November 11, 2018 The War to End War

Risk/Reward Vol. 398

THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.

OK, Mr. Wise Guy, the Democrats took the House of Representatives. So why did the bulls run wild on Wednesday and why are the two major indices up over 2% for the week? Winter isn't coming, is it. Well, Dear Readers, don't be so quick in concluding that all is hunky dory. None of these new members takes office until January. More importantly, the committee chairs do not rotate until then. When they do is when one should fret. Have you read the Mollie Hemmingway article describing Rep. Jerry Nadler's overheard telephone conversation of last Wednesday? In that call, Nadler, the presumptive chair of the all powerful House Judiciary Committee, vowed to re-open the Trump-Russia probe and to impeach Kavanaugh. Moreover, on the Senate side, the claimed gain in Florida and the presumed victory in Arizona may not be. Fifty three Republican seats claimed on Election Night may become 51 in very short order. Indeed, Wednesday's 500+ gain in the Dow merely proved my point: to wit, Mr. Market is highly responsive to politics. The euphoria of that day was an expression of relief because in normal times a split in control of Congress is good for the stock market. But these are not normal times. I still see winter, and it starts in January, 2019.

Due to the election, there was little fanfare following this week's Federal Reserve meeting. The Fed Funds rate remained unchanged as is the norm for meetings after which the Chair does not hold a press conference. But that will change next year as each of the eight Fed meetings will be "live" : concluded with a press conference and thus one at which rates may change or other significant events could occur. As for action this week in the bond market, it appears that the rate on the 10 Year is finding a home in a narrow range around 3.2%. The rate on the 2Year has found traction around 2.95, and the one month is near 2.2%. Just 13 months ago the 2 Year struggled to get above 1.3%, and the one month was below 1%. Quite a welcome change for those interested in fixed income.

I continue to marvel at our domestic oil industry. It is a testament to the power of free enterprise and her twin sister innovation.. Just ten years ago, US oil production was 5million bbls/day and on a downward trajectory. Today, thanks to incredible technological advances in fracking and billions of dollars of private risk capital, the US produces over 11million bbls/day and is on its way to 12million in 2019. To put that in perspective, the US now is number one in the world in oil production surpassing both Saudi Arabia and Russia this year. Moreover, we are fast approaching actual energy independence. This allows us great flexibility in international relations. When was the last time you read anything about Kuwait or Iraq?