Divine Introspection – Crafting The Clearest Crystal Ball

Divine Introspection – Crafting The Clearest Crystal Ball
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Does anyone feel the need to take a vacation? 2018 will go down in history as one of the most volatile in stock market history and we’re not even through the first quarter. Dramamine could easily replace the No Doze traders needed to keep their eyes open last year. Is this a case of being wary of what you wish for?


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At the core of the unrest are the dueling forces of central banks’ various forms of tightening – rate hikes, tapers of intended (ECB) and unintended (Bank of Japan) varieties and, of course, quantitative tightening – and a near anarchy state in an Administration that seems hell-bent on starting a trade war with China.

Meanwhile, back at Uncle Sam’s ranch, the country’s borrowing costs are on the rise as the deficit hits the highest level since 2012. As Peter Boockvar observed, February’s interest expense of $23.3 billion was up 10% on year-ago levels. Interest expense now sucks up 6.3% of spending vs. 5.8% in the prior year.

Even as interest rates and expenses rise for all borrowers, signs are multiplying that the economy is slowing. Retail sales appear intent on maintaining their disappointing streak. To put the most recent figures into perspective, nominal core sales, which net out autos, gasoline and building materials, totaled $268.8 billion in November and $268.2 in February. In other words, they’ve gone nowhere.

As a follow-up to my recent analysis of the car industry, auto sales have fallen for four months running. The continuing clampdown in credit availability should send this sector back into recession, where it last was in September before Mother Nature interceded to give sales a boost.

The Atlanta Fed tracks the data as close as any economist in endeavoring to maintain a real-time GDP forecast. As recently as February, it appeared that growth in the first quarter would clock in at an amazing 5% pace. Yes, the February to which Atlanta refers is one in the same with last month. In the ‘how quickly things can change’ department, after factoring in today’s retail sales report, Q1 GDP looks to come in at a mere 1.9% rate, smack dab in the middle of the middling range it’s been in for the past decade.

What could turn the tide? We’re told that tax refund mailings have been delayed and that the fruits of the tax cuts will be bounteous in future consumption figures. Wage gains, which truly are building despite the consensus’ incorrect take on last Friday’s jobs report (the last time it took so little time to find a job was May 2009), should also manifest in increased spending. The only thing to say to this optimism is, “We’ll see.”

As for upside surprises, to study the markets implies that the outcome of the Italian elections was benign. The first majority vote for non-establishment parties in modern times suggests the situation is fluid, to be polite. The yield on 10-year Italian sovereigns is 2%. Ergo, all must be well in the land of my ancestors. Right?

Truth be told, I’ve painted a picture of confusion on purpose. The murky outlook coupled with nausea-inducing market volatility make economic fortune telling the most difficult of tasks.

The best I can offer is that we should be looking pretty good, as in fit. Take a drive and you can’t help but bump into a fitness, spin, barre, yoga or Pilates studio. Whatever happened to going to the gym? My point is, leading indicators come in many forms. But what do they actually say about what’s to come?

Finding reliable guideposts, true leading indicators, at what appear to be economic inflection points separates the men from the boys, or women from the girls, if we must be PC. This week I’ve taken up that very challenge. I invite you to enjoy this week’s installment, DIVINE INTROSPECTION — Crafting the Clearest Crystal Ball.

Hoping you’re spinning your way to your cardio best and wishing you well.




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Called "The Dallas Fed's Resident Soothsayer" by D Magazine, Danielle DiMartino Booth is sought after for her depth of knowledge on the economy and financial markets. She is a well-known speaker who can tailor her message to a myriad of audiences, once spending a week crossing the ocean to present to groups as diverse as the Portfolio Management Institute in Newport Beach, the Global Interdependence Center in London and the Four States Forestry Association in Texarkana. Danielle spent nine years as a Senior Financial Analyst with the Federal Reserve of Dallas and served as an Advisor on monetary policy to Dallas Federal Reserve President Richard W. Fisher until his retirement in March 2015. She researches, writes and speaks on the financial markets, focusing recently on the ramifications of credit issuance and how it has driven equity and real estate market valuations. Sounding an early warning about the housing bubble in the 2000s, Danielle makes bold predictions based on meticulous research and her unique perspective honed from years in central banking and on Wall Street. Danielle began her career in New York at Credit Suisse and Donaldson, Lufkin & Jenrette where she worked in the fixed income, public equity and private equity markets. Danielle earned her BBA as a College of Business Scholar at the University of Texas at San Antonio. She holds an MBA in Finance and International Business from the University of Texas at Austin and an MS in Journalism from Columbia University. Danielle resides in University Park, Texas, with her husband John and their four children. In addition to many volunteer hours spent at her children's schools, she serves on the Board of Management of the Park Cities YMCA.
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