Feb 272017

Since 2009, the stock market has had quite a run! Per the chart in today’s Wall Street Journal, the value has more than doubled since the recession low.

WSJ 2-27-2017

The question of course is whether it has gone too far too fast!

Has it just caught up to where it would have been if it had not lost so much value back in 2008? If so, it may be reasonable to expect continued good news.

The alternative is that it has  once again gotten ahead of itself and is to expensive – setting us up for another decline of whatever magnitude.

Obviously I don’t know for sure. For the most part, other than its longevity and height, it doesn’t seem like it is too far ahead of itself.

The key to extending its positive performance will be increasing productivity and corporate profitability. The answer to this will not only be up to the companies themselves, but the Trump administration’s policy initiatives. It appears that some of these are likely to be positive for business while others may turn out to be not  so beneficial.

Bottomline, I’m not particularly concerned about the future for the overall stock market. On the other hand, I may not be overly optimistic that its performance for the next seven years will be an exact duplicate of recent history. Therefore it is probably reasonable to be at least modestly skeptical, but no particular reason to be overtly pessimistic.

What will the Fed do next?

 Investing, Wealth Management  Comments Off on What will the Fed do next?
Feb 032017

This is an interesting chart. It is supposed to highlight the situation the Federal Reserve is now in with regard to the size of its balance sheet and the what it might do next – raise short-term rates or reduce the size of its balance sheet.

Obviously its holdings are very large, but I was somewhat surprised to see how large it was in the 1930’s and 1940’s. It’s clearly larger in nominal terms. But relative to the size of the economy or adjusted for inflation it has to be significantly smaller.

It is also somewhat surprising to realize that it has been nearly 10 years since the yield on the 10 year US Treasury note was above 5%. Clearly the move over the last several months from 1.5% to 2.5% is quite significant on a relative basis but on a nominal basis – it is still quite low historically.

What will the Fed do? Good Question!

For the last couple of years, its been suggested that rates will start to move up. Obviously that didn’t happen, but I would suggest this might be the year we see high short-term interest rates.

On the other hand, maybe they will work on their balance sheet. This could have a bigger impact on longer term rates than short-term rates.

Either or both of these actions would not surprise me. The real question relates to magnitude, to which I will plead ignorance.