Laureate Wealth Management

This commentary is going to be somewhat different than others I have written in the past. I am going to talk about politics. Never really done that before. But I am concerned about the state of the world --- and about some shifting political trends that seem to be sweeping the globe. Perhaps it only seems more important to discuss this now because we are in the middle of a presidential election cycle.

The stock market has now climbed back to break-even for the year. This after a roughly 10% decline thru mid-February (as measured by the Dow Jones or S&P 500). Will the rally continue? My suspicion is yes --- in the near term. But the more important (and more interesting) question might be --- why? In this commentary, I will attempt to answer that question. By way of background, I’d like to start with a re-print of some thoughts I have shared in a prior commentary. But first a brief hint to the eventual answer: it has everything to do with the monetary policies of the most important central

The S&P 500 is down roughly 9% on the year currently. I thought it might be helpful to briefly review some of the causes for such a poor start to 2016.

The U.S. Bureau of Labor and Statistics released a fairly horrible payroll report early this past Friday morning. The methodology for collecting this data is an iterative process, which means that prior month estimates are continually being revised as more data is collected. Accordingly, Friday’s report contained the first full month estimate of September’s payroll data along with updated revisions for prior months.

What is causing the market to drop so significantly? The answer in one word: China.

The Federal Reserve decided to delay the beginning of the end of quantitative easing (QE). The markets were very surprised by this as nearly all Fed watchers were expecting at least a small reduction in QE. In explaining its course of action, the Fed cited economic conditions that are currently too weak and/or fragile to begin removing QE. Ironically, the bond and stock markets rallied on this news.

It appears that the Un-Addiction process has begun. This marks a significant shift for the world of investments. Volatility is on the rise. Interest rates are rising / normalizing. In such a fragile economy, it seems prudent to consider that the risks of economic recession are somewhat higher, even if they are still not the base case. As always, please feel free to contact me with any thoughts or questions.

I would like to focus this commentary on three trends which I believe will have a larger positive impact on the US economy going forward than the broader investment community expects.

Did you ever try to navigate the "House of Mirrors" as a kid at your local carnival? You know the one I mean ---- where you walk through a labyrinth of mirrors designed to confuse your orientation while mocking you with various distortions of your body? If you were particularly skilled, you could use the mirror to your own advantage. What a compelling metaphor for the current state of the financial markets.