Why Inflation Has Stayed So Low

Globalization, demographics, technology have helped to keep inflation low

Key takeaways:

  • Globalization, demographics, technology have been helping to keep a lid on inflation.
  • Continued low inflation could be a headwind for the performance of Treasury Inflation-Protected Securities (TIPS).
  • Low inflation helps to justify above-average valuations for stocks.

In the wake of the financial crisis, the Federal Reserve kept rates low, waiting for unemployment to fall and inflation to rise to the Central Bank’s long-term target.  Several years ago, the unemployment rate passed the Fed’s target, but despite some [Click To Continue]

Personal Financial Vault

Today’s fasted pace world can make it difficult to keep track of all your financial information.  You might want to know your current mortgage balance and when it will be paid off.  Or your Net Worth and what retirement cash flows it is projected to generate.  There are many important questions I help wealth builders answer with today’s leading technology and our advanced wealth strategies.

Clearing a Path for Tax Reform – Brian Wesbury, First Trust

In the article linked below, Brian Wesbury – Chief Economist at First Trust, explains how U.S. tax policy over the last several decades has move from an environment where cutting taxes makes new spending difficult to a situation where government spending is so high tax cuts are hard to pass.

From a macro perspective, President Trump’s plan seems to do much of what Democrats have asked for by shifting a larger portion of the tax burden on individual high-earners while just about everyone in the bottom 60% gets a tax cut.  This is hardly an ideal supply side tax cut.  Republicans on the other hand, have lost their way.  Even with a majority in the house and senate, republicans have shown little enthusiasm for helping President Trump with his agenda.

This is a unique time in our history where a confluence of events have come together unexpectedly and produced an accelerating economic environment.  I believe tax reform could be another factor potentially leading us to the strongest economy so far in the 21st century.

Wesbury_Clearing a Path for Tax Reform

Digital Currency & Blockchain Technology

NO RECOMMENDATIONS ARE BEING MADE IN THIS VIDEO.  THE DIGITAL CURRENCY MARKETPLACE IS HIGHLY SPECULATIVE. YOU COULD LOSE YOUR ENTIRE INVESTMENT.

The Digital Currency Market has created quite a stir with some of the biggest names in the finance weighing in while the price of some Digital Currencies continues to rise.  The underlying Blockchain Technology of Digital Currencies is also being herald as a new exiting software development system.  In this short value I touch on both subjects including the two aspects of Digital Currency that help us understand its potential value.

North Korea Threat

There is no question the North Korea (NK) situation has deteriorated and could very well be headed to a conflict.  Outside of an offer of asylum for the Kim Jong Un regime there appear few options.  It is clear the current NK leadership is antagonistic and their arsenal now represents a clear and present danger.  President Trump has already demonstrated militarily he is not satisfied with appeasement in geopolitical negotiations.

When evaluating the potential impact on U.S. stocks it helps to look at these developments in context to the overall economy and stock market.  The economy continues a slow growth path with little threat of a rapidly rising interest rates, which combined represent a constructive environment for the stock market and helps explain its continued upward trend.  Corporate earnings are also healthy (Q2 earnings growth for the S&P 500 came in at 10.3% and projected earnings and revenue growth for Q3 are currently around 5%).  In addition, any positive developments on a Trump Tax Plan would most likely be viewed as bullish.  Taken as a whole, the market is going into this potential conflict in a positive environment.

The last time we experience a conflict like this was the Iraq ground war in March of 2003 (see chart below).  You may remember we were just coming out of a nasty recession and the market had started rallying as we moved into the new year.  2003 ended up being a strong year for the stock market.  Iraq did not represent a significant global economic component and the market was at the early stages of a recovery.

On the other hand, the 9-11 attack in 2001 hit the U.S. during a contraction in the economy and stock market after the dotcom bust (see chart below).  Because of the already weak state of economy and the direct hit to a global financial center, the implications were likely to be longer lasting and more severe.

Investors have to be very careful with defensive moves and a long-term perspective needs to be the dominant factor when making investment decisions.  Corrections are often short and markets can bounce back aggressively.  That being said, there are numerous periods historically where markets have not only sold off aggressively, they have done so over long period of time (multiple years).  Having a strategy in place for this type of environment will be helpful as you start to rely on your investment accounts for income.

The likelihood of a conflict with NK has increased significantly.  Kim Jong Un’s threats and acts are unacceptable and he seems unlikely to change his course.  NK economic impact globally is very limited and their military capabilities are antiquated.  I am not suggesting the possibility for significant damage resulting outside of NK doesn’t exist.  Each situation is different and the ICMB and nuclear capability of NK is a game changer, not to mention all their artillery on the DMZ aimed at Seoul.

The biggest issue now may be the U.S. having to calculate whether future ICBM “tests” are actually loaded with a nuke.  I won’t be surprised if we start shooting them down.

In summary, normally stocks have responded well to conflicts they believe will be resolved quickly and with little global economic impact when conditions are stable.  At present that appears how the market is responding to the NK situation.