Saturday, February 18, 2017

MAD Economic Review - President's Day Edition

Many of us have a nice long weekend ahead of us as we celebrate what is actually still considered Washington's Birthday on Monday.  Despite his real birthday falling on the 22nd, it was decided in 1968 to move a lot of national holidays to Monday to encourage more 3 days weekends for the nation's workers.  Nevertheless let's not forget to honor our nations greatest general, and first President that humbly served 2 terms despite widespread clamor for him to run a 3rd time.

While we are at it do take advantage to shop sales at retailers. Of course regular readers will do this in a smart way.  I'm sure no one will be out buying new cars, and will use any savings to invest for the future. Just remember only buy items you ACTUALLY NEED!  For example if you've been in extreme need of a new quality set of cookware and you see nice sets are marked down 25% then by all means purchase them.  Just don't use any sale to buy a portable speaker for your phone, drones, any wearable tech, or other things that just aren't essential right now.  You are of course trying to save for your future early retirement, child's college education, or trying to pay off the house early.  All of which will make you much happier and stress free.

The markets decided to add another week of gains to the start of 2017.  As a matter of fact the Nasdaq added 1.8% for the week while the S&P 500 added 1.5%.  According to recent data from Factset the S&P 500 has a TTM P/E ratio of 21.5 which is above it's 10 year average of 16.1.  The only problem with this data is it's backwards looking. Markets are always looking to the future. 

Of course it can be a useful tool, and yeah maybe it makes the markets look a bit expensive right now.  If you are waiting for a pullback to add just don't expect it to be a big one.  Plenty of people are waiting on the sidelines to add, at least people like me.  Yes it's tough to initiate new positions after a rally like this.
Visit to see more great charts.

Janet Yellen testified before Congress for her semi-annual testimony. According to her answers it appears the Fed's outlook on the economy didn't even factor in any of the fiscal stimulus we will see from the new Presidency.  So it then seems we can expect a rate hike or two more from the Fed over the next year or two than we originally thought if economic growth picks up even more steam.

That in turn will mean the dollar should continue to strengthen.  King Dollar is just on the right side of the equation right now.  The Euro is still playing with negative interest rates. British Sterling is being used a the relief valve for Brexit. China is dealing with huge capital outflows right now as they try to control the Yuan's descent. And Japan can't seem to get a handle on the situation out there either.  All pointing to the last currency standing - The Dollar.

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On top of all this we did see a CPI number this week that showed 2.5% growth from last year. That's been the strongest growth we've seen in nearly 5 YEARS!!!

Don't be fooled that rising rates will result in a falling market.  It's been shown that's not always the historical correlation and I'll try to post about that this week.  Sure rising interest rates will make debt products more attractive compared to equities. But at what level will see them competing equally for investors dollars?  I just don't think we are quite there yet. 

Other data was mixed overall.  Construction and Industrial numbers came in under expectations, but Retail Sales came in above expectations.  Overall nothing is showing major weakness which is a good thing.  On top of all this we still haven't heard the details on Trumps tax plan.  Any reform is badly needed for business in this country.  The tax code is extremely complex, and despite the fact it employs plenty of high paying accounting and attorney jobs it actually makes our economy less efficient over the long run as vital resources are diverted. 

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