Broken record

Despite feeling and sounding redundant, perhaps it’s a good moment to reiterate our view. Stocks never go straight up – even in a bull market. Some consolidation – trader parlance for flatness - and continued volatility certainly lay ahead.

As we’ve said, the latterly stages of a bull market are volatile. After all, what are those horns for?*

Our bullish equity view is still intact and is still based on the fundamentals. The yield curve is not inverted. As you may recall, the yield curve inverted in 2006 and the stock market went on to gain 30%. An inverted yield curve has proven itself a canary in the coalmine, albeit often an early bird in the coalmine.+ 

The leading economic indicator index (LEI) is not even close to contracting year-on-year- although it is decelerating of late.

As for wages, they are rising, but not enough to crimp corporate profits as current productivity is rising commensurately. Ditto inflation.

Oh yes, and the savings rate is near its six-year high.

Bull markets do tend to end amid a general feeling of euphoria and we are ever vigilant for signs of over-exuberance.  

Do keep tuned, but so far this year it’s the same old song.

Weekly Update, Week ending March 15, 2019 The S&P 500 was up 2.95% even as the Dow Jones added 1.64%, the Russell 2000 increased 2.13% and the Nasdaq added 3.81%.

As for US bonds, they added 25bps.                         

Globally, the MSCI World Index added 2.86% and the Barclays Global Aggregate Bond Index increased 43bps.

The Euro Stoxx 50 added 3.14% in local-currency (Euro) and 3.67% in USD.  Meanwhile, the Topix was up 1.92% in local-currency (Yen) and 1.51% in USD.

*Holding on tight

+Reruns and stale metaphors, it's your lucky day

Impact-ish

We'd like to think where and how we spend our money and invest makes a difference.

It could be argued that every dollar spent represents a vote. Don't like that Amazon doesn't pay taxes - quit your Prime. (Yes, you.)

Or is it - for better or worse - a tad more complex?

Let's face it, your lone act of quitting Prime probably won't affect Amazon's internal tax policies an iota. It would likely take a big organized movement to change Amazon's - legal yet unethical - tax evasion situation.

In the investment arena, making an impact is also complex.

There's a lot of hype about impact investing. Does not buying a particular stock really affect a company's behavior? The data is mixed.

ESG (Environment, Social and Governance) index funds top holdings include Toyota, Nestle and HSBC. What even makes these companies especially socially responsible?

Yet in some circumstances we are huge fans of socially responsible and impact investing. Finding the investments that genuinely make the world a better place and have better-than-average return is not easy.

It's just the right thing to do.

Monthly Update, February 2019 The S&P 500 was up 3.21% even as the Dow Jones added 4.03%, the Russell 2000 increased 5.19% and the Nasdaq added 3.60%.

As for US bonds, they lost -11bps.                         

Globally, the MSCI World Index added 3.07% and the Barclays Global Aggregate Bond Index decreased -58bps.

The Euro Stoxx 50 added 4.42% in local-currency (Euro) and 3.80% in USD. Meanwhile, the Topix was up 2.60% in local-currency (Yen) and 28bps in USD.

2%

I’ve just finished Paul Volker’s “Keeping at It: The Quest for Sound Money and Good Government.” Perhaps too much minutiae for most readers, so here’s a synopsis.  

Volker served as Chair of the Federal Reserve from 1979 to 1987. He’s also the understandably proud daddy of the Volker Rule.

He’s very concerned about 1. Citizens’ lack of faith in government, 2. The pernicious role of money in elections/lobbying, and 3. Inflation.

During the Carter administration, the now 91-year oversaw the steepest interest rate increase in US history. In our current era of low rates it’s hard to fathom the Fed could boost rates from 10.25% to 20% but that is exactly what Volker did 1979-1980.

At the time he was vilified for increasing unemployment and stoking recession. Now Volker's praised as a economic superhero.

While Volker’s views on leadership and plutocracy are not especially novel, his view on the Fed’s 2% inflation target is noteworthy.  

Volker wrote “A 2 percent target, or limit, was not in my textbook years ago. I know of no theoretical justification.” He goes on to suggest that at the 2% target, prices increase nearly 50% over 20 years.

