November 5, 2017 Powell

Risk/Reward Vol. 369
 
THIS IS NOT INVESTMENT OR TAX ADVICE.  IT IS A PERSONAL REFLECTION ON INVESTING.  RELY ON NOTHING STATED HEREIN.

When will it ever end?  Several months ago I quoted Jim Paulsen, the well respected former chief investment strategist for Wells Fargo, who said that the current stock market rally could last forever.  He may be right.  Whether he is or not, the events of this week set the table for the bulls to keep running.

 
First, the President nominated Jerome Powell as the next Federal Reserve Chair.  As has been discussed at length in this publication, Mr. Market has been worried that The Donald would name Congressional Republican favorites John Taylor or Kevin Warsh.  Their nomination would have caused a negative reaction in the markets as the prospect of higher interest rates sooner would have heightened.  Mr. Powell has been aligned with both Bernanke and Yellen in rate setting policy and with Yellen in the gradual reduction of the Fed's balance sheet.  In other words, the clear path set by Yellen which Mohammed El Erian has termed "a beautiful normalization" and  which Mr. Market has loved will continue.
 
Second, the Republican tax reform bill went public this week.  Can anyone say "hot mess".  I mean really guys and gals could you publish a more distasteful POS?  In its current form, it contains something to piss off everyone and stands as much chance of passage as camel through the eye of a needle.  And yet...And yet...And yet.  This mishigas notwithstanding all three of the major indices closed the week at record highs.  As I reported last week, I don't see the market's performance being adversely affected by the success or failure of any tax proposal.  Think TINA (There Is No Alternative)!
 
Third, the economy is humming.  More than 75% of the S&P 500 beat earnings estimates last quarter which is well above average.  As of Friday's report, unemployment is at a 17 year low.  Add to this the fact that growth in 3rd quarter gross domestic product came in above 3% on an annualized basis. The insanity in DC aside, what could be better?  To this last point, one is left to marvel as to how out of touch our government and those who report the news really are.  As sick as all of the Harvey Weinstein inspired stories have been at least they have taken politics off the front page.  Unfortunately, Mr. Market has not been able to change headlines despite experiencing an incredible year so far.