2nd Quarter Update Summary – global inflation, The Fed, and The Fed.

The financial markets since the beginning of this year have been some of the most volatile that we’ve seen in several decades. And not without good reason. The post-pandemic post-stimulus economic rebound together with supply channels straining at the limits to meet the pent-up demand was further complicated by sanctions imposed on Russia. This strain on our supply channels have sent global inflation to the highest levels in decades. Add in the energy disruptions of the Ukraine war, gasoline and energy price increases have taken a big toll on the markets and the economy. Take note, inflation is not just a U.S. domestic phenomenon. It is global. This fact alone tells us this is not necessarily a dollar monetary problem for the Federal Reserve alone to deal with. It involves many factors beyond those mentioned above and which are largely beyond its control. The Fed however, has no choice but to make its best effort to deal with it with the few tools at its disposal.

Continue reading 2nd Quarter Update Summary – global inflation, The Fed, and The Fed.

1st Quarter Update Summary – Covid & Inflation, and now War

This was a rough start for the year in account performance. The markets are being hit with a triple whammy of Covid surges, rising inflation and interest rates, and war in Eastern Europe. Covid has become relatively benign here in the U.S. but has been surging in Europe and Asia. This surge has caused additional lock-downs that complicate production and efforts to revive supply chains. It puts new pressures on distribution channel bottlenecks. All of this has exacerbated otherwise modest inflationary pressures and puts the Federal Reserve in a precarious bind. All this while a new hot war has broken out in Eastern Europe that threatens to disrupt energy supplies and distribution of the most important raw material while also re-arranging global trade and geopolitical alignments for decades to come.

Continue reading 1st Quarter Update Summary – Covid & Inflation, and now War

Year-end Summary 2021

Our accounts have performed very well again this year. Despite economic headwinds from Covid related restrictions, distribution channel disruptions and labor shortages, the economy ended the year very strong albeit with some inflationary pressures. The Federal Reserve is becoming increasingly concerned that this inflation is not merely a temporary transitory effect from supply disruptions, but that we are running the risk that inflation is becoming entrenched.

The Fed has been quite vocal that in the near future it will be winding down its quantitative easing monetary stimulus operations and will also start to raise interest rates possibly as soon as March. The strong reaction from the markets in response to these comments indicates that these anticipated monetary tightening actions will likely result in severe negative market and economic consequences beyond taming inflation. Intuitively, it seems unwise to try to contain inflation shortly after a massive Omicron surge that has already been a disruption to the economy and a cause of some degree of the inflation. As long as the Fed persists in its projected course of action, we believe the markets will continue to be highly volatile.

Continue reading Year-end Summary 2021

3rd Quarter Update Summary – Labor Market Transformation

Let’s take look at some of the historic circumstances affecting these transformations taking place in today’s labor market. The unemployment rate continues to drop (presently 4.9%) close to what was previously considered “full employment”. Wage growth of 4.6% has been unprecedented for decades in this environment, but, there still remain 11 million job openings. Among the dynamics behind these circumstances are;
• Wages have lagged most measures of the economy — since the 1970s;
• Technology keeps creating and destroying entire market sectors;
• Household balance sheets are as cash rich and debt managed as ever;
• Actual wealth in the US is at record highs, albeit with a high wealth gap;
• Early retirement is pulling workers away from the labor market;
• Childcare remains a challenge in most of the country;
• Covid-19 is still a threat to frontline workers.
These days, the labor market is even more unusually dynamic than is typical. It is not an exaggeration to suggest it is in the midst of a radical transformation. The problem is not that economists cannot predict it; rather, it’s that they do not as of yet fully understand it.

Continue reading 3rd Quarter Update Summary – Labor Market Transformation

2nd Quarter Update Summary – Inflation, Fiscal Stimulus, Covid

The economy continues to grow and expand in recovery from the economic covid shocks inflicted on employment and production last year. Following a flat first quarter, the market has resumed an upward but volatile trend. Some recent inflation is sending warning signals across the economy, however, this inflation does not necessarily derive not from excess cash in the economy, but significantly from insufficiently restored production and supply chains, and from other distribution bottlenecks. The Federal Reserve is convinced the inflation is transitory and insists its expansionary policies will not change until at least 2023 or until the economy reaches full employment together with signs of overheating. This means, importantly, that going forward Fed policy in response to inflation will be more reactive vs predictive.

Continue reading 2nd Quarter Update Summary – Inflation, Fiscal Stimulus, Covid

1st Quarter Update Summary – Deficits and Infrastructure

The economy at present is finally emerging from our pandemic constraints. During March, employment was remarkably strong as unemployment continued to fall. The lowest interest rates in a century together with massive pent-up demand backed up by stimulus liquidity is creating a perfect storm for rapid short-term recovery and growth. There is little uncertainty that the pandemic will retreat. Our scientific knowledge base of mRNA techniques will grow and our producers will quickly refine and distribute vaccines for emerging covid variants as necessary. We may be looking at upcoming annual booster vaccine shots for these variants along with the seasonal flu.

Many people have expressed concern that the huge deficits will cause inflation and a subsequent collapse of the dollar. However, these massive deficit spending policies have successfully been deployed in our past but under very different circumstances, so let’s briefly review them.

