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Jobless at 50-Year Low, Buying a Home in Italy for $1 and a Handy Wine Chart!

Last week it was announced the jobless rate continued to fall.  As long as jobs are plentiful and wages grow, it bodes well for continued growth of the economy.  Though jobs are not growing as strongly as previously, they are still growing and a big reason for this economic expansion that has lasted more than a decade. This week we have economic articles on the jobless rate, service sector job growth, plus trade.  There are also articles on how having a positive outlook is good for your heart, Medicare enrollment begins next week, buying a home in Italy for about $1 (What!), and a chart to track the best times to drink wine from different regions and varietals!  Thank you for reading The Friday Buzz!

  • Employment Like It's December, 1969:  Even with the pace of hiring slowing down, the U.S. jobless rate hit a 50-year low in September.  The U.S. economy added 136,000 jobs last month and the jobless rate dipped to 3.5%, down from the August reading of 3.7%.  This is the lowest unemployment rate since December, 1969.  It is also a big reason the economy continues to moderately expand this year even with the headwinds of trade wars, the struggling manufacturing sector and political events.  WSJ CNBC

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Manufacturing - A Flashing Yellow Light

US manufacturing activity slowed again in September, the weakest monthly performance since the summer of 2009. We agree with most business executives, who attribute the contraction to the uncertainties generated by the US-China trade war. (CNN) (New York Times) The manufacturing pullback hits the Midwest, a key 2020 election battleground, especially hard. The already fragile Michigan economy is also reeling from the GM strike, which is now in week 3. While manufacturing only accounts for roughly 10% of US jobs, we still view the slowdown as a flashing yellow light, meaning that investors need to proceed cautiously. It will take a comprehensive trade agreement with China to restart the US manufacturing sector.

  • Atlanta Fed Model Predicts 1.8% 3Q Growth: GDPNow is a favorite tool of financial professionals. It provides a real time estimate of GDP growth, using a similar methodology to that of the US Bureau of Economic Analysis. As the end of a fiscal quarter approaches, it becomes increasingly accurate. With the 3Q over, GDPNow estimates that 3Q growth will be 1.8%. That is slow growth but continued growth, nonetheless.  (Federal Reserve Bank of Atlanta)

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The Impeachment Process Begins in Congress

Impeachment proceedings arrived in the House of Representatives.  It has been a stunning turn of events over the last week.  At the heart of the issue is if President Trump used his government position for personal political gain.  In short, did the U.S. President ask the President of Ukraine to investigate Joe Biden in return for U.S. aid?  President Trump fully admits to asking Ukraine to investigate Joe Biden and his son, who was on the board of a large Ukrainian company, but he does not admit to withholding aid unless they investigated.  It is not hard to connect the dots for a motive as he wants to badly damage a possible opponent like he did in 2016 with Hilary Clinton's email issue (AXIOS).  Or an investigation could knock Joe Biden out of the 2020 Presidential Democratic race.  President Trump would much rather face a Democratic progressive like Warren or Sanders than a political moderate such as Biden.  The motive is there but proving the allegations will be the task at hand for Democrats. 

The Democratic leadership deliberated over a year regarding impeachment proceedings resulting from the Russian allegations and investigation and never moved forward.  House Speaker Nancy Pelosi feared that even if they had the grounds to impeach from a legal standpoint, they would lose in the court of public opinion.  But it only took a week for impeachment proceedings to be launched after the revelations surrounding Ukraine.  With the President directly involved, they feel they have a stronger hand this time.  As more information works its way into the public realm, we'll have to see if public opinion supports this impeachment proceeding.   

How will the markets react to this?  The Russian inquiry had little impact on the markets and as of this week the market reaction to political news was relatively muted.  But with the Ukraine news swirling around President Trump on Wednesday, he announced a trade deal with China "could happen sooner than you think" and the markets moved modestly higher (WSJ).  So far, investors are focused on economic news and ignoring politics. 

What are the ripple effects from an impeachment process?  Will foreign adversaries feel the U.S. is distracted and try to take advantage?  It is not difficult to imagine Venezuela, or even Russia, making a move they wouldn't try on a slow news day.  Will the President feel the need to divert attention to positive news and ramp up efforts to complete trade negotiations with China and other partners (wasn't the timing interesting for the U.S. and Japan to reach a limited trade pact this Wednesday (CNBC)?  Will no legislation make it through Congress now that many committees will be involved in impeachment proceedings?  Who knows where we go from here, but so far this week, things are unfolding quickly.  

There are links and articles to everything happening in DC, and also articles on inverted mortgage yields, megacities and Brexit.  On the lighter side are articles on the perfect age, laughter as medicine (we need this!), and more Ken Burns!  

  • Trump-Ukraine Timeline:  Trying to keep track of all the events, players and details can be tricky.  Hopefully, a timeline can help.  Wash Post

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Iran Strike on Saudi Oil Facilities Seriously Ratchets Up Middle East Tension

The Iranian military strike on Saudi Arabia’s oil production capacity is ominous. Oil prices should stabilize soon, but the probability of military conflict in the Middle East, directly involving the U.S. and its strategic allies (e.g., Saudi Arabia and Israel), is escalating dramatically. Iran apparently believes that military provocations are its best strategy to force the U.S. and its allies to negotiate the removal of economic sanctions and to achieve de facto acceptance of its nuclear weapons. 

