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The New York Federal Reserve now sees a risk of recession at 33% in the next twelve months. When this indicator rises above 30%, a recession typically follows, although sometimes with a delay of 12-24 months.

The global economy is slowing nearly everywhere, but the U.S. is perceived by many as being in great shape, particularly if measured by the stock market. However, signs of a slowdown are looming in housing, construction, automobiles, and the industrial sector, in the latter case due to trade tensions between the U.S. and China. Purchasing manager Indicators are slowing, both in services and manufacturing, and the rest of the world is cause for concern, with Chinese, South Korean, Japanese, and Europe all slowing. The industrial side ...

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The first quarter of 2019 was the best for stock prices since 1998, to such an extent that some caution may be advised in the short term. While the stock market has been climbing, Wall Street analysts have been lowering earnings estimates for the first quarter. In fact median EPS estimates have fallen by 7.2%, which are some of the largest cuts to S&P 500 earnings estimates in years. This is a source of concern.

It’s often a good exercise to be mindful of “the dark side”, even when the market is rising. Fully 1/4 of all the Russell 3000 index, which represents 98% of all US stocks, operate at a loss. Last year, 83% of all IPOs came to the market with negative earnings. Real GDP growth in the US was 4.2% in Q2 18, 3.4% in...

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2019 is likely to be volatile, but it is unlikely that the U.S. falls into recession. The one thing that could change that is if the partial U.S. government shutdown lasts long enough.

The shutdown is becoming more expensive than the very reason for the shutdown. The U.S. President signed legislation this week promising back pay for Federal workers when the shutdown ends. The problem is that the American taxpayer will then be paying for services which never took place at a rate of $200 million per day, or around $5 billion so far, which equates to the price of the border wall. Economists estimate the partial government shutdown is costing 0.1% of GDP growth to the U.S. every two weeks. We are entering in the fifth week, which will amount ...

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By most measures, there is great strength in the economy at the moment, due in part to government stimulus measures, of tax cuts and increased government spending. The U.S. GDP grew at 3.2% in the first half of 2018. U.S. corporates earned record high profits in the first two quarters of 2018. For the third quarter, total earnings of S&P 500 companies are likely to be up by 17.8% on 7.1% higher revenues.

The unemployment rate has dropped to 3.7 percent, the lowest rate since December 1969, and it is likely to fall even further. For close to two-thirds of the US population, this is the lowest unemployment rate in their lifetime.Leading indicators, manufacturing indices, CEO confidence, and consumer confidence are all indicating that the U....

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In the first quarter of 2018, we have begun to see what happens when the liquidity that has driven markets for the past ten years begins to dry up.The Fed is raising interest rates while shrinking its balance sheet. The “Paul Ryan” tax cut has created a $1.3 trillion hole in the government’s finances, which means that $1 trillion or more of Treasury debt will be issued this year, and in coming years, twice the normal amount.The unpredictable announcements made by the U.S. president concerning tariffs have raised concerns over a tit-for-tat trade war with our major economic partners. Wall Street recognizes that tariffs tend to be damaging to the economy, just as they were when imposed in 1934. While it may be true that C...

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The stock market had a strong 2017, supported by strong corporate earnings, healthy economic growth, and the prospect of US tax cuts.
The tax reform passed in December has brought an already overbought stock market to nosebleed valuations. Under the new tax law, corporate tax rates have just fallen from 35 percent to 21 percent,
and foreign cash can be repatriated at a 15.5% rate. This is unquestionably good for stocks as these tax cuts go directly to the bottom line of businesses. The question is, to what extent is the tax reform already built into the market?

On a cyclically adjusted basis, the price per share of stocks relative to average earnings from the previous 10 years is at its highest level of the past century, other than during t...

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Looking ahead to the fourth quarter, we can focus on three things which will impact the financial markets: the Trump tax plan, corporate earnings, and the Federal Reserve.


Trump’s administration has undergone huge turnover in its first nine months, including his first national-security adviser, the deputy national-security adviser, his original chief of staff, a press secretary, two communications directors, his chief strategist, the director of the FBI, the acting head of the Justice Department., and the head of the Department of Health and Human Services.

These are only the highest level impediments to Trump’s credibility, but the list is long as the reader may be aware. The relevance to investors, among other things, is whet...

