Long Live the Bull Market. Stocks are still cheap, the economy is not slipping into recession. The policy environment is tilted more toward growth than it was three years ago, even though it could be better. And that means the bull market should continue.
Income Inequality, Taxation, and Redistribution. One of our favorite economic parables is the Fish Story, from Paul Zane Pilzer’s 1990 book, “Unlimited Wealth.” It is an excellent tool for thinking about wealth creation, inequality and redistribution.
No Recession on the Horizon. One by one, the pessimistic theories have been proven wrong. Yes, the US will eventually fall back into a recession. But we don’t see it happening this year or next, and probably not in 2021, either.
Another Fed Rate Cut on the Way. In our opinion, this rate cut is completely unnecessary. The unemployment rate is 3.5%, much lower than the 4.2% that Fed policymakers think it will average over the long run. Nominal GDP – real GDP growth plus inflation – is up 5.0% annualized in the past two years, well above the level of short-term rates. The M2 measure of the money supply is up 6.5% from a year ago, a healthy acceleration from the 3.4% increase the year before.
More Tepid GDP Growth in Q3. Given that the economy grew at a tepid 2.0% annual rate in Q2, we’re sure you’ll hear plenty of angst about slow growth. But we don’t believe these past quarters represent a permanent shift to slower growth.
Trade Clouds Parting. Trade disputes have been an ongoing soap opera since President Trump took office… But over the past few months, we think a trend toward a settlement of these disputes has emerged.
Labor Market Continues to Roar. In spite of all the fear-mongering about a recession, Friday’s employment report clearly showed we are not in an economic downturn. The best news in the report was that the unemployment rate fell to 3.5%, the lowest most Americans have seen in their lifetimes.
Repo Turmoil. The jump in the overnight repo and federal funds rates was at the “tail” of the market. The reason most trading saw little impact is because there are $1.4 trillion of “excess reserves” in the banking system. So, contrary to much of the press coverage of this issue, the NY Fed repo operations were not due to a shortage of reserves.
Fear the Spending, Not the Debt. None of this means US fiscal policy is in a good place; it’s just that the debt is manageable, we’re not going bankrupt. The real fiscal problem is the level of spending and the need to fix entitlements: Social Security, Medicare, Medicaid, and “Obamacare.” …The problem is that out of control spending gradually erodes the character of the American people. It pushes citizens toward dependence on government checks for their income, rather than their own efforts. In a democracy, we want our fellow citizens to know the value of hard work, shrewd investment, and entrepreneurship,
We’re All Keynesians Now. Thanks to these supply-side policies, the U.S. does not face a recession. New technology is continuing to lower costs, increase profit margins, and boost earnings.