Labor Day is probably the best time to take stock of the American worker and, for them, it’s rarely been better. The unemployment rate is near the lowest level since the 1960s, job growth remains robust, and wage growth is in a general accelerating trend.
Business Uncertainty. Analysts were very quick to pin the blame for weakness in stocks late last week on the trade war with China. We agree that uncertainty regarding the future of US-China trade relations was a drag on equities, but think it was far from the only reason for weakness. In fact, it wasn’t even the most negative news of the week.
This is Not 2008! The threat of a recession is on the minds of investors. What these investors are ignoring is how different recent circumstances are from the environment that preceded prior recessions.
The European Central Bank’s Crazy Negative Interest Rates! It’s time for Europe to recognize that neither negative interest rates nor quantitative easing has saved their economies. By using negative rates, the ECB has been trying to punish banks into lending, and it hasn’t worked. Worse, negative rates are, in effect, a tax on the financial system. As a result, they undermine bank profitability and weaken the financial system.
The Fed is flailing. Our view remains that last week’s rate cut wasn’t needed, nor are further rate cuts in the months ahead. Nominal GDP is up 4.0% in the past year and up at a 5.0% annual rate in the past two years. Gold is up 12.3% so far this year. There are plenty of excess reserves in the banking system. The Fed is not tight.
Solid GDP Report for Q2…Core GDP – combining personal consumption, business investment, and home building – grew at a very solid 3.2% annual rate in Q2. Meanwhile, profit reports are widely beating expectations. The economy is much stronger than conventional wisdom thinks and has been since 2009.