Based on his formidable experience, this is unjustifiable and bad policy. Yet as recently as December, 2% remains the unambivalent Fed mandate.  

Weekly Update, Week ending February 22, 2019 The S&P 500 was up 65bps even as the Dow Jones added 59bps, the Russell 2000 increased 1.34% and the Nasdaq added 78bps.

As for US bonds, they gained 11bps.

Globally, the MSCI World Index added 1.03% and the Barclays Global Aggregate Bond Index gained 36bps.

The Euro Stoxx 50 added 90bps in local-currency (Euro) and 1.56% in USD. Meanwhile, the Topix was up 2.05% in local-currency (Yen) and 2.03% in USD.

GND

Last week Green New Deal (GND) legislation was introduced in the US House and in the Senate.

It’s been hard to parse the basics from the bruhaha.

The GND is a nonbinding resolution. Unlike a bill, such a resolution merely expresses approval.

When and if the GND passes, other individual bills will also have to pass for any of the GND to become the law of the land.

In Boulder parlance, the GND sets the intention.

The GND lays out five overarching goals to be met within a 10-year time-frame. Some of these objectives are "green" and others are more "new deal" - aimed at generally restoring prosperity and equality:

1. Achieve net-zero greenhouse gas emissions through fair and just transitions for communities and workers,

2. Create high-wage jobs and ensure prosperity and economic security,

3. Invest in infrastructure and industry to sustainably meet the challenges of the 21st century,

4. Secure for this generation and future generations: clean air and water; climate and community resiliency; healthy food; access to nature; and a sustainable environment, and

5. Promote justice and equity by stopping current, preventing future, and repairing historic oppression of indigenous peoples, communities of color, migrant communities, deindustrialized communities, depopulated rural communities, the poor, etc.

Passing the GND would help provide certainty about the government's commitment to addressing climate change - certainty that would certainly get even more investors on board.

Let's face it - we are already paying dearly for climate change induced calamity.

Natural disasters cost $350 billion in 2017. And what price-tag can we possibly put on the frogs, polar bears, bees, coral, penguins, etc. etc. whose populations are already dismally diminishing?

Maybe the question is can we afford not to get behind the GND?

Weekly Update, Week ending February 15 2019: The S&P 500 was up 2.56% even as the Dow Jones added 3.21%, the Russell 2000 increased 4.21% and the Nasdaq added 2.41%.

As for US bonds, they lost -9bps.       

Globally, the MSCI World Index added 2.35% and the Barclays Global Aggregate Bond Index declined -23bps.

The Euro Stoxx 50 added 3.40% in local-currency (Euro) and 2.87% in USD. Meanwhile, the Topix was up 2.46% in local-currency (Yen) and 1.68% in USD.

Cleanest dirty shirt

In 2012 bond maven Bill Gross famously called the US markets the “cleanest dirty shirt.”

Gross retired last week after nearly 50 years in the bond biz. He co-founded Pimco in 1971 and in 1987 he created the Total Return Bond Fund.

Reaching record-setting assets of $300 billion in 2013, under his tenure Total Return returned an average of 7.65% annually. These were astonishing returns for a bond fund.

Quit while you’re ahead.

In 2014, after running the fund for 27 years, he made and abrupt and ungracious Pimco exit. Within days, he popped up at Janus, touting a similar strategy with a new "Unconstrained Bond Fund."

Needless to say his new fund languished - seriously underperforming benchmarks and the Total Return fund he left behind.

Despite his latest au revoir his “cleanest dirty shirt” metaphor is again au currant.

Developed market growth is decelerating – especially in Europe and Japan. In 2019, EU growth is expected to average 1.5% and Japanese growth just 1.3%. For the US, the growth estimate is 2.5% - hardly huge in its own right but a boon by comparison.

Weekly Update, Week ending February 8, 2019 The S&P 500 was up 11bps even as the Dow Jones added 32bps, the Russell 2000 increased 31bps and the Nasdaq added 53bps.

As for US bonds, they added 38bps.                         

Globally, the MSCI World Index lost -41bps and the Barclays Global Aggregate Bond Index declined -23bps.

