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The Flipping Yield Curve, Recessions, Healthcare (and More!)

In these notes, we reward those of you who have been clamoring for more on the yield curve. Ok, that’s a lame attempt at economic humor - it’s entirely possible that no one has ever clamored for more on the yield curve. But the yield curve is back in the news and is quite important to understanding financial markets and potentially recessions, so we dig into it again. Since reading about the yield curve can be a slog, in a word, we’ll reward our readers by taking a break from talking about China and trade. The news on that topic tends to go up and down by the week, and I expect that we’ll return to it soon as it’s a market mover.

  • Back to the Yield Curve Future: An inverted yield curve, meaning that short term interest rates have moved higher than long term rates, has been a reasonably reliable predictor of a coming recession. Within the last week, the 2 Year Note yield edged higher than the 5 Year Note yield, causing some consternation. As I write this, the yield on a 2 Year Treasury Note is the same as the yield on a 5 Year Treasury Note at 2.77%. We believe, however, that the appropriate yield curve comparison is the 3 Month Treasury Bill rate at @2.4% to the 10 Year Treasury yield at @2.9%, still a healthy positive slope. This San Francisco Federal Reserve Bank paper explains why.

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Fed Gives Guidance, China and G20, U.S. Economy (and more)

With the Fed signaling that it may slow the pace of interest rate increases, the stock market is getting some good news. Concerns like trade conflicts and Brexit remain but knowing that the Fed is flexible when it comes to pushing rates up bolsters the positive case for equities.

Thanks to all who read these notes. We enjoy writing them and endeavor to make them worthy of a modest time commitment on your part.

  • Powell Boosts Markets: Fed Chairman Powell indicates that rates are slightly below a "neutral" level. In lay speak, this means that current rates are close to the point that they neither encourage nor discourage economic growth. It signals less tightening in the form of rate hikes for the foreseeable future. We anticipated this “signal” but are still reassured to hear a public statement, given the headwinds facing the stock market. 

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The Elephants in the Room - U.S. Deficit & Climate Crisis (and More!)

With the U.S. stock market recovering from its late unpleasantness and the U.S. midterm elections and Mueller investigation outcome looming on the horizon, we focus on some other  topics, some of which have enormous implications.  We hope that you find these notes informative, interesting and worth a few minutes of your time.

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Supreme Court Hearing, Federal Reserve Meeting, & Instant Wine Cellars

Once again, political storylines dominated the news this week though there were some significant investment stories as well.  Enjoy this week's edition of The Friday Buzz.  I hope it's worthy of a few minutes of your time to wrap up your week and kick off the weekend. 

  • Senate Hearings:  As this week's notes are being finalized, all eyes are on the high stakes Senate hearing between Judge Kavanaugh and Christine Blasey Ford.  Rarely have so many storylines intersected for a hearing with politics, gender, the MeToo movement, memories of Anita Hill, and the balance of the Supreme Court hanging in the balance.  The judge's nomination is on public trial and the implications may tower over the upcoming November election. 

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The B Word...Bonds That Is

We need to talk about bonds more and understand them better. Almost everyone talks more about stocks. Stocks are in the news and get the headlines. Stocks are easier to understand. But bonds are an essential asset class in almost every investor’s portfolio. Fixed income grows in importance as investors grow older. For younger investors, bonds may still serve a purpose-either to fund a specific future cash need or to lessen portfolio volatility.

This article starts with a short primer on bonds and then explains how we at Robinson Smith Wealth Advisors construct bond portfolios and manage the associated risks.

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Volatility is Back, as Stocks Drop

On Friday last week the Dow dropped 665 points. Monday, the market was down most of the day but come late afternoon the selling accelerated dramatically. At one point, the Dow was down 1600 points. It rallied back some and ended Monday down 1175 points. Many are wondering what happened and why did the markets fall so far, so fast?

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An Independent Point of View

Fritz Meyer is well respected independent economist and market strategist. He recently spoke to RSWA clients and friends in Portland and Portsmouth. This article summarizes some of the highlights from his presentations. We want to share the most important highlights with clients and friends who were unable to hear him in person. In such politically turbulent times, we believe that it is critical to stay grounded in economic and market fundamentals. In this context, we especially value the independent point of view that Fritz provides.

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Why the Yield Curve is so Important

Economists study so-called leading economic indicators for evidence of coming recessions. One of the best predictors of U.S. recessions has been an “inverted yield curve”.  In fact, an inverted yield curve has preceded the last seven U.S. recessions.  

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Can the Stock Market and Economy Predict the Election?

By David Smith, CIMA® CFP ®

We are a little over a month away from the Presidential Election.  Polling data informs us how the race may come out, but there may be another predictor that’s starting to get more attention - the stock market.  According to S&P Global Market Intelligence, the stock market returns three months before an election have been prescient in predicting a winner.  Sam Stovall, a stock market expert at the firm, has crunched the numbers.  If stocks rise in the three months before the election, the party that controls the White House has the best chance of winning.  Stovall looked at data since the 1944 election.  When stocks rose three months before the election, the incumbent party won the Presidency 82% of the time.  If stocks were down during that stretch, the challenging party won 86% of the time.

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These Scammers are Clever!

By Tracey Daigle and Dave Robinson

We decided to share this true story with you from Tracey’s family because it illustrates just how clever scam artists can be by playing on natural human emotions.

This starts with a recent call to Tracey’s father-in-law, Fred Daigle Sr. He believed it to be his grandson, Bailey calling. Bailey is a student at the University of Richmond and was thought to be at college at the time.

Caller: “Hi, Grandpa.”

Fred Sr: “Hi Bailey.”

Caller: “I’m in trouble and need help. I’m in Ohio. I drove there for a funeral. I’ve been in a car accident. I may sound funny because I have a broken nose and split lip. The accident was my fault. I’m in jail. They are charging me with DUI. I need $1,600 bail money right away to get out.

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