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Midway through 2017, the optimism that fueled the stock market higher after the Trump election has not yet materialized into better economic data. So far the economy is growing at an anemic 2% as it did during the Obama presidency. Job growth, investment spending growth, consumer spending growth are slower in the first six months of this year relative to 2016. Even the Federal Reserve officials have begun warning that the stock market is overvalued. The Fed has notably shifted from a dovish stance to a more hawkish one over the past month. signaling higher rates, which represent a tightening of financial conditions.

• In the words of Vice Chairman Stanley Fischer in June 28th: "P/E ratios are near the top of historical levels&hellip...

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The United States government is facing a fiscal cliff on April 28. The most recent government spending law, which was negotiated between John Boehner and Barack Obama in October of 2015, expired on March 15 of this year. Since 1960, Congress has acted on 78 different occasions to either raise or extend the debt limit, or to change its definition. In the next four weeks they must do so again or risk default. In 2011, lawmakers failed to do so on time, which resulted in S&P downgrading the US government's credit rating for the first time in history.


The reason why this issue has importance now is because of the unusual levels of contentiousness within the Congress. In order to raise the debt ceiling limit, Republican lawmakers need Democratic votes, which are unlikely unless there are considerable concessions towards the abandonment of the Trump border wall and the abandonment of the defunding of Planned Parenthood.


In what amounted to a tumultuous first 100 days in office, the Trump administration now faces the increasingly difficult prospect of pushing through a controversial agenda. The refusal by the GOP to pass a repeal of Obamacare after eight years of criticizing it, has Wall Street questioning whether the policy initiatives that caused the Trump rally will actually take place. One well-known Wall Street firm reacted with this title in a recent research piece: "Icarus, then Humpty Dumpty", demonstrating that investors are now increasingly concerned the tax cuts and infrastructure spending are looking unlikely. After initially rallying after the election, companies with the highest tax rates are now lagging the S&P, while US stocks have traded only in line with the rest of the world, and behind European stocks. There are now doubts around the scope and timing of the Trump tax plan, and we are less likely to see comprehensive tax reform and more likely to see only a few small face-saving tax cuts.


This too is important. The post-election rally was primarily based upon the belief that the Trump administration could deliver corporate tax cuts, bringing the corporate tax rate from 35% to 20%. Trump’s overall tax plan would have come with a price tag of $12 trillion over the next 10 years, according to the conservative research group The Tax Foundation. In order to fund these tax cuts, the Trump administration proposed border tax of 20% to be imposed on all foreign goods. This tariff is widely opposed by Republican senators, business leaders, and consumers, who would face an immediate increase in the price of any imported good or domestic good using foreign raw materials in its manufacture.
Without a mechanism to pay for grandiose tax cuts, they will not take place. Senate Majority Leader Mitch McConnell recently expressed skepticism over whether tax reform could take place before the August congressional recess. This is perhaps because the US tax code is nearly 75,000 pages long, and changing it "comprehensively" is unlikely in the next 120 days. Beyond that we are into fiscal 2018. At the time of this writing there is no clear White House tax plan, and there is not enough staff to even address it comprehensively.

The US dollar which rallied in the six weeks after the election has now given up half of its gains, while the Mexican peso has regained all of its losses in the same period.
As for infrastructure spending, it remains to be seen if a fiscally conservative Senate will allow it. One question that investors might ask themselves is whether or not the Republican Party actually supports President Trump off-camera.


The Federal Reserve hiked short-term interest rates on March 15 for the third time since the financial crisis, signaling two or three more hikes this year. The real test of the economy will be determined by whether the US can withstand positive "real" (after inflation) rates. Recall that on an inflation-adjusted basis, interest rates are still negative. The US central bank is finally ending its nine year period of stimulus after the 2008 financial crisis, although there are few signs of any pickup in economic growth in the first quarter.


By any number of measures, the stock market remains very expensive. The CAPE ratio, which represents inflation-adjusted stock prices divided by a 10 year average of stock earnings, is nearly twice its historical average of 15 and three standard deviations from its average. Put in a historical context, the CAPE index is at its 96th percentile of expensiveness, beyond where it stood in 2007. We can compare this number to 1929 peak valuation levels, when the stock market hit the 97th percentile of all time expensiveness.


The price to sales ratio of the S&P 500 has bypassed two standard deviations from the mean, and is approaching levels similar to the technology crash in 2001. Another red flag for investors is the ratio of corporate debt as a percentage of GDP, which is now at pre-recession highs.

For the first quarter of 2017, the S&P 500 was up 5.5%, the Dow was up 4.5%, and the Nasdaq was up 9.8%.

Grant Rogers

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