The Euro Stoxx 50 lost -1.12% in local-currency (Euro) and -2.32% in USD. Meanwhile, the Topix declined -1.61% in local-currency (Yen) and -1.76% in USD.

Re-what?

Reflation, such a soothing– if confusing – word to investors' ears.

Reflation /rēˈflāSH(ə)n/ noun expansion in the level of output of an economy by government stimulus, using either fiscal or monetary policy. Hmmm.

What’s reflationary is the nearly unanimous view the Fed will hold off raising rates for a few months - at least. Yes, you just heard an audible sigh of relief emanating from Wall Street and maybe one from the White House too.

If the Fed holds off raising rates, money is cheaper and the dollar won’t appreciate as quickly. Both good news for stocks.

The rub – if the Fed's holding down rates in part because the stock market is doing poorly - as it did Q4 ’18 for anyone who didn’t notice - might a buoyant market cause the Fed to rethink its no-raise stance? Probably.

There’s a circularity to this line of reasoning that can only eventually end badly for investors - but when?  

Also, if the economy is doing especially well - and it is - reflation could be indistinguishable from inflation.

What is the slight but meaningful difference between reflation and inflation? Reflation is price increases when the economy is striving to achieve full employment and growth. Inflation - on the other hand - is characterized by rising prices during a period of full capacity.

To paraphrase Dr. Seuss “What would you guess if your mother asked you?”

Monthly Update January 2019 The S&P 500 was up 8.01%, even as the Dow Jones added 7.29%, the Russell 2000 increased 11.25%, and the Nasdaq added 9.79%.

As for US bonds, they added 1.06%.                         

Globally, the MSCI World Index gained 7.82% and the Barclays Global Aggregate Bond Index added 1.52%.

The Euro Stoxx 50 added 4.18% in local-currency (Euro) and 4.58% in USD. Meanwhile, the Topix gained 6.56% in local-currency (Yen) and 6.19% in USD.

Neutral

When a car is in neutral, the engine is not pushing the car in a given direction. Only gravity exerts it force.

This is a decent metaphor for understanding the neutral - also confusingly called the natural - interest rate.

The Fed is trying to figure out the interest rate that will neither stoke nor subdue the economy. Not easy.

If the Fed overshoots and raises rates too much too soon, the economy stalls and slips into recession. But if the Fed responds too slowly and doesn’t raise rates at a pace commensurate with growth, the economy overheats. Over-inflation is also pernicious and leads painfully and eventually to the same recessionary outcome.  

On December 5th, the Philadelphia Fed released the so-called Beige Book. While many areas of the US reported a dearth of workers, Dallas and Philadelphia Feds noted growth deceleration in their regions.

These push/pull dynamics highlight the tension regarding the neutral rate. The Fed can’t lower rates in Philly and Dallas to help spur growth, while raising them in areas like Chicago where a shortage of qualified workers is putting pressure on wages.

On the 19th of December, Fed Chair Jay Powell will likely raise rates for the 4th time this year, to 2.25-2.50%.

From there, calibrating the neutral rate will only get trickier. Along with trade, rates will be a major known unknown affecting the markets – and the economy – in 2019.

Weekly Update through December 7, 2018 The S&P 500 declined -4.55%, even as the Dow Jones lost -4.44%, the Russell 2000 dropped -5.53%, and the Nasdaq detracted -4.90%.

As for US bonds, they added 85bps.                         

Globally, the MSCI World Index declined -3.69% and the Barclays Global Aggregate Bond Index gained 87 bps. 

The Euro Stoxx 50 lost -3.56% in local-currency (Euro) and -2.88% in USD.  Meanwhile, the Topix declined -2.82% in local-currency (Yen) and -2.03% in USD.

Rough air

Is there a nicer way to say – expect more turbulence? While our overall upbeat view remains intact, there is almost no doubt we’ll see continued volatility in the stock and bond markets in the coming year. Yes, at this point, we anticipate a generally upward sloping trajectory. Yet we also expect it will be a jagged one.

