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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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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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Boiling Pots: Currency and Trade; Climate Change; and Mass Shootings

Several critical fronts are heating up. The U.S. trade war with China has expanded, with the U.S. imposing more tariffs and China “weaponizing” its currency. Our earth is experiencing its warmest months on record. Meanwhile, mass shootings are proliferating in the U.S. Are one or more of these pots about to boil over?

We first offer some excellent background articles on the currency conflict, the major story for the financial markets. Our opinions on climate change and the mass shootings are not necessarily more informed than our readers, so we limit ourselves to a few brief observations on these profoundly concerning topics.

With interest rates falling, mortgage refinancing should be on the planning radar screen. A thoughtful client asked how one of his children should save for college, which led us to share some education funding best practices and strategies. Coffee gets another rave health review. We also hope that you will enjoy two Maine related articles, one on Monhegan Island, one of our favorite places, and the other about what makes Portland a fantastic stop for traveling beer lovers. Lastly, we hear from a psychologist, who claims that we are wired to worry too much about what is going on in the world-needed that!

  • China Devalues Its Currency: China recently permitted its currency to fall below the symbolic 7 renminbi per dollar level. The devaluation makes China’s exports more competitive. It also stimulates demand for its domestic products, as imports are now more costly. (Investopedia) On a strategic level, the devaluation sends a warning to President Trump that China is unafraid to play its cards, including waiting to see what happens in the U.S. 2020 presidential election.

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Fed Cuts, Q2 GDP In, Great Eats in Portsmouth, & Eating Blueberries to Reduce Sunburn!

The Federal Reserve was in the spotlight this week as investors were anticipating a cut in rates.  The Fed has been hinting about cutting rates for the last month and did not disappoint.  Also, the growth number for Q2 GDP turned out to be a little better than expected, but surprisingly the 2018 GDP number was revised downward quite a bit and below 3% (someone in the White House will not like that).  Articles on those topics as well as if Millenials will buy Boomers’ homes, reading economic indicators, eating out in Portsmouth, how blueberries can reduce the chances of skin cancer or even sunburn, a stand-up economist, why chances of a hard Brexit just increased, and why taking vacations may save your life! 

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

  • The Federal Reserve Cuts:  For the first time since the Great Recession, the Federal Reserve has cut short-term rates.  This week the Federal Reserve announced a rate cut of .25%.  It will be surprising if the trend stops there.  But Fed officials will be watching the economic data to determine actions at their upcoming meetings in the fall.  By the way, not everyone believes there should be cuts.  WSJ CNBC

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It's Mueller Time, Big Fed Meeting Ahead, Tech and Antitrust (and More!)

As I write this, Robert Mueller has begun testifying before Congress. His testimony may or may not turn out to be political fireworks, but we doubt that it will be a market mover. What might move the financial markets is the decision to be made at the upcoming Federal Reserve rate setting meeting that starts on July 30th. The markets expect a rate cut. Will anything less than 0.50% be a disappointment to investors? A smaller, 0.25% drop, would be the compromise between committee members who want a 0.50% rate cut and those who question why any cut is warranted, given the growing economy and strong employment numbers.

For a policy development that may have major implications over time, see the note on Big Tech and Antitrust. See the note on how to decrease the odds of getting Alzheimer’s through controllable lifestyle interventions. There are also financial planning ideas, including a suggestion for couples, and even a book recommendation for those of you who enjoy the espionage genre.

  • Mueller, Trump and the Constitution: Irate over the Mueller investigation and testimony, President Trump has now begun claiming in speeches that Article II of the Constitution grants him “the right to do whatever I want as president…” Washington Post

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Stocks Hit New Highs, Asia's Economic Slowdown, & the Best Wines for Hot Summer Days!

The week started with stocks hitting all-time highs boosted by the momentum that carried over from last week and the positive comments from Fed Chair Jerome Powell (Reuters.)  Meanwhile the Asian export economies are definitely taking a hit from tariffs and the slowdown in trade.  But the next big political issue will be raising the debt ceiling by early September while Congress is scheduled for a six-week vacation – the scramble will be on.  There are also lighter articles on wine, the shopping mall from Stranger Things, and much more in this week's The Friday Buzz.  By the way, if you are enjoying the weekly emails from RSWA don't keep it a secret and share them with friends and family!  Stay cool this weekend! 

  • Debt Ceiling Politics:  If nothing is done, the U.S. government will run out of money sometime in early September.  Political parties are jockeying over negotiations and demands, but Congress may lose part of their coveted summer break to resolve the issue.  Washington Post

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Seven Key Economic Indicators, Getting It Strait, Bon Appetit’s Love Affair With Maine (and More!)

The addition of 224,000 new jobs in June confirmed that the U.S. economy continues to grow. Slowing manufacturing is a concern, with trade conflicts taking a toll. Might President Trump have to choose between continuing to wage tariff wars and being a one-term president? The next Federal Reserve interest rate decision meeting occurs at the end of this month. The markets expect a rate cut of at least 0.25%, but it may not be a given. Expect market tension to build, as we near that meeting.

These Notes include several useful planning and informative lifestyle articles too. Personal favorites include the note on coffee as “superfood” and the article on a “going like gangbusters” Portland/Miami startup led by a former RSWA employee. Read on and enjoy.

  • Seven Economic Indicators: This excellent article summarizes some mixed economic indicators. Four indicators are positive “green lights” (i.e., truck sales, jobless claims, temporary hires, and bank lending). One is a cautionary “yellow flag” (i.e., business spending). One is a “yellow to red flag” (i.e., trucking), and one is a concerning “red flag” (i.e., manufacturing). Washington Post

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