life insurance have evolved in ways that work well with investors seeking income or the possibility of establishing an estate. In specific situations they may be a prudent investment for retirees. Contact us if you have questions about creating or supplementing your retirement income.

Music of The Week: Sade’s “Lovers Rock”

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Bungee Jumping Stock Markets

The Economy: The economic numbers have been dwarfed by bungee jumping global stock markets. However, economic numbers do not support all the gloom and doom talk generated by the wild ride in stocks. Global and U.S expansion remains steady. Global and U.S. monetary policies remain very accommodative. In spite of 5 interest rate hikes in the U.S., inflation adjusted interest rates remain at historic lows. Tax cuts, stimulative deregulation and a Federal Reserve committed to supporting the stock market should continue to juice U.S. economic expansion.

Food for Thought: The Bungee Jumping stock markets have been dominated by money managers, pension funds, hedgies and other professionals. Individual investors have remained firm in their belief that markets will rebound and continue to move higher. The brief 2-day, 10% drop is already forgotten. That 10% drop is seen as nothing more than as having eliminated the “no 5% pullback in 400+ days” boogeyman. The assumption, based on a decade of monetary policy stimulus, is that the way is now clear for the next leg up in stocks. However, as I pointed out yesterday in my special report, investors approaching retirement should be increasingly cautious. The market volatility of the past few days are rumblings that shouldn’t be ignored by those who no longer have decades to recoup losses. The zeitgeist is that stocks will go up forever … so you have to stay on the dance floor. We simply recommend that you dance closer to the exit door.

Music of The Week: Lara & Ryes’ “Exotico”

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What’s your Long-Game?

The Economy: The State of The Union clearly showed the sharp divide in the U.S. electorate. Pick your flavor. Markets have cheered Trump since the election. Given the ongoing economic expansion, expect the Fed to continue to tap-the-brakes with further interest rate hikes. Jay Powell replaces Yellen as Fed Chair at cob today. Yellen was the most dovish Fed Chair in history. Powell, by contrast is on record as saying, “… it is not the Fed’s job to stop people from losing money.” This in itself will be a sea-change, if there is follow through, since the Fed has been stock market driven since the Financial Crisis. Markets, the media and investors in particular have been enamored with synchronized global growth, tax cuts, profit repatriation, one-time bonuses and historically low unemployment. The Fed interest rate moves have created every expansion and every recession; every bull and every bear market. Party on Garth!

Food for Thought: What is your long-game? Gonzo Hunter Thompson spoke for some when he said, “Life should not be a journey to the grave with the intention of arriving safely in a pretty and well preserved body, but rather to skid in broadside in a cloud of smoke, thoroughly used up, totally worn out, and loudly proclaiming “Wow! What a Ride!” For most however, there are more prosaic goals such as planning for retirement, creating an estate or other bequeaths to family, friends and charitable organizations. Annuities may be the appropriate way to achieve funding needs. Contact us if you have questions about Annuities.

Music of The Week: Chaka Khan “Chaka”

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All Systems Go for the Economy and Davos

The Economy: All systems are go on a global economy that shows signs of continuing to expand. Easy money from central banks remains the order of the day. Trump tax cuts and deregulation have bolstered business confidence. The holidays showed Americans on a spending spree. Naysayers see the band on the Titanic bravely playing as she went down. Optimists see hundreds of billions in repatriated US corporate profits, tight labor markets, inflation and Trumponomics as the next leg up in the economy and the 9-year bull market in stocks. Ray Dalio of Bridgewater has called this a new bear market in bonds as Jerome Powell was confirmed by the Senate as the new Fed Chair. Powell is seen as dovish and a continuation of the Bernanke/Yellen school of gradualism in monetary policy. But it pays to remember that markets tend to drive the Fed and not the other way around. Interest rates are rising. Gold has broken through its $1,300 resistance and oil is at multi-year highs. With global expansion, investors are complacent that central banks will keep stock markets and real estate moving up forever.

Food for Thought: Davos, billed as the Global Economic Summit is in full swing. Over time it has morphed into another rich kid’s confab with the glamorous and notorious. It is known as the Bastion of The Globalists. This year Donald Trump will upset the apple cart as he presents America First Shock and Awe with his appearance and speech on Friday. The annual ego rush of whose private jet is bigger will be sadly missing Prince Alwaleed’s private 747 with the gold throne. The Prince is apparently still confined by his King who reportedly wants billions in return for a kiss-and-make-up return to business as usual.

Music of The Week: Chaka Khan “Chaka”

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More Money in Retirement

The Economy: Data continues to confirm that the global economy in general and the US economy in particular are accelerating. Industrial production is the latest metric to blow through expectations. The Fed’s Beige Book also confirms expansion and modest inflation. Euphoria continues to build support for increased consumer/business spending as the US tax cuts bring the bacon home. Not surprisingly, members of the Fed are beginning to voice caution about the economy overheating. The Fed has also expressed concern that markets are ignoring the interest rate tightening cycle which has already increased the Fed Funds rate by 125 basis points. When the Fed raises rates, its intention is to tighten financial conditions. Borrowing gets harder and more costly at all levels. Investors and banks become less willing to lend and borrowers become less reckless. Credit cools off and the economy slows. … not that we’ve seen any of this yet. By contrast we seem to be at the beginning of a new phase of “Damn the torpedoes; full steam ahead” in business.

Food for Thought: Retirement. One of life’s major events. Some start thinking retirement in high school. Others not until AARP comes calling. Most retirees are shocked at how inflexible their overhead is when they retire. The solution for many boomers is to try to make up for lost time by being aggressively invested in this stock market. George Santayana famously said, “Those who cannot remember the past are condemned to repeat it.” Bitcoin is the latest example of how quickly things can change. Bitcoin has lost 50% of its value since reaching a high in December. A 50% loss in less than one month. US stock markets have been on a rocket ride since Trump was elected. Those approaching retirement and those who are retired should be especially cautious of this market. Structuring an income producing portfolio should be your priority.

Music of The Week: Elvis “Elvis Forever”

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Investor Euphoria

The Economy: The new year is off to a roaring start with tax cut optimism leading the charge. Corporate profits held overseas, estimated in the hundreds of billions, are expected to be repatriated. Stock markets are salivating at the expected new surge in buybacks. Talk from Bulls is that the new round of buybacks will dwarf anything ever seen in history. Bulls anticipate that buybacks will dramatically reduce the number of shares outstanding. Their call is that this is only one of many events that will drive stock prices to dizzying new heights. Small business optimism is at a 32-year high; highest since 1985.

Food for Thought: San Diego feels like a boom-town. Free money, surging stock prices, the Pentagon’s “Pivot to the Pacific”, the hi-tech/med-tech sweep, construction buoyancy and the torrential real estate market have hundreds of thousands of San Diegans walking on air. We toured a new development of $2+ million tract homes that was sold out in record time. Yards small enough that some would call them garden homes and built so close together that you have to hold your breath in order to squeeze between them, real estate bulls are saying they’ll be worth $5 million in just a few years. Bitcoin up 300+% in a few weeks has taken a breather recently. Bitcoin Bulls tout a value of 50,000 to 100,000 in its next run. Jamie Dimon says he regrets calling Bitcoin a fraud. Investor euphoria appears to have arrived.

Music of The Week: Beegie Adair’s “Martini Lounge”

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