Category: Economy

The trade war headlines definitely sells papers.
I stand by my original claim. There will be no trade war. Trump placed tariffs on about $50 billion dollars worth of Chinese imports.
The Chinese government responded with $3 billion dollars.
Trump’s tariffs are small compared to the overall imports on China goods.
Chinese officials are on record stating that no one wins in a trade war. This is reflected in their $3 billion dollar response. They only responded to save face politically.

As expected, the fed raised the fed fund rate another 25 basis points.
They released their expectations in the chart below.

The fed officials tend to look at past data and trend it out. The key take away is this: They are going to let inflation run.
Full statement below:

Information received since the Federal Open Market Committee met in January indicates that the labor market has continued to strengthen and that economic activity has been rising at a moderate rate. Job gains have been strong in recent months, and the unemployment rate has stayed low. Recent data suggest that growth rates of household spending and business fixed investment have moderated from their strong fourth-quarter readings. On a 12-month basis, both overall inflation and inflation for items other than food and energy have continued to run below 2 percent. Market-based measures of inflation compensation have increased in recent months but remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The economic outlook has strengthened in recent months. The Committee expects that, with further gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in the medium term and labor market conditions will remain strong. Inflation on a 12-month basis is expected to move up in coming months and to stabilize around the Committee’s 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.
In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1-1/2 to 1-3/4 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.
In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.
Voting for the FOMC monetary policy action were Jerome H. Powell, Chairman; William C. Dudley, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Loretta J. Mester; Randal K. Quarles; and John C. Williams.

The climb in housing since the 2009 low has been relentless.

It is closing in on the 1980’s bull market.

Two points.
If you are buying real estate now, you are not buying low.
Second, bull markets can last a long time. I don’t see any evidence this is going to end.
I see a lot of faulty analysis. They point out that since housing had a similar run up to the 2008 high, the current run up should come to an end. It will end. However, it can go a lot higher before it ends.

All talk no action.

Sell a little. Buy a little.

How crazy is the San Francisco’s housing market?

The median sale price of all homes is 1.3 million dollars. The median household income is about $80K. This puts the median sale price to median household income at a ratio above 16. I have never seen the ratio this high before. In 2006, these ratios were 10. I thought the housing market was a bubble than.
So how long are they sitting on the market before they sell?

Less than 60 days. This is called “selling high”.
I do not understand why people would move there. This can not last.

Nasdaq makes all time high.

The break out to an all time high was forceful.
Don’t listen to the bears.

Less than 24 hours after the last post, I read that Trump is going to extend a 30 day exemption for Canada and Mexico. No doubt, he will use this as a bargaining chip for renegotiating NAFTA and bring the key players to the table. I don’t believe Canadian and Mexican leaders will cut off their nose to spite their face. Trump also left the door open for other leaders.
A deal will be struck and the “trade war” headlines will go away.

This bull market is over nine years old. The data suggest that a recession is not on the horizon. This correction will end and the market will go on to make new highs. How long and how low the correction goes on is yet to be seen. The next few weeks will be telling for me as I watch the price action. As I have been saying for the last few weeks, you should accumulate stocks during this correction.

A world trade war will definitely hurt the stock market and the global economy. However, I do not believe a trade war will occur.
It should be remembered that the headlines of “TRADE WAR” and current panic surrounding the market were started by Trump. This is part of Trumps negotiating style. Trump sends out his tweets to catch headlines and attention of key players. Than at the table he walks back a lot of his rhetoric. He is obsessed with renegotiating NAFTA. I suspect he wants his “brand” on the trade deal.
It should also be remembered that the tariffs themselves are tiny. They only effect a small slice of the US imports. Now if this snowballs into other countries putting tariffs on US products and a tick for tack mentality takes place, things can get out of hand quickly. I do not believe this will happen. The rest of the world will come to the table and a deal will be agreed upon.

Like all other corrections in this bull market, it will end. The “TRADE WAR” frenzy will vanish from the headlines. Looking in the rear view mirror this correction will be remembered as a buying opportunity.

 

The federal reserve is unwinding its balance sheet. As I said here, this is not going to be a head fake. Total assets are back to where they were in mid 2014.

It will be interesting to see how this plays out. There is no historical guide, so to speak, since something of this magnitude has never been done in the history of mankind. The easy part is loading up the balance sheet and buying MBS and treasuries. The hard part is reversing this policy without destroying the economy.
Let me be clear. I think the Federal Reserve is evil and should be abolished. Having said that, I don’t understand why they are doing this. ‘If it’s not broke don’t fix it’ would be my motto. They should just let their securities mature and not reinvest.

Confusion of the masses on tariffs is presented below.

Only 8% believe the US government should not interfere with trade. We have a long way to go.