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The Best of What They Said and I Read Week Ending 8/18/2019

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 – August 16, 2019 – “Stocks Swing Wildly as Yield Curve Flips.   Is There a Recession Out There?   Ben Levisohn

  •  “The Dow Jones Industrial Average dropped 401.43 points, or 1.5%, 25,886.01 this past week, while the S&P 500 fell 1% to 2888.68, and the Nasdaq Composite declined 0.8% to 7895.99. All three indexes fell for the third consecutive week…those moves, as large as they are, don’t begin to reflect how wild the market’s swings were. The S&P 500 has had intraday moves of 1% for 12 consecutive days through Thursday, the longest such streak since the 25 trading days that began on Dec. 5 and ran through Jan. 10…”

  • “These types of streaks are rarely a sign of a happy market. This past week, the worry was all about tumbling bond yields. The 10-year Treasury yield traded as low as 1.47% on Thursday, its lowest since 2016, while the 30-year yield dropped below 2% for the first time ever. What’s more, the yield on the 10-year briefly fell below that of the two-year, a yield-curve inversion that has historically presaged a recession by six to 18 months or so. (The yield on the 10-year Treasury fell below the three-month earlier this year.)”

  • “…The Fed is in a precarious position,” says Lori Heinel, deputy global chief investment officer at State Street Global Advisors. “If they cut too aggressively, they play into the idea that it’s worse out there than it actually is.”  And that’s the problem: It’s hard to tell just how bad it actually is out there. The economy is obviously slowing, but not necessarily heading for recession. That means it is time for caution, not panic.”

The Kiplinger Letter – August 16, 2019  

  • “…The U.S. economy has developed a split personality. Manufacturing is hurting because of the intensifying U.S.-China trade war. Factory output has fallen in five of the past seven months and figures to keep suffering for the foreseeable future. Consumers, meanwhile, feel fairly good. Consumer spending jumped in July, driven in part by Amazon Prime Day, which has led other e-retailers to offer discounts. Consumer spending makes up most of U.S. GDP. But manufacturing matters, too. It has long served as a bellwether for the broader economy. If it contracts enough to bump up the jobless rate, consumers may grow more cautious in their spending”.

  • “Expect two more quarter-point interest rate cuts by the Federal Reserve later this year. The Fed is concerned about the damage to the economy from deepening trade tensions and wants to provide a buffer if the situation worsens. The likely timing of the cuts: At the Fed’s Sept. 18 and Oct. 30 policy meetings. That means a dip in lending costs for businesses. The Fed’s likely moves will take the bank prime lending rate to 4.75% by year-end, making loans cheaper.  Rates on consumer lending, such as auto loans, won’t decline much, though. The president wants a bigger move by the Fed. But that’s unlikely to happen.  The central bank will want to save some room to cut when an actual recession hits.  Two quarter-point drops this autumn would let the Fed cut six more times if needed before hitting 0% and having to consider the negative rates Europe’s central bank uses.” 

U.S. Global Investors - Investor Alert – August 16, 2019 – Frank Holmes 

  •  “…More than a year after the start of the U.S.-China trade war, we’re starting to see consumer prices increase. Tariffs are like taxes. Core inflation, which excludes food and energy, rose to a six-month high of 2.2 percent year-over-year in July.This data becomes more tangible when you look at changes in price at specific stores. According to Gordon Haskett Research Advisers, a trip to Walmart or Target in June was nearly 5 percent more expensive than it was a year ago.”

  •  “…The U.S. fiscal deficit has already exceeded the full-year figure for last year, writes Bloomberg, as spending growth outpaces revenue. The gap grew to $866.8 billion in the first 10 months of the fiscal year, up 27 percent from the same period a year earlier, the Treasury Department said. That’s wider than last fiscal year’s shortfall of $779 billion — which was the largest federal deficit since 2012, the article continues.”

  • “…According to a Gallup poll in Russia, 20 percent of the population wants to leave the country. The figure is even higher among younger populations. In the 15 to 29 year old group, 44 percent indicated that they would like to migrate. President Vladimir Putin came to power 20 years ago, but his popularity is declining, as people are demanding reforms that would improve their quality of life. The population is also demanding more democracy. Protests on streets of Moscow are growing, as local elections are approaching and Moscow authorities refuse to register opposition candidates.”

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