Beyond all the twists, turns, and quirks in the economic data reports, the overall picture appears largely the same. Growth remains on a moderate track, somewhat beyond a long-term sustainable rate (as the job market continues to tighten).
I first became aware of Frederick “Shad” Rowe, captain of Dallas-based Greenbrier Partners, by reading his brilliant comments in Forbes magazine decades ago. While Shade no longer writes for Forbes, his stock market insights are available via his monthly letter to the clients in his investment partnership.
Shakes off bad news and listens to good news! That’s how the past two weeks have been since the “melt up” began.
As expected, hurricanes Harvey and Irma had a significant impact on the nonfarm payroll data. However, it’s impossible to say exactly how much. The distorted September payroll figures were never going to be a factor in the Fed policy outlook. There will be two more employment reports before the mid-December policy meeting and we can expect a recovery from hurricane effects.
We recalled these sage words from GMO’s (Grantham, Mayo & Van Otterloo) Jeremy Grantham as we watched the end of the quarter performance gaming and portfolio restructuring late last week. His comments are particularly cogent now that we have entered the month of October, since many money management firms close their fiscal year “books” at the end of this month.
Investors don’t pay much attention to the monthly report in personal income and spending. We already have a good handle on income from the employment report. Unit auto sales and the retail sales data tell us a lot about consumer spending.
As expected, the Federal Open Market Committee left the federal funds target range unchanged (at 1.00-1.25%) after its September 19-20 policy meeting. The FOMC also announced the beginning of balance sheet reduction. The Fed had outlined how this would work in mid-June, and officials did a good job of telegraphing when it would start.
“Managing risk,” what a novel concept, but regrettably many investors fail to do just that. My father taught me to manage risk, a trait emphasized in the sentinel book by Benjamin Graham, The Intelligent Investor, which Warren Buffett has deemed, “The best book ever written on investing” and where the aforementioned quote resides.
Reflecting on the months of travel as we wing our way back to Tampa at 38,000 feet, one of the more interesting encounters in those travels was spending time with Steve Forbes (Forbes Magazine). Although Steve is a staunch Republican, he suggested that Republicans worship at the altar of the CBO (Congressional Budget Office).
In her post-FOMC press conference, Federal Reserve Chair Janet Yellen is expected to provide a concise evaluation of the current economic situation. That includes a discussion about the recent trend in low inflation and the economic impact of hurricanes Harvey and Irma. She is not expected to signal what the Fed will do with short-term interest rates in the months ahead.