Leading economic indicators continue to flash green. The substance and the nuance of our view is so easily obscured when we compress our views to a few sentences. For this reason - and many more - we are always available to talk over our views with our clients and in inordinate detail.

 Weekly Update through November 30, 2018 The S&P 500 added 4.19%, even as the Dow Jones gained 4.32%, the Russell 2000 increased 3.04%, and the Nasdaq jumped 5.66%.

 As for US bonds, they added 13bps.                         

 Globally, the MSCI World Index was gained 3.40% and the Barclays Global Aggregate Bond Index lost -2bps. 

 The Euro Stoxx 50 added 1.18% in local-currency (Euro) and 1.00% in USD. Meanwhile, the Topix added 2.16% in local-currency (Yen) and 2.06% in USD.

 Month-end Update through end-November 2018 In November, the S&P 500 added 2.04%, the Dow Jones gained 2.11%, the Russell 2000 increased 1.58% and the

Nasdaq added 50bps.

 As for US bonds, they added 60bps.

 Globally, the MSCI World Index added 1.19% % and the Barclays Global Aggregate Bond Index increased 31bps. 

In November, the Euro Stoxx 50 declined -69nps in local-currency (Euro) and -61bps in USD. Meanwhile, the Topix gained 1.30% in local-currency (Yen) and 77bps in USD.

Fine fettle

Considering these drawdowns, how do we keep any semblance of sanguinity? Since the start of October 2018 through yesterday (11/20/18), the S&P500 is down -9%, the Dow Jones is down -7%, the Russel 2000 is down -13% and the Nasdaq is down -14%. Oh yes, and the bond market isn't benefiting an iota from all this stock-market turbulence. Bonds too have declined, albeit just -36bps.

Firstly, let’s remember most of us are in the market for the longer-term and we can sustain some volatility. Then let’s recall why we’re not dumping into the downturn. And finally, let’s explore why this is happening - despite our fair outlook.

Why we’re still positive: The yield curve is a long way from inversion, Unemployment continues to fall, Wage growth is mild but is happening, Personal savings rates have not risen – families are spending their increased wages, Inflation expectations have not changed dramatically, And, forward S&P500 P/E multiples are moderate - in the 15s. Since 1990, seventeen is the average having reached a high of 27 in 1999.

Then why are markets sliding, you ask? Fear a trade war could smack US companies is not unjustified but is presently overhyped. Also, while earnings will grow next year, they will not continue to do so at record highs. Earnings growth averaged an astronomical 20% in 2018. With "just" 10% growth anticipated next year the deceleration is interpreted by jittery investors as negative growth – it’s not. And there are fears - not borne out by data - climbing interest rates are crimping growth.

I’ve spent the last couple of weeks reaching out individually to our wealth management clients analyzing portfolios position-by-position. As I’ve talked over with many of you - the biggest threat to our view is an all-out and escalating trade war. All will be watching for signs of Trump/Xi cordiality at the upcoming G20. More meaningfully, Trump agreeing to pause tariff hikes set for Jan 1 would be an omen he's listening to (most of) his economic advisors.

In the meantime, let's take a pause to remember all we're thankful for. For me, I count you when I count my blessings.

October abyss

October was the worst month for the S&P 500 in seven years. For the Nasdaq, it was the worst month since November 2008.While October’s rout could portend a bear market, we see it as a bout of the heightened volatility that typically bookends an expansion.

Our still rosy view is supported by robust employment gains, rising wages and elevated business and consumer confidence. Household savings rates are relatively high indicating consumers could boost spending. Also, increased business capital expenditure is likely considering easing lending standards for commercial and industrial loans. Q3 earnings have been impressive and are likely to continue to grow at a 10% pace by end-2019. GDP has increased 5% year-on-year and is anticipated to continue above trend.

When rates even hint at choking growth, we’ll reevaluate. Near-term threats to our perspective include an all-out trade war with China and an unexpected spike in oil prices.

And watch out - a Democratic mid-term win could spark a further knee-jerk selloff. However, it would likely be short-lived as congress is unlikely to unravel Trump’s fiscal stimulus.

Nervous investors could consider shifting from growth stocks to value names – which historically have less volatility.

