“The reason we have elected officials is so we don’t have to think all the time.” - Homer Simpson - Commentary - December ...
The world has changed…dramatically. In a 5 minute span President Donald Trump was sworn in and in what will go down as one of the most remarkable inaugural speeches of all time he called every sitting and exiting politician “Homer Simpson”. He looked around and rattled off quote after quote in a sarcastic, comedic hand-wavering manner that only a former professional reality-tv star could pull off. He began, “If you really want something in life you have to work for it. Now quiet! They’re about to announce the lottery numbers. BAM! I think Smithers picked me because of my motivational skills. Everyone says they have to work a lot harder when I’m around. ZING! Trying is the first step toward failure. KAPOW! No matter how good you are, there’s always a million people better. WOO-HOO! Seriously, YOU’RE FIRED!”
Ok, now everyone relax. As we have done since the beginning of time we are making fun of both sides. As well, and so we don’t get people angry at us for “propagating fake news” in an attempt to influence anyone or stir anger…we are only joking. We good? Again, for those of you that really believe he may have said those things…he didn’t. Whew, that disclaimer was exhausting.
Anyway, back to the whole change thing. It is 5 days after his inauguration and Trump has met with 30 CEOs, union leaders, started infrastructure initiatives, put in a government hiring freeze, cancelled only to be newly negotiated trade deals and hired virtually all business people to his cabinet. He has met with tech CEOs, auto CEOS, financial CEOs, manufacturing CEOs and service CEOs. In case you can’t figure out the trend, Trump is a businessman. He ran as a businessman and clearly feels little is owed to the Washington “leaders” that put in place everything that has caused his constituents to propel him to the highest office in the land.
With all the goings on over the inaugural weekend we still think the best quote came from Fed Chairwoman Janet Yellen when she was asked how all of these things will affect her $4.5 trillion hedge fund that is the Fed‘s balance sheet. She cited Homer as well, as only Janet can do, “The reason we have elected officials is so we don’t have to think all the time.” She then lifted the microphone over her head, dropped it to the ground and walked off. She later apologized for the whole to-do saying she didn’t like all the attention Trump was taking from the Fed’s popularity ratings as “People Magazine’s” “Most Influential and Popular Financial Group” every year for the last 8 years. Ok, we got carried away again. She didn’t say that. She also didn’t drop the mic or walk off any stage. Also quit Googling “People Magazine’s” “Most Influential Financial” anything…that was made up also. That said, we can guarantee the Fed was watching his real speech and hasn’t taken their eyes off all of his appointments and actions over the last few days.
In just a few months the market has also taken his platform of ideas since the election in November, pulled up a lawn chair and been drinking the Kool-Aid ever since. As of today the market has gone 72 trading days without a 1% pullback. This is the longest stretch since November 2006. The VIX is currently at 10.80. A level of implied volatility that in the 6,808 trading days since January 1, 1990 has only closed below 87 times. 61 of which occurred in the three year span of 2005, 2006 and 2007. A period when the Fed Funds rate went from 2.25% in December 2003 to a high of 5.25% in September 2007 and will forever be asterisked by too loose Fed policy and too loose private lending….and the most destructive bubble in history.
Here are a few other facts that Janet and her crew are also likely very aware of. Since the crisis, US high-grade corporate debt has more than doubled. Consumer debt in Q4 2008 was, according to the Fed, $11.88 trillion ($1.92 trillion in non-housing debt, $9.96 trillion in housing). As of Q3 2016 it was $11.21 trillion ($2.39 trillion in non-housing debt, $8.82 trillion in housing). The national debt has gone from approximately $10 trillion in 2008 to nearly $20 trillion in 2017. Leverage amassed by consumers and financials that was built into and wiped away in 2008 has now been rebuilt by consumers and exploded by corporations and the public sector.
Every day that Trump announces a new fiscal stimulus-ish policy we guarantee the Fed is freaking out just a bit more. Everything is inflationary…everything. That said, no one believes interest rates can or will go up quickly and have completely discounted the debt that has accumulated since 2008. Again, the game has changed and Trump won’t stop being a businessman. Trump closed with these final zingers with a heavily sarcastic tone, “Number 1: Cover for me. Number 2: Oh, good idea, Boss! Number 3: It was like that when I got here. DOH! If something’s hard to do it’s not worth doing. ZOWEEE! All my life I’ve had one dream, to achieve my many goals. KABLAM!” Ok, he didn’t say those either…but that last one…he has clearly adopted. Stay hedged.
