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March 2018 Market Commentary

The U.S. equity markets remain in a corrective trading range between the January 26th high of 2872 and the rising 200 day moving average of 2588. After an extended period of tranquility following the U.S. Presidential election, volatility has broken out of its own trading range. Beginning with the blowup that led to the closing of several leveraged inverse VIX ETFs, intraday market swings over the last six weeks have been wide and wildly unpredictable (see chart 1). From a technical perspective, the S&P 500 closed the week with a successful retest of the 200 day moving average, providing some hope for the bulls going into the weekend.

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The Tide is Going Out; Are You Wearing Your Bathing Suit?

One of the great Warren Buffett’s favorite sayings, that usually gets wheeled out in the middle of a spell of trouble in the financial markets, is, “Only when the tide goes out do we see who is not wearing a bathing suit.” The tide of central bank goodness that has wrapped the financial markets and investors like a warm, soft security blanket is beginning to recede, and we are beginning to see a whole lot of unattractive nakedness.

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It's Past 2.75%; Do You Know Where Your Risk Is?

The good news is I thought the ten-year Treasury was going to get to 2.75% sometime in 2018. The bad news is I didn’t think it would get there the first month of the year! We are at the rate levels where many wise market prognosticators, such as Jeff Gundlach at Doubleline and Ray Dalio of Bridgewater, have said the wheels will start coming off the risk-asset cart.

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Abe Vigoda is Dead, but the Bull Market for Fixed Income Is Not

“Tom, can you get me off the hook, for old time’s sake?”—Sal Tessio

Abe Vigoda was a beloved American actor who played a key role (Sal Tessio) in one of the greatest films in American movie making, “The Godfather.” After “The Godfather” in the early 1970s, Mr. Vigoda played the role of Detective Fish on the very popular TV series “Barney Miller.” Abe was so good that he even got his own spinoff show, “Fish.”

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Avoid Tuning the Wrong String

“When the facts change, I change my mind. What do you do, sir?” – John Maynard Keynes

A couple of nights ago, I was helping my son tune his cello. I have no musical talent or knowledge of string instruments other than I like how they sound. However, my son tells me I do a pretty darn good job turning the tuning pegs to help him get the instrument in tune.

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Where, oh Where, Have the Bond Vigilantes Gone?

Back in the days of yore—before the financial system blew itself up—there was a group known not by individual name but rather by the title of “Bond Vigilantes”! This mysterious group was known to keep order and exact punishment when they believed that central banks were running monetary policy too accommodative or governments were increasing fiscal deficits.

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Death and Taxes: the Former is Certain, the Latter Not So Much

“The only difference between death and taxes is that death doesn’t get worse every time Congress meets.”

—Will Rogers

High drama in Washington, D.C.! The GOP tax bill hangs precariously as the Senate Parliamentarian has ruled that “triggers” would raise taxes if tax cuts do not promote enough economic growth to cover a decline in tax revenues from the tax cuts.

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Threading the Needle

A very interesting article appeared in Bloomberg News this week: “Trump Counts on Fed to Help Sustain Economic Bump from Tax Plan.

As written in the article, “The Trump administration is banking on the Federal Reserve not to squelch any bump in economic growth from the Republican tax plan. White House chief economist Kevin Hassett argues that the tax overhaul will boost productivity, allowing the U.S. economy to grow more rapidly without risking a damaging bout of higher inflation that would be an anathema to the Fed.

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Disintermediation: Time to End the Conversation

Disintermediation is a very sophisticated-sounding word that we might feel smart for using but is one that I think should be retired from the lexicon of the retail investment program space. I can share data and personal success stories proving that not only can financial institutions and investment programs peacefully co-exist, but investment programs actually provide a tremendous benefit to banks and credit unions. If you still aren’t quite convinced, you need only consider the huge impact the baby boomer generation will have on your business.

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The "Bank of Amazon" Shouldn't Happen

In 1999, I lived in Great Falls, Virginia, working for Freddie Mac. Many of my neighbors were part of the “dot-com” boom. One night, one of my neighbors (who was then a millionaire on paper from his company that built websites) and I went down to the local pub, where we met one of his “dot-com” friends. From what I could tell, neither of their companies was even close to making money, yet their companies’ stock prices were soaring.

Meanwhile, at Freddie Mac, which had a net profit of billions, my stock had dropped quite a bit. Back then, everyone was using the terms “new economy” and “old economy.”

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