Weekly Update through November 2, 2018 The S&P 500 added 2.45%, even as the Dow Jones gained 2.36%, the Russell 2000 jumped 4.35%, and the Nasdaq added 2.66%.

As for US bonds, they declined -73bps.                         

Globally, the MSCI World Index gained 2.79% and the Barclays Global Aggregate Bond Index lost -57bps. 

Month-end Update through end-October 2018 In October, the S&P 500 lost -6.84%, the Dow Jones declined -4.98%, the Russell 2000 dropped -10.86% and the Nasdaq lost -9.16%.

As for US bonds, they declined -79bps.

Globally, the MSCI World Index lost -7.32% and the Barclays Global Aggregate Bond Index declined -1.12%. 

Vote

Today, there are too many reasons for grief and angst. And the state of the stock market isn’t helping an iota.

Besides our one-size-fits all shout-out, next month clients will receive a specific and customized report on their portfolio. We'll start sending these out later next week.

In the meantime, please vote and please help others vote. In many states, including Colorado, it is not too late to register to vote. Organize rides, hand out stamps, become an expert on the ballot issues – whatever it takes, let’s do it.

Together, let's elect leaders whose message is unity - leaders who will make a positive difference for our environment, our families and our future.

Weekly Update through October 26, 2018 The S&P 500 declined -3.93%, even as the Dow Jones lost -2.97, the Russell 2000 fell -3.76%, and the Nasdaq dropped -3.78%.

As for US bonds, they added 54bps.                         

Globally, the MSCI World Index was down -3.89% and the Barclays Global Aggregate Bond Index added 28bps. 

The Euro Stoxx 50 declined -2.36% in local-currency (Euro) and -3.42 in USD.  Meanwhile, the Topix dropped -5.72% in local-currency (Yen) and -5.30% in USD.

Are higher rates hurting stocks?

In light of market turmoil – let’s skip right to the answer. No, oddly enough higher rates do not hurt share prices.*

Indeed, equities reliably perform better when real rates are rising by at least 100bps then they do when rates are falling.

Just as rates are not hurting stocks, we also don’t believe rates have risen enough to cool the economy.

That said, it’s not easy stomaching this market turbulence. Please don’t hesitate to reach out if you’d like to talk one-on-one about what's going on in your portfolio.

And,

We're Quish, with the tagline sustainable wealth.

A term like “sustainable wealth” might mean something different to everyone – and that is kind of what we like about it.

Taking action on global warming √

Growing wealth for the long-term √

Embracing nontraditional families √

Taking your values into account in your portfolio √

LGBT welcome √√

Together, we’ll make a difference. For this generation and the next.

Weekly Update through October 19, 2018 The S&P 500 added 4bps, even as the Dow Jones gained 45bps, the Russell 2000 declined -22bps, and the Nasdaq lost -64bps.

As for US bonds, they lost -37bps.                         

Globally, the MSCI World Index was down-3bps and the Barclays Global Aggregate Bond Index lost -33bps. 

The Euro Stoxx 50 added 54bps in local-currency (Euro) and 16bps in USD. Meanwhile, the Topix declined -56bps local-currency (Yen) and -97bps in USD.

Thank you for doing business with us! We always appreciate your valuable insight and feedback.

*One would not be rebuked for such a view - higher rates ergo lower net present value is a computational - though not real world - given.

South China Sea

Focusing solely on trade war with China, we should not neglect the possibility of escalating military tensions with the country.

Last week VP Pence gave a speech highlighting China’s “predatory” actions, including the Decatur incident. He was referring to a near collision between the USS Decatur, an Arleigh Burke-class destroyer and a Chinese Luyang-class destroyer. On September 30th, the Chinese ship was just 45 yards away when the US ship maneuvered to prevent a collision.

In 2016, the International Court of Arbitrations ruled against China’s territorial claim to the South China Sea. China rejected the ruling and continues to claim sovereignty of 80%+ of the area. When nearly hit by the Chinese destroyer, the Decatur was conducting a Freedom of Navigation Operation - asserting the free right of passage.

