Summarizing the current state of affairs, it would simply be that the economy and earnings continue to grow but at a slower rate in the face of various risks. Whether that makes the glass half full or half empty may be partially a matter of longer-term perspective or even temperament. At times like this, when the investing and economic waters are muddy, I do know that I sympathize with President Truman, who was quoted as pleading for a “... one-handed Economist. All my economists say on one hand..., then but on the other….” Investing is ultimately the art of weighing our perception of rewards against risks. For now, our mantra is to proceed but with caution.
- IMF Trims 2019 Global Growth Forecasts: Last October, the International Money Fund (“IMF”) reduced its global growth estimates for 2019 and 2020, based on U.S. and China trade war fears. Recently, the IMF again cut its forecasts to 3.5% growth in 2019 and 3.6% for 2020. Reports like these provide us with a temperament test of sorts. If you have a minute, read this article and see if it leaves you feeling more positive or negative.
- Pressure to End Government Shutdown Mounts: Political pundits we’re not, but we believe that the pressure on President Trump to end the shutdown is going to become immense due to the adverse potential on the economy. This report on the economic risks of the shutdown comes from the administration itself. When faced with a policy decision, President Trump almost always favors the position popular with his base. His ultimate choice on this one may either be to anger his base or to risk meaningful erosion to his base by those hurt directly or indirectly by the shutdown. Ouch. Talk about being between a rock and a hard place.
- Politics and Perception: Your party affiliation unquestionably shapes your economic outlook. A little over half of Republicans believe we will have a recession in 2019, while slightly over 80% of Democrats see it coming. Roughly 25% of the top economists surveyed by the Wall Street Journal forecast a recession.
- Market Sensitivity To Trade Continues: This CNN article claiming that it's all about trade may be an overstatement but does identify the most market sensitive issue for now. Also lurking in the background is a Congressional vote on the renegotiated USMCA (U.S., Mexico and Canada) trade agreement.
- Fed Signals Patience Again: None of the various individual Federal Reserve Bank Presidents speak for the Fed, but we can glean insights from their public comments. Charles Evans, the Chicago Federal Reserve Bank President, recently reiterated that the Fed can be patient in the face of economic risks. His comment that we may finish the year with slightly higher rates can also be taken as a vote of confidence in the economy.
- Yardeni Bullish on Stocks: Edward Yardeni, the market strategist and economist, is bullish on stocks. He notes that too many “bears,” as we saw at the end of 2018, is an excellent contrarian indicator for future gains. For some reason, this comment seems like the logical inverse of the old Yogi Berra line: “Nobody goes there anymore. It’s too crowded.”
- Fritz Wisdom: Listening to a Fritz Meyer webinar last week, he reminded his viewing audience that the price we pay for receiving higher returns on stocks over the long term is the higher volatility in the short term. Markets won’t give us one without the other. Another way to put it is that if stocks had the volatility of bonds, they would earn what bonds earn.
- FiveThirtyEight Favors Pats: Favorite stats geek website, FiveThirtyEight, gives the Pats a slight edge in the Super Bowl. Not a savvy football fan, I just know I would never bet against TB12.
- Food Win-Win! Along the lines of food as medicine, I have grown to enjoy roasted Brussel sprouts and tolerate kale, but don’t you sometimes hope for something more? That’s why I loved this research: Chocolate beats codeine as cough suppressant. I suppose that it’s too much to hope that a cookie or donut a day may ever be proven to ward off the common cold.
Feel free to send us feedback on any topic or make a request or to forward the notes on to anyone who might be interested.