I hope this note finds you doing well.
The key takeaways on a brief note:
1. Q3 Earnings* growth has slowed materially;
2. Interest rates have continued to fall;
3. Real estate, utilities, and Gold continue to perform;
4. The stock market is absolutely dependent on the Federal Reserve; and
5. 5000 Years is a long time.
There is an absolute incessant focus on the actions of the Fed to cut short term interest rates.
With stocks near-all time highs, solid employment, and benign inflation this "Trump demand" is merely to prop up asset prices.
Drug metaphor warning - we are hooked on cheap money, not unlike heroin, cocaine, or methamphetamine.
The focus on the short-term results and political outcome is frightening, but our new reality.
Since my original draft on Monday PM we now have this tweet from President Trump:
Interest rates serve an incredibly important function - setting a cost of capital. All capital decisions are dependent on natural hurdle rates to justify and fund their pursuit, project future asset/liability matching, pension funding etc. etc.
The long-term implications of lower rates are defined; it destroys banking, insurance, and financing that is dependent on spread and duration based lending/investing/funding etc. See Japan since the late 1980's.
Trending back towards the 0% bound on rates merely encourages debt fueled speculation and diminishes our currency's purchasing power.
Governments have NEVER been good long-term stewards of fiat (paper) currency. The U.S. Dollar has lost 95% of its purchasing power value since the creation of the Fed. But we feel richer they say!
We are in new waters and will protect, then grow, your capital accordingly.
Have a great day.
*earnings used to matter to stock investors