As cold gripped much of the nation this week with temperatures not seen in a generation, the markets were feeling much cozier. The economy, markets, and capital investment are linked to confidence. Last quarter, confidence was dropping precipitously due to Fed comments, trade issues, concerns about world growth, and the government shutdown. Since the beginning of January, confidence has slowly been increasing, and this week it seemed to notch up significantly due to the apparent reversal from some of the biggest concerns from last quarter.
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- Federal Employees Back to Work, but for a Limited Time Only? Federal government workers came back to work this week. The brokered deal gives three weeks for Congress and the White House to create a deal regarding the border wall. So, the 800,000 federal workers are being treated like a McRib sandwich and may be here for a limited time only and get furloughed once again on February 15th. There seems to be no desire in DC for another shutdown, but in these times, never say never.
- The Economic Effects of the Shutdown: As the shutdown continued, economists and market watchers were lowering Q1 GDP expectations. The good news is many feel the economy will bounce back quickly and regain most of that growth in Q2. Once again, this hinges on the government staying open and no more shutdowns.
- Jay POWell Throws a Knock-Out Punch: The Federal Reserve met this week and held the short-term rates steady which was expected and not noteworthy. But the comments by Fed Chairman Jay Powell afterward were noteworthy. He said the Fed would be very patient with future increases, increased their flexibility on reducing their balance sheet. He also said inflation was at its target, and that their overarching goal was to sustain the economic expansion. Every one of those points are bullish for the economy and just what investors wanted to hear. In comic books when the hero delivers a knock-out punch you see a big "POW." That's what it felt like he did to any thoughts about the Fed hindering growth.
- Planning for Tax Hikes Down the Road? As the Democrats prepare for the 2020 election, many are calling for raising the tax rate higher on the rich. A figure of 70% keeps getting bantered about. Even the CEO of JPMorgan, Jamie Dimon, publicly stated the rich can pay more. Who knows if it will happen? But it seems that the likeliest path for tax rates in the future is higher and not lower, especially with looming deficits and higher projected entitlement costs. We have been counseling clients that we may be in the lowest tax rate environment we will ever see and to take advantage of it now. There are strategies that can help such as utilizing Roth IRAs, capturing long-term gains, using estate gift tax exclusions, plus others. Working closely with your advisor and accountant to do a little planning and tax paying now, may save you from much larger tax bills in the future.
- This Week's Trade Talks: Well, it took a long time, but it seems like the U.S. and China trade representatives are actually talking out issues. It is difficult to gauge progress, and the obstacles are large, but at least they are talking. With the complexity of the issues, it will probably take months to get close to an agreement, and an agreement may not even happen. But for now, it's good to see something other than rhetoric.
- Restructuring Global Supply Chains: This week, Dutch company Philips said they were overhauling their supply chains. The high-tech health company does business all over the globe. Due to tariffs, they are moving hundreds of millions of dollars in supply companies to China, to the U.S., and vice versa. It is a huge undertaking. With the company so focused on restructuring current production, it makes you wonder what the opportunity cost for them is when they could be focused on other things. I feel this is one of the hard to measure byproducts of trade wars that hurt growth.
- Are You a Dolphin, Lion, Wolf or a Bear When it Comes to Sleeping? We are a sleep deprived nation. Lack of sleep has been linked to obesity, disease, depression, and practically any other human malady you can name. It may be the most important thing we do, yet many of us don't focus on doing it well, yours truly included. A doctor devised four chronotypes of different types of sleepers. Apparently, I'm a bear which means my internal clock tracks the sunrise and sunset, and I am most focused and productive from mid-morning until mid-afternoon. Curious about your own internal clock and chronotype? Take the quiz here.
- Nova – Einstein's Quantum Riddle: My family and I are big fans of the PBS program Nova. We recently watched a show about the debate and experimentation of quantum mechanics and theory. Neils Bohr, the Danish physicist, and Einstein had competing theories still being researched today. Quantum theory is the driving force behind quantum computers which are exponentially more powerful than current binary computers and are poised to change our world. I never understood why until I watched the show. Spoiler alert: It starting to appear that Bohr was correct…
Thank you for reading The Friday Buzz. Please pass along comments or topic ideas. Have a great weekend and enjoy the Super Bowl!