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A Possible Paradigm Shift in Economic Thinking; China and 5G; Cannabis in Maine (and More!)

Like many, watching the Notre Dame fire raging was both mesmerizing and deeply sad. If nothing else, it feels as if it warrants acknowledgment. Fortunately, no lives were lost. We are also aware that the Mueller report will be released after these Notes are drafted but before they are published. We could be proven wrong but expect that the report will not impact the financial markets in the short term. 

Current news that comes with heavy emotional overtones almost always overshadows developments that may have great implications for future policy decisions and markets. This week we identify some developments that are likely to continue shaping markets: one potential shift in economic thinking (i.e., whether recessions are inevitable); the importance of 5G in connection with China, and where Maine stands in the rapid rise of the cannabis industry. We also offer some lifestyle-oriented notes on various topics that we think you will enjoy.

  • Are Recessions Inevitable? Economic theory teaches that economies go through cycles of growth and contraction and that recessions are natural and unavoidable. But consider that Australia has not experienced a recession in close to 27 years. It has been called the "Australian Economic Miracle". What can we learn from Australia? If you accept, as some do, that either miscalculations by central banks (i.e., the Federal Reserve in the U.S.) or government regulatory failures are the proximate causes of almost all recessions in modern times, then you might still say that recessions are inevitable but only because of the likelihood of policy failures over long periods of time. Banker Jamie Dimon, for one, thinks the US economic expansion "could go on for years".

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A Patient Fed, an ECB About-Face, and RSWA March Madness!

Economic news this week was broad coming from the Fed Chair, the European Central Bank, plus an array of economic data.  Brexit is also coming to a critical point and could be disruptive to businesses globally.  And March Madness is about to start, and for those who are interested, we have an invite to participate in the RSWA bracket pool.    

Thank you for reading The Friday Buzz.  Please share with anyone who may have interest.  Enjoy March Madness and the articles!

  • The Fed Chairman Interview:  Jerome Powell, the Federal Reserve Chairman, was interviewed on 60 Minutes Sunday.  He said the Fed would be data-driven and patient with future rate hikes.  He also said the law was clear that he couldn't be fired, and he intended to serve his full four-year-term.  Though he was a little slow reacting to last fall's changing economic dynamics, overall, he seems to be a reasonable and capable Fed Chairman.

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China Trade Deal; Deficit Debate, Charitable Gifts, Cell Phone, Habits and (and More!)

While trade negotiations with China hog the headlines, there is more to explore, including an emerging national debate over the significance of the U.S. deficit. We also encourage our readers to plan any charitable giving earlier in the year in order to maximize potential tax benefits.

  • China Trade Deal Close? Numerous sources report that a trade agreement with China is close to done. The agreement will reduce tariffs imposed by both countries, enabling the U.S. to export more goods to China. Whether it will ultimately lead to meaningful structural reform on China’s part will take time to evaluate. The New York Times and Goldman Sachs provide detailed assessments. Meanwhile, the U.S. trade deficit has dramatically increased, and data mounts that the trade wars are hurting the U.S. economy.

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Buffett Struggles to Beat the Market, Cohen's Testimony, and Local Foodies Rejoice!

We start this week with the Oracle of Omaha, Warren Buffett, who released his annual letter to shareholders.  I like listening to Mr. Buffett's interviews displaying his folksy charm, sage advice, and humbled persona.  From there we move on to Michael Cohen's testimony, trade talks, earnings, Vladimir Putin, as well as how hot your town may get in 60 years.

Thank you for reading The Friday Buzz.  Please share with anyone who may have interest.  Happy March and enjoy the articles!

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Shutdown Showdown, Endangered Budget Hawks and Longevity Breakthroughs

What a difference two months makes.  February has continued January's uptrend in the stock markets.  As bad as things looked and felt in November and December, this year has felt the opposite.  Markets tend to have momentum, either positive or negative.  Once a trend is established, a catalyst is required to reverse the trend.  The Federal Reserve's comments in Q4 helped fuel the negative sentiment which sent the markets in a tailspin, and their bullish comments in January created the current momentum we are enjoying.  Let's hope it continues.

Please share The Friday Buzz with anyone who may have interest.  Thank you for your time and enjoy the articles!

  • The Markets are Off and Running – For Now:  As the markets turned lower late last year, the momentum was amplified by analysts and traders who watch technical signals.  Last quarter, many major technical measures were flashing sell signals.  Well many of those same technical readings have recently turned to buy signals.  Though nothing is ever certain, it is a good sign for markets in the near-term.

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Earnings Beat Expectations to Date and Deciphering the Fed (and More)

We attributed the strong January stock rally to a bounce back from the December over-selling that occurred in the equity markets and to the Fed declaring its intention to pause future rate hikes, a stock friendly re-messaging. Earnings season is on us and will be a key driver in near term stock market performance. To date, fourth quarter earnings reports have not been stellar but are largely beating expectations. We also want to revisit the Fed decision to pause rate hikes in the context of an astute question recently asked by a client.

  • Earnings Beating Expectations: We know that over time stock returns correlate closely with corporate earnings, adjusting for inflation. The current situation appears to be a period when exceeding expectations matters as much or more than objective earnings. It’s as if investors are exhaling, noting that earnings may not be great but are better than feared. This NYT article illustrates the dynamic.

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Gov Back to Work, Jay POWell to the Rescue, and Quantum Computers

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. 

 Please share The Friday Buzz with anyone who may have interest.  Thank you for your time and enjoy the articles!

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Muddy Waters and A One-Handed Economist

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. 

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Inflation Moderated, Earnings Rolling In, and Solutions for Plastic

After the new year started with volatility, investors have been calmed by words from the Federal Reserve and hope surrounding U.S.-China trade discussions.  There is still plenty to worry about including the continued government shutdown, Brexit, and potential fallout from the Mueller investigation.  But for the last week, investors were embracing the positive.

Please share The Friday Buzz with anyone who may have interest.  Thank you for your time and enjoy the articles!

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Positive Fed and China Trade Talk News Propels Stock Markets to Strong 2019 Start

Two important developments have boosted stock markets in the new year. First, the Fed has adopted a more dovish tone relative to additional rate increases in 2019. Second, negotiations between the U.S. and China have apparently been successful in narrowing the trade differences. The relief felt by equity investors is palpable. Perceived risk may have fallen but lurks near the surface of investing waters. Caution is warranted. 

  • Powell’s Do-Over: Fed Chairman Powell softened his tone on future rate increases in a recent speech, realizing that the Fed needs to project more flexibility. With inflation in check, we see no reason why the Fed needs to engineer a recession with unnecessary rate hikes at a sensitive time.

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