US-China tensions spilling out of the economic sphere and into the military arena highlight the gradual yet real shift toward a multi-polar world. The serious long-term market implications of this shift is a topic we'll continue to discuss from time-to-time.

In the near term, a surprise skirmish between the US and China would certainly rattle global markets.

Weekly Update through October 12, 2018 The S&P 500 dropped -4.07%, even as the Dow Jones was down -4.17%, the Russell 2000 declined -5.22%, and the Nasdaq lost -3.47%.

As for US bonds, they added 44bps.                         

Globally, the MSCI World Index lost -4.05% and the Barclays Global Aggregate Bond Index added 60bps. 

The Euro Stoxx 50 lost -4.46% in local-currency (Euro) and -4.05% in USD.  Meanwhile, the Topix declined -5.03% local-currency (Yen) and -3.63% in USD.

Gloomy outlook for climate change

Yesterday the UN released its gloomy report on climate change and today we learned ½ of this year’s Nobel for Economics is going to William D. Nordhaus, the author of a paper called Global Warming Economics.  

Today, most companies tout their green cred.  It is not so easy to parse an investment that's genuinely good for the planet.

One company though that tops our list is Salesforce.Com, Inc. (ticker: CRM). Last year, CRM achieved its goal of net-zero greenhouse gas emissions. It provides a carbon-neutral computing cloud for its customers and its multi-tenant cloud architecture is 50x more energy efficient than similar traditional software.

And CRM makes cents - lots of it. Since CRM started trading in 2004, it has increased in value by 5,323%. This is about 15x more than the growth of the Nasdaq and 22x more than the rise of the S&P500.

Nordhaus just won the Nobel for his research and innovation in carbon credits. CRM also uses these credits to help offset emissions.

Now that’s some eco-nomics we can take to the bank.

Weekly Update through October 5, 2018 The S&P 500 lost -95bps, even as the Dow Jones was flat, the Russell 2000 was down -3.78%, and the Nasdaq declined -3.18%.

As for US bonds, they dropped -94bps.                         

Globally, the MSCI World Index lost -1.47% and the Barclays Global Aggregate Bond Index declined -1.05%. 

The Euro Stoxx 50 lost -1.58% in local-currency (Euro) and -2.44% in USD.  Meanwhile, the Topix declined -1.35% local-currency (Yen) and -1.48% in USD.

Bear Bull

In an otherwise massive bull market, the collapse of Long Term Capital Management (LTCM) sent the S&P 500 spiraling -22% peak-to-trough between July 20 and October 8, 1998.

LTCM's directors included Myron Scholes and Robert Merton who had won the Nobel prize in economics the year before.

With $5 billion in client assets, the fund used leverage and derivatives to control assets valued at more than $1 trillion (not a typo).

An abrupt “flight to quality” triggered a massive selloff in emerging market (EM) assets. With EM currency and asset prices in free-fall, LTCM imploded.

Under Fed supervision, sixteen banks cobbled together a $3.6 billion bailout. Without it, there was fear LTCM’s meltdown could cause a chain reaction of catastrophic losses throughout the global financial system.

The LTCM crisis took place within the context of an extraordinary bull market. From October 1990 to March 2000, the S&P 500 was up almost 500% and the Nasdaq increased more than 1,200%.

Again we are in the midst of a massive bull market. Since March 9, 2009, the S&P 500 is up more than 425% and the Nasdaq has risen 610%.

Whether it might be an EM-triggered catastrophe or a geopolitical crisis, or...we should not disregard the possibility of a short-term bear within this bull.

Weekly Update through September, 28 2018 The S&P 500 lost -51bps, even as the Dow Jones declined -1.07%, the Russell 2000 was down -86bps, and the Nasdaq added 76bps.

As for US bonds, they added 17bps.                         

Globally, the MSCI World Index lost -64bps and the Barclays Global Aggregate Bond Index declined -52bps. 

The Euro Stoxx 50 lost -81bps in local-currency (Euro) and -1.89% in USD. Meanwhile, the Topix gained 1.41% local-currency (Yen) and 60bps in USD.

Month-end Update through end-September 2018 In September, the S&P 500 added 57bps, the Dow Jones gained 1.97%, the Russell 2000 dropped -2.41% and the Nasdaq lost -70bps.