Massive deficits (or money printing) were of necessity liberally deployed in the service of Continue reading 1st Quarter Update Summary – Deficits and Infrastructure

Year-end Summary 2020

The economy at present is performing as well as could be expected under the circumstances. Housing is booming given the lowest mortgage interest rates in a century. The main factor holding back the economy is not a lack of disposable income; indeed areas where people are free to spend are also doing quite well. Rather, the curtailed growth is heavily concentrated in services where social distancing is a problem. The Fed continues to be as accommodative as possible and recognizing its own constraints to stimulate growth, is literally begging Congress for more fiscal stimulus and is encouraging even more than that which Congress is presently considering. The Fed, after trying and failing for a decade to get inflation to rise enough to meet a meager target of 2%, and now in the midst of a pandemic, has virtually abandoned any inflation concerns it may have had.

Congress at present is trying to agree on

Continue reading Year-end Summary 2020

3rd Quarter Update Summary

The monetary and fiscal stimulus packages that began last spring effectively halted the meltdown taking place in the economy and in the financial markets. The markets revived quickly as they always do when money is being pumped into the economy, but in the economy, the stimulus could at most mitigate in some degree the paralysis that was taking place from the effects of efforts to contain the epidemic.

Those efforts generally succeeded and bought us some time to supply our medical system with PPE and testing capability. The economy also largely survived the state-by-state scattershot approach to various lockdowns and is poised for future growth in the form of pent-up consumer demand. Although given this haphazard approach, the epidemic is returning yet again in another wave of infections further delaying a full economic recovery. The Federal Reserve has deployed

Continue reading 3rd Quarter Update Summary

2nd Quarter Update Summary

The economy at present is finally emerging from our pandemic constraints. During March, employment was remarkably strong as unemployment continued to fall. The lowest interest rates in a century together with massive pent-up demand backed up by stimulus liquidity is creating a perfect storm for rapid short-term recovery and growth. There is little uncertainty that the pandemic will retreat. Our scientific knowledge base of mRNA techniques will grow and our producers will quickly refine and distribute vaccines for emerging covid variants as necessary. We may be looking at upcoming annual booster vaccine shots for these variants along with the seasonal flu.

Many people have expressed concern that the huge deficits will cause inflation and a subsequent collapse of the dollar. However, these massive deficit spending policies have successfully been deployed in our past but under very different circumstances, so let’s briefly review them.

Massive deficits (or money printing) in the past were of necessity liberally deployed in the service Continue reading 2nd Quarter Update Summary

1st Quarter Update Summary – Pandemic

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Following our interim email update last month the Federal Reserve charged headlong into the financial system very fast and very big. While we predicted a quick rate reduction, the Fed instantly dropped its target rates to zero and additionally announced massive liquidity facilities to flood the banking system with cash. At the same time, we made the prediction that given entrenched partisanship, it would take Congress many months to respond with the necessary fiscal stimulus. But lo, within two weeks, Congress unanimously passed not one, but two stimulus packages totaling over TWO Trillion dollars for small business, corporations, and remarkably, also for American workers and consumers. The Fed again then followed that up with Continue reading 1st Quarter Update Summary – Pandemic

Interim Update – Coronavirus

The market declines of these past two weeks have erased six months of recent gains. Although we are closely monitoring the situation, we may take action in your account quickly if needed in order to reduce risk if conditions continue to deteriorate and alter the long-term investment outlook of your account.

The corona-virus is currently the focus of the market’s attention. The novel coronavirus Covid-19 is now out in the wild; containment in the U.S. seems to be a long-lost hope. In the near term, the authorities are hoping to suppress Continue reading Interim Update – Coronavirus

Year-end Summary 2019

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Our accounts performed well this year, again outperforming the major market indices. However, as with the indices, some of the large gains were the result of a sharp market recovery early this year following a sharp downturn late last year. The market quickly stabilized and continued its upward trend as the Fed successfully took strong measures during the year to avoid economic weakness in the face of the weakening manufacturing sector.

The current economic indicators show the economy continues to grow, that manufacturing remains modestly weak, but the Continue reading Year-end Summary 2019

3rd Quarter Update Summary -Slow Growth?

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Despite some weakness in the manufacturing sector, the overall economy continues to grow. The markets on the other hand have been wandering aimlessly at the same level as that of one year ago. Our accounts similarly show a small gain over that same twelve month period. Despite rising deficits, all of the inflation indicators are soft or declining. The Fed, having clearly overshot its interest rate targets, has been Continue reading 3rd Quarter Update Summary -Slow Growth?

2nd Quarter Update Summary – Soft Landing?

550c441a6bb3f776218b4568-750-562Inflation, despite historically high deficits, stubbornly refuses to rise to the Fed’s relatively modest target of a mere 2%. In our last report, we noted that the Fed was finally ready to “stand pat” on further interest rate increases. We also addressed the importance of the yield curve in predicting future economic growth. At the time it was partially inverted (indicating an economic slowdown) due to the Fed’s aggressive interest rate increases last year. Since then, commodity and energy prices have modestly declined and labor costs have been rock steady. This week the Fed Continue reading 2nd Quarter Update Summary – Soft Landing?

1st Quarter Update Summary – Stand Pat?

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We continue to focus on the growth of the economy and the one variable of greatest impact on economic growth, interest rates and money supply. Fortunately, the markets rebounded and weathered quite well the Fed’s aggressive interest rate increases of the past year. In December, the month of the last rate increase, the markets were Continue reading 1st Quarter Update Summary – Stand Pat?