The Shutdown Comes to an End (for now)

Jan 25, 2019   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

You undoubtedly heard by now, but just in case, the government shutdown has been temporarily lifted.  Hallelujah.  For the next three weeks both parties will hash out the details to make this temporary reprieve permanent.  That’s not to say we won’t hear a lot of strife these next few weeks, just that federal employees will get their back pay and the impact on the economy will be minimized.  Surprisingly, the stock market didn’t react to the press conference today but instead shrugged off the news.  Perhaps it is because it hasn’t really reacted to the government shutdown so far, this year.  Regardless, earnings announcements continued to trickle out this week and were positive for the most part.  Analysts are most focused on forward guidance, and with the exception of a few companies, most are meeting expectations.

I’ve listened to several 2019 market outlook conference calls this week, from JP Morgan to Goldman Sachs and Charles Schwab and Co.  To a tee, all believe a recession is not on the menu for this year.  In fact, all believe we could have a positive year in 2019 with an increasing risk of the slowdown hitting in 2020.  They all point to the low unemployment rate, lack of inflation, high level of Leading Economic Indicators, and dovishness of the Federal Reserve.  There are some red flags, such as our national debt and annual budget deficits ballooning, but those are issues for well beyond 2020.  In a nutshell, the sentiment among analysts and economists is optimistic.  The same can’t be said for investors who still hold a fairly negative outlook.  In Davos this week, a large number of celebrity money managers, including hedge fund gurus and private equity billionaires, met to discuss the economy and most sounded pretty dour.  One among them said, perhaps the soundbites coming out of Davos should be used as a contrarian indicator.  I happen to agree, especially given the track record of these people the past couple of years.

In other news, the on again – off again negotiations between the United States and China will once more come to a head.  Next week the two sides will meet to hammer out a deal.  Wilbur Ross, the U.S. Commerce Secretary, was quoted saying we’re still miles and miles apart.  The sticking points aren’t a surprise.  Among them are America’s “intolerably big trade deficit” with China, China’s plan to dominate global high-tech industries, increasing access for U.S. companies to China’s markets, and intellectual property rights.  Within the hour, Larry Kudlow, the Director of the President’s National Economic Council went on the air saying a deal is likely.  It seems the left hand doesn’t know what the right is doing.  Either way, I expect the coverage leading up to the meeting and news coming out of the meeting will be market movers next week.

In economic news, the jobless claims fell to a fifty-year low.  In fact, Progressive (PGR) plans to hire more than 10,000 people in the coming year to support its growth.  This represents a 30% increase in its staffing.  It is the first time in a while I’ve heard a company come out with such an aggressive announcement.  Even better, the company will offer positions in information technology, analysts roles, corporate functions, customer care, and claims.  Not long ago, many of these functions would have been outsourced.  It seems, in the current environment, at least this one company is looking domestically to fill its roles.  However, I am left wondering how a company such as Progressive has survived this long being so significantly understaffed.

In closing, let’s talk about real estate.  Some have suggested we’ve reached a peak.  In fact, we’re once again hearing about the resurgence of the unconventional mortgage.  However, this story regards someone who is unconventional in a different way.  Ken Griffin is a hedge fund billionaire and he just bought an apartment on billionaire’s row across from Central Park for $238 million.  Yes, I said apartment.  It just so happens that this one is 24,000 square feet.  What makes this special is that it breaks the record for the most expensive home ever sold in the United States.  The previous record was set in 2014 when a home in the Hamptons sold for $137 million.  Much like art, when you begin to see prices skyrocket like they have recently, you wouldn’t be wrong in thinking investors are using alternative investments as a place to park money.  Now you know.

January 25, 2019

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