As for US bonds, they declined -64bps.

Globally, the MSCI World Index added 59bps and the Barclays Global Aggregate Bond Index declined -86bps. 

In September, the Euro Stoxx 50 added 31bps in local-currency (Euro) and 47bps in USD. Meanwhile, the Topix gained 5.43% in local-currency (Yen) and 3.18% in USD.

Thank you for doing business with us! We always appreciate your valuable insight and feedback.

Why we're still a little bullish on oil

Our oil trade is up 25% since January (ticker: USO). And yet, we still hold on.

Global spare capacity remains razor-thin and geopolitical possibilities “in the pipeline” could only put prices higher.

Already priced in is the US embargo on Iranian oil which goes into effect November 4.

What’s not 100% clear and therefore not priced in - whether Venezuela is headed for collapse, if Syrian civil strife will further curtail shipments, Shale pipeline bottlenecks, force majeures in Nigeria’s Bonny system and more unplanned outages in the US or Canada.

Even without these known unknowns possibly constricting supply, estimated spare capacity in 2018 is 1.8% of global demand. In 2019, it’s estimated to be only 1%. For comparison, in 2007, spare capacity stood at 2.4% of global demand.

Back then prices were $150/bbl.

Today, they’re $73/bbl.

Weekly Update through September, 21 2018 The S&P 500 added 86bps, even as the Dow Jones jumped 2.25%, the Russell 2000 declined -53bps, and the Nasdaq lost -28bps.

As for US bonds, they were down -26bps.                         

Globally, the MSCI World Index added 1.56% and the Barclays Global Aggregate Bond Index gained 6bps. 

The Euro Stoxx 50 added 2.58% in local-currency (Euro) and 3.49% in USD.  Meanwhile, the Topix gained 4.36% local-currency (Yen) and 3.84% in USD.

Something to celebrate

Last week Mary Daly was selected to head the San Francisco Fed. The only other woman to hold this post went on to head The Federal Reserve System.*

Daly trod a circuitous path to her new job.

At 15, she quit high school and drove a doughnut truck. By 16 she was living on her own working two jobs to make ends meet.

Never graduating from high school, Daly got her GED instead. 

Sixteen years after her final doughnut delivery, she earned a PhD in Economics from Syracuse.

Writing on such heady topics as “the secular decline in employment of low-skilled workers,” Daly is an authority on labor markets and wages.

A colleague remarked “she knows what it’s like to live paycheck to paycheck, to be intimidated by going to college...[she has an] everydayness about her....”

Besides her unconventional background, Daly is the first female openly-gay regional Fed president. Her appointment will bring the current tally of female presidents to three of 12.

Here at Quish Co, we think that's something to celebrate.

Weekly Update through September, 14 2018 The S&P 500 added 1.21%, even as the Dow Jones increased 94bps, the Russell 2000 gained 54bps, and the Nasdaq jumped 1.36%.

As for US bonds, they lost -11bps.                         

Globally, the MSCI World Index added 1.40% and the Barclays Global Aggregate Bond Index increased 2bps.

The Euro Stoxx 50 added 1.56% in local-currency (Euro) and 2.23% in USD. 

Meanwhile, the Topix gained 2.63% local-currency (Yen) and 1.70% in USD.

To buy or to rent, that is the question

It’s been a rather tough year in the housing market. While the S&P 500 is up about 7% so far this year, the top US Home Construction ETF (ticker ITB) has lost more than -15%.

July also marked the 5th straight month of declining home sales. Ouch.

Monthly costs of buying and owning a home have increased 14% over the past year while rent has increased just 4% over the same period.

For the first time in more than eight years, it is cheaper to rent than to buy.

According to a recent study by the Hollo School of Real Estate at Florida International University, the US housing markets are now in “rent territory.”

Their analysis shows “renting and reinvesting, on average, will outperform owning and building equity in terms of wealth creation.” This has not been the case since mid-1999.

Although we may be at a moment where renting beats buying, what of the long long-term?

A mortgage is usually fixed for 30 long years, holding steady the major component of owning. (Granted taxes and insurance tend to fluctuate in a single direction - up.)

