With a new Fed Chair, and the top three slots at the Federal Reserve most likely changing hands in the next 12 months, we may start seeing the role of the Central Bank change.  It’s hard to say what they’ll do, and what impact that might have for interest rates and the U.S. economy in general.  Sometimes, big and powerful can be a good thing, and at times it’s better to take a less imposing position.  From my perspective, over the last six years or so, the Fed has taken on that subordinate role, and let the economy grow back its legs, as it were.  I think that they’ve done a decent job of getting us out of a recession.  I know that it hasn’t been as swift or as powerful as everyone, myself included, expected.  Heroes come in all shapes and sizes.     

An unyielding, heartfelt salute to those who serve our country in the military.  They keep me safe and I am grateful for their service.  Happy Veterans Day.

Despite turmoil in world affairs, and notwithstanding the prolonged stagnation to see improvement in many key economic indicators, American consumers are feeling pretty good about spending their hard earned cash.  We are a resilient bunch–short sighted at times to be sure, but able to maintain positivism all the same. The Consumer Sentiment report this morning shows the index popped just over 100.0 for only the second time since the 1990’s.  The other time was in 2004 when (relatively) low interest rates helped a similar euphoric attitude toward spending obscene amounts of money to flourish.

I believe that we can learn from history and the boom-to-bust pattern concerns me as a conservative provider of food and shelter for a wife and four hungry boys.  As an arm-chair economist though I say bring on the spending!  The holiday season is just around the corner and the men and women in uniform need a vibrant country to protect.  God bless America, whatever lies around the corner.   

Bond prices are starting to slip back down after hitting the ceiling of resistance yesterday.  The technical picture has rates jumping back up 1/8% over the next week, and the 30 day rollover after the close of trading this afternoon will make the chart look even worse.  Watch for traders to start shorting Bonds.  The good news is that this purely technical move will be easily reversed by real economic data–or it could be perpetuated…  

It’s been a year since President Trump was elected.  The DOW is up 28% from this time last year and doesn’t seem to be slowing down.  It’s difficult to argue against the speed and strength of a freight train in motion.  In the Bond market however, The 2-10 year Treasury yield curve is at its lowest point in a decade, which is a sign of little growth and upcoming weakness.  If (when?) the Fed’s hike the overnight rate another 0.25% next month, that will flatten out the curve even further.  

Core Logic’s Home Price Index shows an average 0.9% appreciation rate across the country last month, raising the year-over-year jump to an even 7.0%.  The same entity anticipates a 4.7% price jump over the next 12 months.

Mortgage Bonds have bounced back up against a ceiling of resistance that will prove a difficult barrier to pierce, so don’t expect rates to sink any lower.  Stocks are taking a breather today after yet again seeing the indices reach all-time-highs again yesterday.

Here is what having the weight of the financial world off of your shoulders looks like.

Jerome Powell is expected to be appointed as the next Fed Chair by President Trump today.  His term would start next year.  He’s a little softer than Yellen has been, which may seem hard to believe.  As expected, the Fed did not raise interest rates yesterday, but the probability of a 0.25% bump in December is near certain.

Speaking of government policy, some of the details of the proposed tax reform are coming out.  The mortgage interest deduction will be capped at $500,000 for newly purchased homes.  I hate that.  The Child Tax Credit will bump up from $1,000 to $1,600, and the corporate tax rate will drop from 35% to 20%.

Weekly Jobless Claims dropped 5K, and Q3 Productivity rose 3.0%, vs. the 2.8% expected.  Pricing on mortgages is clawing its way back, easing the pressure off of the rising rate trend.    

Investor Intelligence shows that the Bulls, or those who think that the stock market is going to go up, rose to 63.50–the highest lever in 30 years.  The Bears, or those who think that the stock market is going to go down, fell to 14.4, which is the lowest in the last 2.5 years.  The spread between them is 49.1, which is just below the all-time-high disparity of 50.5 seen in 1987.  That was also 30 years ago when we saw a huge reversal called Black Monday.  I’m not calling for it necessarily, but many believe that a reversal is in the future.  Many I guess is 14.4% in this case.  Another 22.1% have no idea.  I am one of those 22%.  I continue to invest in stocks, but I’m wary about sticking all those eggs in one basket.

Speaking of odds: The Dodgers are favored to win the World Series tonight.  I don’t know that they will, but I am cheering for them! 

Happy Halloween!  The two-day Fed meeting kicks off today, with the monetary policy statement being released tomorrow.  Does that come as a surprise to you?  That’s because nobody’s talking about it.  Though there is always a possibility of a surprise attack tomorrow, all ears are awaiting for the promised rate hike at December’s meeting.

A little bit of mixed news in inflation numbers today.  Consumer Prices in Europe are at a 1.4% gain, a little lower than they have been, and a little less than expected.  Domestically, the Employment Cost Index (a favorite of 5-term Fed Chair Alan Greenspan) rose 0.7% during the 3rd quarter, for a 2.5% year-over-year advance.  Speaking of the Fed, still: President Trump will announce the next Fed Chair on Thursday.  It’s expected to be someone other than Janet Yellen

Lastly, the Case-Shiller Home Price Index shows an annual gain of 6.1%, up from 5.9% last month.  The Case-Shiller Index tracks 20 major cities across all nine U.S. Census divisions and tends to be a little late to report, making it one of the more accurate measures of home price fluctuation. 

The first look at 3rd Quarter GDP shows that the U.S. economy expanded by 3.0%, which is better than the expected 2.5%, but not quite as solid as the last review of the 2nd Quarter, which showed a 3.1% growth rate.  Whether or not these gains hold in future readings, it’s the first time in three years that we’ve seen an increase of 3.0% for two consecutive quarters.  Cynics argue that vendors are ramping up inventory for the holiday shopping season, artificially inflating the numbers.  I’d counter that contention by pointing out that any preparation for a big fourth quarter should be a surprise to no one as Christmas rolls around once a year and has for two millennia.

There are reports out that President Trump has narrowed his choice for the next Fed Chair to either Jerome Powell or John Taylor.  Though the former would be more likely to keep interest rates low, consensus still calls for three rate hikes next year, and for Janet Yellen to finish her tenure with another 1/4% bump this December.  So keep your personal share of retailer inventory reduction in check because your credit card statement is going to be more naughty than nice going forward.

There is still hope in Washington that the Senate will be able to pass a new budget to facilitate a reduction in our income tax brackets–so there’s still hope for ever higher consumer spending in the future.

The S&P 500 has closed at record highs 67 times in 2017, the most highs in 20 years.  The index is also on its longest streak ever without a 3% correction.  I still see a rising interest rate environment as being a drag on Stocks for two reasons.  In the first place, rising bond yields will be attractive to investors whose portfolios have become bloated with equities and they want to re-balance to protect the gains.  Secondly, for leveraged companies (that is, business that have borrowed money for growth), rising interest rates means higher costs, and higher costs means less profit.  Less profit leads to a devaluation of your stock price, which is what causes corrections.  And make no mistake, higher interest rates are coming.