August 2019 – The long & Short of it. Stocks Markets did very little last Friday and drifted sideways to finish the week higher by a healthy 2.7% on the S&P 500 at 2,926. The New York Composite (NYA) finished higher by 1.23% at 12,739, leaving both Indexes near the upper end of their August trading ranges.
The S&P 500 is currently -2.57% from its high watermark of 3,025 on 07/26/2019.
The NYSE Composite is currently -8% from its high at 13,637 on 01/22/2018.
The highest close for the US Dollar Index since May 2017 helped pressure commodities, as crude oil finished at $55 a barrel, while precious metals gold and silver, finished at $1,529 and $18.44 an ounce, respectively.
Treasuries ended little changed with the two-year and 10-year yields both settling near 1.5%, both down roughly -50% since the Oct/Nov 2018 high. The recent headlines in the financial news of “inversion of the yield curve”, has some economists and financial pundits calling for a recession. Although it is a very important indicator, it is not the only indicator used to forecast a recession.
The volatility index VIX closed at 18.50. The VIX also known as the “fear gauge” spiked at the beginning of August, then settled down and stayed range bound and finished the month where it had started at 18.50. Although we are experiencing an elevated level of volatility/fear in the markets, it’s relatively calm compared to the recent Oct-Dec 2018 high.
Bitcoin finished 6% lower for the month to close at $9,777, about -24% below its recent high on June 26, 2019, at $12913 and +200% above its most recent low on Dec. 15, 2018, at $3255.
President Trump Vs The FED
The continued strength of the U.S. Dollar and the U.S. bond market have the Trump administration questioning the policies and direction of the U.S. Federal Reserve.
The U.S. President Mr. Trump fired several twitter salvoes across the bow of the U.S. Federal Reserve and called on the FED to aggressively cut interest rates by a full 1% amidst the apparent strength of the US economy. The current interest rates are already relatively low with the Fed Funds Rate at 2.25%.
The President also suggested that the Federal Reserve should initiate the purchase of bonds and some Quantitative Easing or QE. The President has been quite critical of the strength of the U.S. Dollar and asked the Federal Reserve “do something” about it.
Mr. Trump did not mince his words when he publicly criticized the Federal Reserve and his own appointed Chairman Jerome Powell, referring to the US Federal Reserve as “clueless” with “horrendous lack of vision of Jerome Powell”. Mr. Trump also posed the question, “who is our bigger enemy, Jerome Powell or Chairman XI?”
The president’s harsh response to Mr. Powell, a frequent target of Mr. Trump’s ire, came after the Fed chair suggested that the central bank may be unable to overcome economic uncertainty stemming from the president’s trade war.
Jay Powell is in the unenviable position of having to keep some powder dry in regards interest rates cuts when the U.S. faces the next recession on the one hand and the pressure to drop rates applied by the President on the other.
Concerns elsewhere in the world:
The Trade tensions between the U.S. and China continue to escalate. On Sunday 01 September, the Trump administration slapped tariffs on another $112 billion in Chinese imports, the latest escalation in a trade war that’s ground the global economy to a halt. China, meanwhile, began applying tariffs of 5 to 10% on U.S. goods ranging from frozen sweet corn and pork liver to bicycle tires on Sunday.
The political situation in the UK has become increasingly acrimonious, with the new UK Prime Minister Boris Johnson calling on the Queen of England for permission to suspend parliament, so that he may force through his Brexit policy.
Tensions in the Middle-East have escalated quite rapidly in the last 10 days. Israel has carried out strikes in the neighboring countries of Iraq, Syria, and Lebanon. Hezbollah from Lebanon has retaliated in recent days, firing rockets into Israel.
The political situation in Hong Kong continues to deteriorate between protestors and the government. Protestors violently clashed again with riot police and the military over the weekend. China’s leadership has seemingly lost its patience and sent in mainland troops to help support the Chinese garrison stationed in Hong Kong. The Hang Seng Index (HIS) has collapsed -15% since the beginning of the protests in April 2019.
The ongoing tensions involving the two nuclear powers of India and Pakistan have escalated in recent months. Both sides have become equally aggressive in the disputed region of Kashmir, a country claimed by both nations since 1947.
Argentina imposed currency controls in a desperate measure to avoid a full-blown financial collapse. According to Argentina’s next president, Alberto Fernandez, the country’s upcoming bond default, its 9th since declaring independence, was the IMF’s fault as much as that of outgoing president Mauricio Macri.
The Impartial Lens model portfolio held up well this month considering the volatility. We are currently positive by +21.61% since we began accumulating assets on 11-Oct-2018.