Back in the U.S., as we anticipated, the Fed continued its balancing act by lowering short term rates this week by 0.25%, managing to alienate both the “doves,” like President Trump, who wants negative interest rates, and the “hawks“ who argue that a supposedly data driven Fed should not cut rates at all. After all, inflation is showing signs of ticking up and employment is strong.

Want another take on the 2020 election beyond talking heads, debates, tweets, emotional dinner conversations and opinion polls? There are websites that allow wagering on elections, letting us know what people, who are willing to put their money where their mouth is (to use the old cliché), are thinking.

We also share notes on the U.S. consumer and negative interest rates, which are being experienced in other parts of the world. Prefer something lighter? We touch on climate change (that is ominous too-sorry!) the power of reading, insights into what makes men happiest (spoiler alert-it’s not food) and country music (of all things). We hope you enjoy.

  • Trump’s Greatest Crisis? Greg Valliere, the astute Washington political insider, posits that the current Iranian and Saudi Arabian conflict presents President Trump with his biggest crisis to date. I have trouble seeing this conflict ending well. Even with China, we share a common interest in avoiding an economic slowdown. Where are the strategic commonalities with Iran? President Trump has no good options. He is understandably averse to using military force, but risks being perceived as weak in the absence of credible responses to brazen attacks on an important ally. Might he “greenlight” an ally to launch a major preemptive strike on Iran? (AGF Investments)

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The ECB Acts, Gig Economy Regs, Biological Clock Rewind & Flying Cars in NH!

This week, the European Central Bank (ECB) met to discuss monetary policy and next week the Federal Reserve Bank will do the same.  These are important meetings as central banks are at a crossroads as to how aggressively to confront a slowing global economy.  The biggest challenges they are facing are geopolitical events such as the intensifying trade war and Brexit.  It is not clear how those events will unfold in the coming months or how fully they will affect economic growth. 

Growth in Europe is currently flat.  On Thursday, the ECB unveiled a plan to cut interest rates and provide stimulus with quantitative easing.  It was not the bazooka some were expecting but was a very good sized package that also left the door open for future actions.  In their comments following the meeting, they stated the bank will do everything it can to support the economy.

The Federal Reserve has less reason and urgency to act as aggressively as the ECB.  The U.S. economy is growing approximately 1.5% - 2.0%, though the growth is uneven.  U.S. manufacturing is slowing, or even contracting, due to the trade wars, but the service sector is solidly growing.  And the service sector is a much larger component of the U.S. economy.  So the expectation is that the next week the Federal Reserve will take a more measured approach and probably cut short-term rates .25%.  Investors will also be paying attention to the Fed comments on how they plan to navigate the coming months.

In this week's The Friday Buzz we share an article on the ECB as well as articles on U.S. job growth, how the gig economy is getting new regulations, emergency savings accounts for individuals, how researchers are testing how to turn back the biological clock, global economies over two thousand years and flying cars!  We were also touched to receive a letter from a Camp Sunshine family.  Thank you for reading!      

  • ECB Meeting:  The ECB cut interest rates from -0.4% to -0.5% (yes those are negatives) and on November 1st will restart quantitative easing with monthly purchases of bonds to the tune of $22B.  They are hoping the measures will jolt economic growth higher but are prepared to do more if necessary.  Also, Christine Lagarde is preparing to step in to head the bank on November 1st when Mario Draghi's eight-year term ends.  The Brexit deadline is October 31st so Ms. Lagarde's first day could be a wild one.  Bloomberg  Time

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Civil War Brewing at the Fed?

Financial eyes are on the upcoming Federal Reserve interest rate setting meeting, scheduled for September 17th. Barring a surprise, it will take place against the backdrop of the chilling effect of the China trade conflict on economic growth. The U.S. central bankers, who vote on interest rate policy, are not in complete agreement on the degree of threat to the economy. Some favor a rate cut of 0.50% or more, while others believe that the current economy, with strong consumer spending and near full employment, does not warrant any rate cut. Look for Chairman Powell to gather the votes for a 0.25% rate cut, as a measured attempt to support the economy.

Meanwhile, Hurricane Dorian is rampaging up the U.S. coast, leaving a trail of suffering and economic destruction. It has also caused us to take a second look at the risk of hurricanes, particularly in Florida, where a significant number of firm clients own homes and/or vacation. 

There is more: a political insider lays out his top ten fall issues and predictions; encouraging news for optimists; ideas for fall travel in New England and beyond; and two entertainment suggestions. We hope you read and enjoy!

