The Do-Little Fed and the Pushmi-Pullyu Congress

Monthly Outlook: November 2021  Markets rebounded nicely in October on decent earnings reports and renewed optimism. The U.S. S&P500 rose 6.9% and the international stock index gained 2.7%. That makes up for similar losses in September and global stocks indexes are now back to where they were two months ago. Bonds did absolutely nothing in October as the 10-year U.S. Treasury held steady at about 1.55%. The current stimulus bubble that we are in for financial assets (stocks, houses, commodities) was created by years of monetary stimulus from the Fed and fiscal stimulus from Congress. Despite a robust economy, low unemployment, and rising inflation, the stimulus just continues open-spigot. The Fed jawbones about inflation but does very little to actually taper its stimulus. And Congress, with too many talking heads to agree on any direction, continues its stimulative deficit spending. So, why wouldn’t the markets just keep grinding higher? Inflation [...]

November 1st, 2021|

Will the Fed Pop Its Own Bubble?

Monthly Outlook: October 2021  Markets took a breather in September after many months of grinding higher. The S&P500 sagged 4.7%, the NASDAQ dropped 5.6%, and the international stock index, EAFE, fell 3.3%. Bonds, usually a safe haven, were also soft, losing 1.0%. The good news is that the long-term trends of stocks and bonds remain upward and so we must call this just a normal correction for now. Will investors buy the dip again, or is there something else going on? We’ll consider the possibilities, below. I often use the expression, “When in doubt, zoom out.” It’s helpful to step back from the immediate view and consider the bigger picture that includes historical context and more inclusive framing. Today’s stock and bond market is really the culmination of stimulus policies and economic recovery since the 2008 Financial Crisis. Congress and the Federal Reserve (the Fed) have poured massive amounts of [...]

September 30th, 2021|

Are We There Yet?

Monthly Outlook: September 2021  It’s almost Labor Day and the end of summer. Hopefully, we all had a much better summer than last year during the COVID lock-down. I’m sure we’ve all experienced the classic summer road trip with family and bored kids incessantly asking, “Are we there yet?” That’s how I feel every month with markets, today. We can plainly measure and see that global stock markets are factually over-extended, over-valued, and over-exuberant. Yet, they grind higher every month with not even a five percent pullback. Earnings are back to pre-COVID, 2019 levels and equity analysts expect continued earnings growth of 25% per year. Valuation metrics like price to earnings and market capitalization to GDP are at peak levels only seen two or three times in the past 100 years. Investors seem to have supreme confidence in the Federal Reserve and their never-ending printing press and stimulus programs. It’s [...]

August 31st, 2021|

All Eyes on the Fed

Monthly Outlook: August 2021  Summer is in full swing, and the economy is booming! Here in Aspen, it’s hard to find parking, get a reservation, or find tickets. I hear it’s the same from coast to coast. Thanks to vaccines, the COVID crisis has subsided and pent-up demand for fun and adventure has been unleashed. It feels like people are cramming two summers of fun into one. Additionally, both the Federal Reserve and Congress have poured unprecedented trillions of dollars of stimulus into the economy to boost the recovery. Although it could be (and should be) argued that the stimulus was inefficient and sometimes misdirected, the effect is clear. The economy has certainly recovered and by all measures is back to pre-COVID 2019 levels, or better. And, importantly to us and our clients, stock, bond, and housing markets have fully rebounded and then some, thanks to all the stimulus programs. [...]

August 1st, 2021|

Managing Peak Expectations

Monthly Outlook: July 2021 Confidence and exuberance are the watchwords of the day. And we’re as confident in the U.S. economy as everyone else. Thanks to science and vaccines, the COVID pandemic seems mostly behind us, and the economy feels as open as can be. Every restaurant and store seem crowded, and every airplane that I’ve been on is filled. Jobs are being created and the unemployment rate is steadily dropping. Stocks have fully recouped their COVID pandemic losses and added 25% more. House prices are spiking higher, up 14% over the past year, according to the Case-Shiller Index. Of course we’re all exuberant; happy days are here again, right? Yes, and no. It’s important to differentiate the mindset of Main Street vs. Wall Street, if you will. Main Street focuses mostly on the present, and on their own personal welfare. If individuals have a good job, good health, a [...]

July 1st, 2021|

Will Inflation Pop the Stimulus Bubble?

Monthly Outlook: June 2021  Everything is opening up. Do you feel it? Vaccines have been widely distributed, COVID is on the way out, masks are coming off, graduations just happened, today is June 1st, and summer vacations are starting. And I can just hear a national exhalation, “Whew, we’re ready!” Meanwhile, on Wall Street, investors have been in party mode for a year already, enjoying massive stimulus and expectations of economic recovery. While Main Street is coming alive, Wall Street seems to be stalling. Why? Well, all that stimulus has created significant inflation and maybe too-optimistic earnings expectations. What if the Federal Reserve (Fed) is forced to taper their stimulus programs? What if Congress doesn’t pass any more COVID-relief stimulus plans? What if the economy has to recover from here by itself, on its own strength? That could have a major impact on investment prices and that is the reason [...]

June 1st, 2021|
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