Risk/Reward Vol. 397
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
Last week I foresaw "several more days of roller coaster rides (in the equity market) with an overall downward trajectory." I was wrong. All three of the major indices were up 2.5% or so for the week apparently on the back of excellent quarterly reports and generally good economic news. Of particular interest to me was the news on Friday that wages grew at an annual rate of 3.1% in October, the most in over 9 years. This virtually guarantees a Fed funds rate increase in December and makes more certain the anticipated additional rate increases in 2019. If these increases occur, the overnight (Fed funds) rate should be 3-3.25% by year end 2019. If current spreads hold (N.B., in normal times the longer the maturity the higher the interest rate), two year treasuries will be paying 4%. This will allow me to lengthen my bond ladder which currently is very short term.
Why this week was overall positive in the equity markets eludes me. It just goes to show that no one is better than Mr. Market at humbling prognosticators. That said, I remain convinced that even Mr. Market is not immune to politics. Syllogistically, Trump has been very good for Mr. Market. A Democrat controlled House will be bad for Trump. Ergo, a Democrat controlled House will be bad for Mr. Market. Have those who own bank stocks read Maxine Waters' "pay back" quotes from her stump speech this week? And remember she is slated to become the Chair of the Financial Services Committee. How about Adam Schiff's pledge to reopen the Russian influence hearings if he becomes Chair of the House Intelligence Committee which he is in line to do? Or how about presumptive Speaker Pelosi's pledge to use subpoena power over the President as a negotiation tool? Undoubtedly, the President will resist every effort to unwind what he views as progress. Moreover, there is no doubt he will thumb his nose at Congressional subpoenas. This could result in an unprecedented Constitutional standoff. The rancor will be horrible.
As you may recall, my favorite financial reporter in recent times has been John Authers of the Financial Times. Recently he left FT for Bloomberg. I still follow him on Twitter but so far his reporting has lacked the depth I have come to admire. His former colleague at FT, Nicole Bullock, has filled the gap admirably. Her two pieces in yesterday's (11/3/18) FT were excellent. She reported on the possible impact of the election on stocks and on the record withdrawal from bond funds. Call it confirmation bias (since these have been two of my points of interest lately), but I do like her reportage. By the way, she and I do not agree on the election impact.
I hope I am wrong. But I still believe that winter is coming.
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