March Madness As Powell Admits Error While Mueller Finishes Up!
First, Do No Harm. Hippocratic Oath
The medical profession is widely admired for trying, and usually succeeding, in helping people live healthier lives. All over the world, many medical schools teach curriculum that include, in some form, a piece of the Hippocratic Oath, the core of which is ‘Do No Harm.’ Jerome Powell, the head of the Federal Reserve Board, is a lawyer by training. As we all famously know, doctors and lawyers don’t always see eye to eye. In fact, in most cases, lawyers and doctors run into each other because lawyers are suing the doctors for something related to violating the core principle of, ta DA, the Hippocratic Oath. Mr. Powell, who morphed into an investment banker and private equity principal, joined the politicians at the Federal Reserve board and apparently didn’t quite have enough tutelage by the other members of the Reserve Board. I say this because last year, the Federal Reserve decided to begin the process of raising interest rates with no end in site, based on their press conferences and testimony in front of various committees of Congress, that bastion of nothingness we all know and love. Anyway, this week, like the good politicians they are, Mr. Powell and the Federal Reserve Board reversed course. Imagine that.
You see, Jerome and his fellow poo-bahs, told us this week that because of worries about slowing economies in Europe and China, the Federal Reserve will not be raising interest rates the rest of the year. Included in the statement was that the US economy is strong, but potential slowdown worries related to spending slumps in the December quarter are probably temporary. Consumer confidence is high, and consumption patterns appear as though they have resumed course in February. Mm mm-hmmm. Yesterday, Germany released their purchasing managers report and it missed its estimate quite badly (44 vs 48 expected). The UK is in the midst of its never ending saga of will it or won’t it Brexit. If it does Brexit, how will it Brexit and what will the Brexit terms be, and over what time frame? In conjunction with all this, the bond market all over the world sees nothing but gloom all over the world, as evidenced by billions of dollars of negative yielding fixed income instruments, especially in Japan and Europe. Here in the US, traders completely flipped out when that dreaded recession fore teller, the downward sloping yield curve (for bonds) made it’s appearance as short term yields surpassed the ten year duration. As a result of these developments, a relatively muted week ended up with a massacre as the equity market lost nearly 500 points. Lovely, just lovely. So where do we go from here, especially if you are a stock market investor?
There are many management and parenting books written which include the wisdom that in many cases, the best course of action is to do nothing. Zero. Nada. Zilch. Mr. Munger calls it the art of sitting on your fanny. In that case, it is letting a great business work for you. Hopefully, you own great businesses in your portfolio, a related matter. In any event, by telling investors we are through for the rest of the year on interest rates, it very well may be that judicious Jerome finally figured it out. Instead of raising, and then doing nothing, he just decided, forget this, I am doing nothing, which is what I was supposed to do all along. If only he would have just read and followed the Hippocratic oath, the doctors will crow, he would have been right along. In the meantime, with the first quarter winding down, earnings season will be on us pretty shortly. Oil continues to hold its own, and with OPEC and Russia deciding that way too much oil is being pumped here in the US, don’t expect production cuts to be lifted from overseas any time soon. Again, what’s the best course of action, nothing. Repeat after me. Nothing.
There were a few events this week which show you that things do actually change once in a while. The first one, which is what the political world has been concentrating on for the last two years now, is that Robert Mueller actually concluded his investigation and turned over his report to the attorney general. The fight will turn to Congress and whether the report will be released publicly or not, and when and under what terms. Democrats have been itching for this since Mr. Trump raised his right hand and took the oath for office. It appears there won’t be any more indictments, but you shouldn’t tell that to anyone that doesn’t like the Donald. Time will tell on that one. In my little neck of the woods, having nothing related to investments and economics, an event I waited and anticipated for thirty years finally took place. My Alma mater, UC-Irvine, yes, the Anteaters, actually won a game in the NCAA Men’s Basketball Tournament. All over the globe, ex-Anteaters are rejoicing and we even have hopes to win the next game tomorrow (vs Oregon). Still, we will take winning the first one as it was a long time coming. Regardless, March Madness is always a treat as the competitive nature of the hoops tournament always captures the country with quite a bit of excitement. The sports books all over Las Vegas, and now across the country, are raking it in. In the meantime, I hope you enjoy your weekend and keep that wisdom from the Hippocratic Oath in mind.
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