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This Market Can Really Take a Punch

April sure has been an interesting month, and we are only midway through it! In just the last two weeks, the U.S. has seriously sparred with its greatest economic competitor (at least by size of economies), China, and its greatest military competitor, Russia. The President of the United States had the offices of his private attorney raided by the FBI, perhaps pushing the President closer to a constitutional showdown over the fate of Special Counsel Robert Mueller.

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Germans? Forget It, He's Rolling.

Last week, another move toward a global trade war was initiated, as President Trump spoke of slapping an additional $100 billion in unspecified tariffs on China. The Chinese responded that they will have a very specific list of tariffs on U.S. goods, totaling $100 billion in retaliation.

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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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Welcome to the Great Game

Last week was supposed to be the coming-out party for new Federal Reserve Chairman Jay Powell as he presided over his first FOMC meeting. The Fed—as predicted by just about everyone—raised the Federal Funds Rate 25 basis points (the effective range is now 1.50%-1.75%). Perhaps more important than the policy decision was how the new Chairman answered questions about policy and the economy going forward.

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Take this Job and J.O.L.T. It!

Friday’s employment report was, on the surface, a mixed bag, with a surge in job growth coupled with lower than expected average hourly earnings (AHE) growth. Last month’s 2.9% year-over-year growth in AHE was a shocker, as it showed that the growing strength of the U.S. economy was not only adding jobs, but workers were either finding better jobs or getting wage increases from their current employers. The February report —published Friday— showed a slight revision to January’s AHE (2.8% from 2.9%) and a lower than expected, but still strong, 2.6% increase in February.

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Secretary Mnuchin Fires the First Shot

Last night, Secretary of the Treasury Steve Mnuchin had some rather interesting things to say about inflation: “There are a lot of ways to have the economy grow. You can have wage inflation and not necessarily have inflation concerns in general.” This might be true in periods where we have had tremendous leaps forward in productivity. Absent of that, however, this thinking runs counter to traditional economic thought, which is the thought that governs the Fed.

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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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January 2018 Market Commentary

Friday’s domestic equity markets saw both the S&P 500 and NASDAQ 100 indexes mark new all-time highs, although both were slightly off of the intraday peaks recorded during yet another strong session. Thus the strong start to 2018 continues, with the S&P 500 logging its strongest start to a year since 1987, up 5.4% year to date, comfortably ahead of the start to 2017. The same can be said of the NASDAQ, which has gained 6.87%, as tech companies regained their footing after wobbling to the finish in Q4 2017. International equities have also continued to build on a strong 2017, with the MSCI EM index posting gains of 6.4% and MSCI Frontier Markets index up 6.29%. While I would not try to predict the months ahead by extrapolating results from a two-week sample, but it is safe to say that investor spirits are alive and well.  

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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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