  • Dueling Fed Views: As noted above, there is an internal policy debate at the Fed on how much stimulus, if any, is needed by the U.S. economy. One camp favors a more proactive effort to stimulate the economy with a hefty rate cut, while the other comes from a “minimum effective dose” (or no dose at all!) perspective. (Reuters) (Washington Post)

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Estate Planning: 9 Lessons for Dealing with the Loss of a Loved One

As some of you know, my father-in-law passed away a little over a year ago. I’m not the first person to lose a family member but when I experience something new, I look back and try to learn from it. Some of my most influential life lessons have been due to negative experiences.  Losing a family member can be emotionally devastating but there are steps you can take to simplify the estate process. At RSWA, we’ve helped many clients navigate the loss of a parent or spouse, so I thought I was prepared. It’s funny how you can delude yourself. Even though I knew the process there was a lot I learned, and I thought sharing those lessons may help someone else. 

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A Quieter News Week, Secrets of the Nordic Economic Model, & Craft Beers of Portsmouth!

This week felt subdued compared to last week when the trade war rhetoric escalated fiercely.  Things were calmer and even the G-7 meeting in France was relatively quiet.  We also had the Fed Chair speaking at the annual Jackson Hole conference, commenting on global growth and how the Fed will remain supportive of the economic expansion.  Articles on those topics as well as on the Portsmouth craft brewery scene, how the Nordic socialist economic model may not be what it seems, thoughts on the future of yields and inflation, how the trade war has affected tourism, and how a Scottish castle can be yours!

Enjoy this week's The Friday Buzz.  Have a great Labor Day Weekend!    

  • Jackson Hole Fed Comments:  Jerome Powell, the Federal Reserve Chair, made his annual comments last Friday at the Jackson Hole conference.  He stated the global economy has been deteriorating, he would act to extend the expansion, and, referring to trade wars, that the Fed may have to look past short-term developments when it came to policy.  CNBC

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There’s No Avoiding the “R” (i.e., Recession) Word

The inversion of the 10-year/2-year interest rate yield curve last week triggered renewed concerns about a potential U.S. recession, not to mention the worst U.S. stock market day of 2019. Understand that more than a few respected economists question whether an inverted yield curve is still a valid recession predictor. Nevertheless, the inversion/bad stock market day spooked investors and appeared to motivate President Trump, who knows that his re-election chances hinge on a growing economy. He is now exploring additional tax cuts to stimulate the economy and has renewed his ferocious demands that the Fed lower short-term rates sharply and quickly.

Here is our take. The U.S. economy continues to grow, albeit slowly, and is not in a recession or in imminent danger of a recession. Slow GDP growth, around 2% annually may be the best that we can reasonably expect from the U.S. economy without exceptional monetary or fiscal stimulus. Employment is healthy. Consumer spending, the biggest contributor to the economy, continues to be strong. Business spending is slowing, which we attribute to uncertainty about trade issues and tariffs. This is a concern because we do not see the trade conflicts going away this year or next, unless President Trump basically capitulates to China in the interest of self-preservation.

We expect the Fed to be accommodative to re-stimulating the U.S. economy. All things considered, we do not predict a recession in the next 12 months. Beyond that time frame, the odds of a recession are higher, in large part because the unknowns in a dynamic global economy go up. Economic “crystal balls” don’t work particularly well beyond 12-18 months. Recessions are notoriously difficult to predict. We’ll stay vigilant.

In addition to recession and economic talk, we came across some intriguing articles that we are excited to share with you: Maine ranks first in women’s rights; some CEOs are expanding their job descriptions; meditating on kindness and compassion may slow aging; a simple way to improve cognitive performance; and having fun with a personality test. Some good stuff if I say so myself!

  • Goldman Sachs Lowers Growth Forecast: Goldman Sachs now forecasts the U.S. to grow 1.8%, down from 2% in the 4Q of this year, due to trade concerns. This is only one predictive data point, but we pay extra attention to GS research as the quality is high. (CNBC)

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Trump Blinks, Why There Are More Maine Lobsters, & the Importance of Socializing!

Trade and tariffs were in the news again this week, and investors are caught in a tug of war.  The President is focused on his reelection (as all politicians are) and he ran on an America First platform in which protectionism and using tariffs and trade barriers were cornerstones.  He also needs a strong economy and stock market for voters to feel good about reelecting him.  These can be relatively antagonistic goals.  So, one week the President is focused on increasing pressure on the Chinese with more tariffs, and the next week he's trying to mollify the stock market.  Add to the fact that a Tweet can come out at any moment with a policy change or reversal and you have markets whipsawed as we have seen this week.  Whether you agree with the President's policies or not, that is the world that we live in. 

So we start with the obligatory articles on trade, plus why the lobster harvest has been so strong recently, how other countries are restricting trade, a late summer reading recommendation, Roth IRAs, and why social connections are so important. 

Enjoy this week's The Friday Buzz.  Have a great weekend!    

  • President Trump Must Have Something in His Eye:  Because he blinked.  On Monday, with all the negative trade news, the bond market inverted further, and the stock market dropped sharply.  On Tuesday, the administration announced the new tariffs would be delayed until mid-December to avoid hurting retailers and consumers for the holiday shopping season.  What's surprising is how quickly the President reacted to the market pullback as well as admitting for the first time that tariffs are hurting U.S. consumers and businesses.  I'm sure China will do all they can to leverage the President's sensitivity to market swings.   CNBC  WSJ

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