Nevertheless, with each payment, a home-owner is building equity – not flushing money away.

Few tenants are secure their rents won’t indiscriminately increase. Or worse, an owner can decide to sell and a renter is left to find a new home, maybe with little notice.

For now, the cold hard economics point to renting. Yet while it doesn't make the most financial sense, most renters would probably rather be owners.

Weekly Update through September, 7 2018 The S&P 500 lost -98bps, even as the Dow Jones declined -14bps, the Russell 2000 slipped -1.57%, and the Nasdaq slid -2.53%.

As for US bonds, they lost -45bps.                         

Globally, the MSCI World Index lost -1.69% and the Barclays Global Aggregate Bond Index declined -43bps.

The Euro Stoxx 50 lost -2.93% in local-currency (Euro) and -3.21% in USD.  Meanwhile, the Topix declined -2.94% local-currency (Yen) and -2.88% in USD.

Still dancing

As we enter the final laps of the longest bull market in US history, folks are getting understandably antsyIn July 2007, Citigroup CEO Chuck Prince famously portended “…as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”

Unfortunately, he and his natty banking buddies were about to dance off a cliff.

Nine-and-a-half years into the current bull market, here’s a couple of the reasons we’re still dancing.

The yield curve is upward sloping – with the 10-year at 2.9% and the 2-year at 2.6%. Inverted yield curves have predicted the last nine recessions. Prior to the financial crisis, the yield curve inverted in January 2006 - more than 1.5 years before the bear market.

FYI: The market continued to climb nearly 15% over this period.

Profits are soaring. Consumer spending, tax cuts and relatively stagnant wages have lifted after-tax corporate profits to the highest level since 1950.

Yes, our feet are achy. We know this party too shall end.

Just not yet.

Weekly Update through August 31, 2018 The S&P 500 added 98bps, even as the Dow Jones gained 79bps, the Russell 2000 added 91bps the Nasdaq advanced 2.07%.

As for US bonds, they declined -12bps.                         

Globally, the MSCI World Index added 68bps and the Barclays Global Aggregate Bond Index increased 1bp.

The Euro Stoxx 50 lost -1.01% in local-currency (Euro) and -1.25% in USD.  Meanwhile, the Topix advanced 1.56% in local-currency (Yen) and 1.67% in USD.

Month-end Update through end-August 2018 In August, the S&P 500 added 3.26%, the Dow Jones gained 2.56%, the Russell 2000 added 4.31% and the Nasdaq gained 5.85%

As for US bonds, they increased 64bps.

Globally, the MSCI World Index added 1.29% and the Barclays Global Aggregate Bond Index added 10bps. 

In August, the Euro Stoxx 50 declined -3.70% in local-currency (Euro) and -4.60% in USD. Meanwhile, the Topix lost -1.00% in local-currency (Yen) and -35bps in USD.

Shifting stars in Jackson

With all the big news this past weekend, the MSM seemed to overlook the Fed’s annual get-together in Jackson Hole. Fear not, here’s the big takeaway: snoozePowell’s anodyne kick-off speech made it clear this is one tame Fed.

Jay suggested while it seems the economy is chugging along perfectly, the Fed is keeping a close eye on the "stars," consistently reviewing the details to make sure Fed policy isn't contributing to undershooting or overshooting inflation and employment targets. Blah.

Jay probably kept it boring on purpose. The most curious part of his speech may have been his unorthodox use of the word “stars” in lieu of “asterisk”! Let's take it as a good sign our new Fed Chair seems terribly fastidious.

Weekly Update through August 24, 2018 The S&P 500 added 88bps, even as the Dow Jones gained 51bps, the Russell 2000 added 1.94%, the Nasdaq advanced 1.67%.

As for US bonds, they gained 26bps.                         

Globally, the MSCI World Index added 1.13% the Barclays Global Aggregate Bond Index increased 55bps.

The Euro Stoxx 50 gained 1.62% in local-currency (Euro) and 3.53% n USD. Meanwhile, the Topix advanced 69bps in local-currency (Yen) and declined -5bps in USD.