"Kee" Points with Jim Kee, Ph.D.

  • Quick Global Overview
  • Two Articles Worth Reading

Quick Global Overview

It looks like a little change in the language from Fed Chair Jerome Powell on the pace and target of Fed rate hikes, along with an agreement between President Trump and Chinese leader Xi Jinping, is all it took to put a little wind back in the sails of the stock market. This included global markets as well, and a bounce by the more interest-rate sensitive “bond surrogates” like utilities, REITs (Real Estate Investment Trusts), and even consumer staples. Clarity on global trade is needed, with continued slowing growth indicated in global measures, like preliminary data showing a slight contraction in Germany’s 3rd quarter GDP (Germany is Europe’s largest economy). Energy sensitive assets stayed pretty flat, which is understandable given lower oil prices over the past few months ($53 WTI, $62 Brent). Oil price forecasting is always tricky - on the demand side, most of the growth in oil demand has come from emerging markets, which have experienced slowing growth. On the supply-side, of course the increased U.S. production and the fractured OPEC environment have put downward pressure on prices as well. I am not sure it really makes sense to talk of OPEC as a coherent entity these days. However, crude has bounced recently with intentions of a supply cut agreement between Saudi Arabia, Russia, and Canada’s Alberta province (Bloomberg).

Two Articles Worth Reading

Two articles in this weekend’s Barron’sare really worth the read. The first, “Don’t Panic Over the Budget Deficits,” sounds a little like, “telling people what they want to hear.” It stressed how a few minor tweaks could improve the government’s fiscal outlook considerably. I would replace that with “major tweaks,” but I do agree with the non-doom-and-gloom thrust of the piece. If you are an aging boomer like me, you have heard all of your life how “Social Security and Medicare might not be around when you retire.” That’s silly. Some of the conditions will change (payouts, eligibility rules, etc.) but these programs are not going to disappear any time soon. Such all-or-nothing thinking dominates the internet stories but does not accurately depict reality. The other article of interest was an interview with University of Chicago economist Raguram Rajan, the former Governor of the Reserve Bank of India who stabilized the rupee, got inflation there under control, and tried to “clean up” the country’s banks (Barron’s). In my opinion, Rajan was one of the best things to happen to India, and his departure in mid-2016 was a big loss for that country. Rajan expressed concern over leverage (excess borrowing) in general, from China to U.S. corporations to the shale industry’s highly levered private equity transactions. He forecasted more stress in these areas going forward but no generalized contagion or full-fledged crisis. Rajan also expressed a concern for many entities that have stretched for yield (e.g. pensions and insurers), something we have intentionally avoided here at STMM. When asked what his biggest global concern was, he answered that it was the underpinnings of the various populist movements, because “when every country is angry, it doesn’t make for good international relations.” Well said!