“Kee” Points with Jim Kee, Ph.D.


  • Quick US Outlook
  • Investor Traps in 2018
  • Global Take
  • China


Quick US Outlook

2018 US outlook: Just to reiterate, I think the most interesting thing going forward for the US economy is the fact that you have tax cuts being implemented in an environment characterized by a decided shift in the regulatory tone (less rather than more). That should be good for growth. Since markets tend to be forward-looking, I think a lot of that has been priced-in, and I don’t really think anybody can get more precise than that. Interest rates are expected to rise gradually, mostly due to stronger growth and more fed rate hikes. Brent crude has risen to $67 per barrel, and I see interest rates and oil as having a common characteristic: they have a range that is considered “normal,” and a floor below which is (I call it) “uncertainty inducing.” I’d ball-park below $40 per barrel for oil and a 10-year treasury yield below 2% as the minimum of the normal range for oil and interest rates (the current 10-year treasury yield is 2.46%). The outlook for both of these in 2018 is above their “uncertainty-inducing” levels.


Investor Traps in 2018

2018 caveat: It has been a record 23 months since the last pull-back in US stocks, meaning a decline of 5% or more. And we’ve had 14 consecutive positive months in a row. That’s a concern, not because a downturn is eminent--you should expect the market to go up and down--but because what is considered a normal pullback is likely to feel more severe than it actually is compared to a normal pullback in a more placid market. That was a key point of a recent Wall Street Journal article by writer Jason Zweig. Investor panic, or overreaction, can in-turn lead investors right into the welcoming arms of product-pushers. That’s particularly true when stocks and bonds look pretty fully-valued. Product pushers tend to promise things that don’t really exist, like all of the market’s upside but protected downside; or they hype alternative types of investments (i.e. not stocks or bonds) with limited audited (or auditable) track records. On the bond or fixed-income side, product pushers allude to higher yields or income without higher risks, another thing that doesn’t really exist. So, I think one of the biggest risks to investors for 2018 won’t be markets, which again go up and down, but dubious strategies created to capitalize on investors’ reactions to markets. 


Global Take

2018 global: Outgoing Fed Chair Janet Yellen talked about the good current performance of the US economy, “not based upon, for example, an unsustainable buildup of debt.” She talked similarly of the global economy, describing the world as being in a “synchronized expansion,” a term which the press has proceeded to kind of drive into the ground. But that is what the data are showing. You can see it in the bottoming and upturn in global commodity prices (including oil), which has helped many of the commodity-based emerging markets. The last time the “big 4” (Europe, US, China, Japan) were hitting on all cylinders was in the 2000s, but the current global expansion is less robust than it was then, and it seems a little more sustainable. Growth for Japan (Bloomberg consensus) is expected to be positive but a bit below last year’s 1.7%. The growth rate for the EU (European Union) is expected to be in the 2%-2.5% range, while growth in the US is expected to be in the 2.5%-3% range.


China

China continues to slow, though official numbers still report GDP growth around 6.8%. At the same time, different regions in China (e.g. Inner Mongolia) continue to confess that they have fabricated economic data(!). Research outfit Gavekal points out that China is engaged in “three key battles,” which are (1) reducing financial risk/debt, (2) reducing poverty and unemployment, 3) reducing pollution. And they continue to want to focus more on the quality of growth (domestic consumption) rather than the quantity of growth (heavy industry/construction and exports). I like thinking of China in old and new economy terms, with the best investments in the newer, consumer/tech sectors.