February 22, 2018

Weekly Market Commentary
February 22, 2018

The Markets

I hope everyone is doing well. As a practice I have made some edits in some holdings due to the inflation information I am discussing below and in some cases there are cash reserves a bit higher than the past quarters. If you have any questions please feel to contact our office and we will set some time to have a one to one review.

Ever since the Federal Reserve began raising the Fed funds rate in 2015, analysts have been anticipating higher inflation. The fact that price increases remained relatively small was a perplexing mystery. Then, last week, inflation increased as expected.

As you might expect, the cost of some items rose faster than others. For example, energy costs rose by 3.0 percent, while the cost of food was up 0.2 percent. In total, during the last 12 months, the all-items index rose 2.1 percent.

Higher prices are one side of the inflation coin; the other side is higher interest rates. Inflation is one of the data points the Federal Reserve considers when determining how well the economy is performing. Rising inflation signals a robust economy. That may encourage the Fed to raise rates more aggressively during 2018 to prevent the economy from overheating.

Higher interest rates could become a boon for income-oriented investors. For years, persistently low rates have caused some investors to accept higher risk than they might have otherwise. As interest rates move higher, there may be opportunities to reduce portfolio risk and still generate attractive levels of income.

Despite inflation-inspired volatility mid-week, stock markets around the world moved higher. In the United States, major indices once again moved into positive territory for 2018.

RIDICULOUS? SILLY? STRANGE? SOME IDEAS MAY SEEM THAT WAY. Albert Einstein is famous for having said, “If at first the idea is not absurd, then there is no hope for it.” In recent weeks, Fast Company has reported on some “world-changing ideas,” including:

• Teaching happiness in school. The mandate of a school being built in India will be teaching children how to be happy. One of the co-founders said, “It’s our view that happiness – or emotional intelligence, or balance, or confidence, or self-esteem, or any other word for feeling good about ourselves and our place in the world – is the foundation on which great lives and great achievements are built.”

• Cancelling student debt. “Collectively, [Americans] owe nearly $1.4 trillion on outstanding student loan debt. Research shows that this level of debt hurts the U.S. economy in a variety of ways, holding back everything from small business formation to new home buying, and even marriage and reproduction,” according to a February report from the Levy Economics Institute at Bard College.

The research estimates if the U.S. government purchased and cancelled student loan debt the U.S. economy would increase real gross domestic product – the value of all goods and services produced – by $861 billion to $1,083 billion over 10 years. Also, the step could lead to the creation of more than a million new jobs every year.

• Revitalizing Haiti with blockchain. The details are still being hammered out, but the Blockchain Cotton Project hopes to use distributed digital ledgers (blockchain) to manage supply chains, making it easier and less expensive to source organic cotton. One member of the project said, “We’re still figuring out how the farmers do the live reporting. But we hope it will replace the normal organic or fair trade certification through a radical transparency approach.”

What do you think? Do they pass the absurdity test? Or are these ideas too tame?

Positive Focus
I have decided to continue to make this section of the commentary something positive or light hearted as I was doing last year. I hope you noticed and maybe it makes you think or smile at times. Perhaps both at the same time!!

“Lettin’ the cat outta the bag is a whole lot easier than puttin’ it back in” – Will Rogers

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