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
- U.S. Jobs Still Growing Modestly but Manufacturing Struggles: Last Friday, it was reported that the U.S. economy added 130,000 jobs, which is less growth than in previous months. U.S. manufacturing only added 3,000 jobs and the sector is showing signs of contracting due to trade wars and tariffs. WSJ Bloomberg
- New Regulations for the Gig Economy: Silicon Valley shuddered this week as the state of California passed legislation stating app-based businesses need to start treating contractors as employees. Some of the most successful technology companies, such as Uber, Lyft, and DoorDash use contract workers, not employees. Classifying workers as employees will force companies to pay minimum wages with more benefits and worker protections. Other states are examining new regulations as well. It is not just gig companies in the spotlight, as FaceBook, Google, and Amazon are all under scrutiny. Technology companies have had little regulation as they have grown exponentially, but the trend of new regulations is here to stay, and they will have to adapt. NYT
- Camp Sunshine: Every year, RSWA will make donations on behalf of clients to non-profit organizations in Maine and NH. In the past we have sponsored Preble Street, End 68 Hours of Hunger, the Jimmy Fund, YMCA, Little League, and various other organizations. Make no mistake, the donations are not huge by any means, but we do what we can to support our communities. Recently, we received a very touching and heartfelt letter from someone who attended Camp Sunshine and thanked us for our support. The camp supports and gives respite to families dealing with a serious childhood illness. We want to take this opportunity to thank our clients and supporters, as we couldn't support these organizations without you! 😊 Camp Sunshine
- Emergency Savings: We advocate for clients to have emergency cash savings. The savings, usually invested in safe and easily accessible cash accounts, is for just that – unexpected emergencies. It can be for living expenses if you lose income, or if you need an immediate repair for your house or car. Having an emergency fund allows investors to handle the unexpected without selling or jeopardizing long-term savings or investments. The amount you should set aside is dependent on your circumstances. If you have questions about your emergency savings, reach out to your advisor team. On another note, in something that probably only interests me, I like to track the personal savings rate for U.S. citizens. It has been climbing over the last decade and now stands at about 8.0% - hopefully some of that is going toward emergency funds! St. Louis Federal Reserve
- Rewinding the Body's Biological Clock: In a small study, researchers were able to reverse signs of aging in participants by having them take three common drugs for one year. The researchers estimated their biological clocks were reversed 2.5 years by analyzing the marks on their genomes. One can't get too optimistic as many studies start out promising only to falter in later trials. But there are so many promising studies now, it does seem we are on the precipice of significant medical breakthroughs. Nature
- Chart of the Week: 2000 years of world economic history in one chart. I find it fascinating how both China and India's global economic impact over the last two millennium was at its smallest 60-70 years ago. With over 2 billion people between them and a focus on economic growth, it is only logical they will represent a larger share of global growth going forward– but probably nothing like they did 2000 years ago. Visual Capitalist
- Flying Cars in NH! I always feel like I am in an episode of the Jetsons cartoon when I use FaceTime or video calling (I'm dating myself!). Well, it is going to happen again as flying cars are now being sold in New Hampshire! The sporty cars can use regular gas, get 31 miles to the gallon, and go up to 100 mph on the road. But then the vehicle converts to something similar to a helicopter and can climb to 11,500 feet with a range of about 300 miles. You'll need both a driver's and pilot's license to use and they will set you back $400k - $600k to purchase. Check out the pictures. Amazing… PAL-V-NH
Thank you for reading The Friday Buzz!