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The Best of What They Said and I Read Week Ending 03/24/19

Short excerpts from articles I found interesting.  I may not agree with the author and the following material is not intended as investment advice

Barron’s – March 22, 2019 – The Dow Drops 347 Points as Bonds Throw Market a Curve – Ben Levisohn

  •  “…a cursory glance at this past week’s returns—the Dow Jones Industrial Average dropped 346.55 points, or 1.3%, to 25,502.32, while the S&P 500 fell 0.8%, to 2800.71, and the Nasdaq Composite declined 0.6%, to 7642.67—doesn’t suggest much has changed.  Except everything has.  On Friday, the yield curve inverted…that means that long-term Treasury yields—in this case, on the 10-year note—are now lower than both three-month and one-year yields. Usually it’s the other way around, and such an “inversion” has been a reliable indicator of a looming recession and the end of a bull market.”
  • “…The yield curve, however, isn’t a great market-timing device. Recessions usually begin six to 18 months after an inversion, and the stock market can continue to rally well after the yield curve starts flashing red. The 3s-10s curve, as it is known, inverted on July 17, 2006, yet the market continued to rally for nearly 15 months before topping out on Oct. 9, 2007. The S&P 500 index returned 29% during that period.  And one day doesn’t mean much by itself. Yes, the yield curve turned negative this past Friday, but it would have to do so for a lot more than one day to be a true recession indicator…”
  • “…Yes, an inverted curve is a recession signal, but other indicators are still indicating growth, says Ed Yardeni, chief investment strategist at Yardeni Research. The Conference Board Leading Economic Index—a measure of 10 indicators, including the yield curve—rose during February, according to this past Thursday’s release, though the pace was slower than it was six months ago. The difference between the yields on corporate bonds and Treasury yields, though wider after Friday’s market rout, are still nowhere near worrisome levels, Yardeni says. “It’s a freak-out going on in the market right now due to the inversion of the yield curve,” he says. “But I’m not freaking out.”

Bloomberg Businessweek – March 21, 2019 – Warren Buffett Hates it.  AOC is for it.  A Beginner’s Guide to Modern Monetary Theory – Peter Coy, Katia Dmitrieva, and Matthew Boesler

  •  “…Modern Monetary Theory…suddenly matters. In the U.S., the left wing of the Democratic Party is citing MMT to make the case for massive federal government spending on a Green New Deal to wean the U.S. off fossil fuels and fund Medicare for All. It’s virtually certain that MMT will be dragged into the debates of the 2020 presidential race. So the time is right for a semi-deep dive into Modern Monetary Theory—what it is, where it comes from, its pros and its cons.”
  • “…A good place to start is with a simple description that you can carry in your pocket: MMT proposes that a country with its own currency, such as the U.S., doesn’t have to worry about accumulating too much debt because it can always print more money to pay interest. So the only constraint on spending is inflation, which can break out if the public and private sectors spend too much at the same time. As long as there are enough workers and equipment to meet growing demand without igniting inflation, the government can spend what it needs to maintain employment and achieve goals such as halting climate change.”

U.S. Global Investors - Investor Alert – March 22, 2019 – Frank Holmes

  • “…The yield on the 10-year Treasury fell to a more-than-one-year low this week on a dovish Federal Reserve. Fed Chair Jerome Powell indicated that interest rates were likely to stay unchanged throughout 2019 as officials assess the impact of a potential global economic slowdown. “Just as strong global growth was a tailwind,” Powell said, “weaker global growth can be a headwind to our economy.”
  • “…Markets also appear to be coming to terms with the realization that tariffs could be the norm for a lot longer than anticipated. This week President Donald Trump said that the U.S. would keep trade barriers on China-made imports in place for a “substantial period of time”—even after a deal is eventually reached.  The U.S. currently has tariffs on approximately $265 billion worth of Chinese goods. This resulted in an eye-opening $2.7 billion tax increase on American businesses in November 2018 alone, according to Census Bureau data. Companies, as you might expect, have largely passed these extra costs on to consumers…some familiar with the matter are concerned that China is pushing back against American demands. China may prefer to keep rebuffing President Trump, knowing he desperately needs a deal going into elections.”

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