News for the Week of March 13 – March 17, 2017
by David Abuaf, CFA
Investment Manager, RJFS
Government / Political / non-Economic
- The Congressional Budget Office said the Republican plan to replace the ACA would leave 24m people uninsured
- Further analysis indicates that it will hurt poor and older people the worst
- What’s truly key to understand about this is that the ACA was a healthcare LAW, what the GOP is proposing is a budget, something that requires a different set of rules to pass!
- Scotland’s chief minister said she plans to seek a second referendum on independence within two years. This is so that Scotland can stay part of the EU. The first referendum was to determine whether to stay part of Britain, prior to the British referendum on the EU
- The administration is weighing tougher penalties on Chinese firms amid evidence they aided North Korea’s weapons programs
- A federal judge in Hawaii issued a nationwide temporary restraining order blocking Trumps revised travel ban hours before it was set to go into effect
- The DoJ announced Russian spies were behind Yahoo’s massive 2014 security breach as it announced indictments
- Trump’s budget will call for deep cuts to foreign aid, the arts, the EPA and public broadcasting, while boosting military spending. What I’m most curious about is the next administration’s budget emphasis on those very groups
General Markets / Economic
- Raphael Bostic was named head of the Atlanta Fed, the first African-American to lead one of the 12 regional banks
- Credit reporting firms plan to remove tax lien and civil judgement data from consumers’ reports
- Surprising nobody, the Fed raised rates by a quarter point and said it would keep lifting them this year, citing confidence in the US economy
- Auto executives say they can adapt to taxes or other import curbs, even as industry advocates insist such moves would dent results
- The WSJ is reporting that optimism is giving way to impatience among heavy-equipment firms hoping to benefit from an anticipated infrastructure boom
- Intel is paying $15.3B for Israeli car-camera firm Mobileye, in one of the chip maker’s biggest deals and Silicon Valley’s latest bet on self-driving cars. Mobileye is important because it’s their camera that is used in almost every car’s “reverse” function – so you can see what’s behind you
- Neiman Marcus is in talks to sell itself to Saks parent Hudson’s Bay, as the chain struggles with shifts in retail
- Gold Ridge Elementary School in Folsom California has banned tag; “My principal, he doesn’t’ want us to have tag at school because people, they touch too hard, sometimes they push people over and my principal doesn’t want anyone getting hurt.” says a school child.
- A vexing issue for vexillologists indeed. For 27 years Chad has been complaining that Bucharest ripped off its flag – and Bucharest isn’t sorry at all! Romanians say “why should we care, Chad is too far away”. Ah, this reminds me of the Ostrich – what you can’t see won’t hurt you
- This is what my daughter has to look forward to. A substitute teacher was arrested for drinking boxed wine and vomiting during class. I don’t know what’s worse, the wine or the fact that it was box wine.
Commentary for the Week of March 13 – March 17, 2017
by David Abuaf, CFA
Investment Manager, RJFS
Chart from Barrons
Well, that was an uninspired Federal Reserve interest-rate hike; instead of causing the markets to tumble, it fueled their rise. The S&P 500 posted its seventh weekly gain during the past eight weeks! In fact, the Fed did nothing to cloud the long-term outlook.
Heading into the meeting, the market was not only expecting a rate hike, but also dreading the possibility that the Fed would plan to do more to slow the US economy, especially given the recent rise in inflation. So, when Yellen and her cohorts left their forecast for future rate hikes unchanged, investors took it as their cue to start buying stocks and start selling dollars. “The worry, of course, was that the Fed was willing to slow economic growth to avert potential inflation fears,” says Dennis DeBusschere at Evercore ISI.
In fact, the opposite appears to be true. While everyone was focused on the Fed, February’s inflation data was released. The CPI rose 2.7% last month, so even real rates remained firmly in negative territory – real rates are nominal interest rates, what you see quoted in the paper, minus inflation (so 1%-2.7% is negative); we don’t often talk about real versus nominal here, but over the near and mid-term nominal rates are most important, while over the longer term real rates are the most important figure regarding economic growth and sustainability. With the 30-year bond yields falling on the Fed news (so did 10 year rates), “monetary conditions are loosening, not tightening, which is good news for risk appetite,” says Sean Darby of Jeffries.
All opinions presented are those of David Abuaf, and not of Raymond James or Forman Investment Services.
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