Jul 08 2019
July 8, 2019

Action Aplenty

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The 2nd quarter of this year had stock market up and down action aplenty.  But it ended with June being the best month and quarter since the mid 50’s.  That was a long time ago.

What brought on that uptick?  Hope.  The Fed indicated a willingness at their June meeting to strongly consider reducing its interest rate now running between 2 and 2.5%. That rate was designed by the Fed to help meet its benchmark 2% inflation rate.  That is not happening.  It has created a very strong US dollar making items we sell overseas more expensive.  Europe and Japan currently have negative interest rates set by their Fed look alike and Europe is planning to cut more by September.  China’s currency is devaluing.  That means everything we import is coming in at a cheaper price.  Deflation is the threat concerning the US Fed.  The market jumped on the comments of the Fed chairman following the June meeting, but his comments have been misread in the past.  If the Fed begins cutting rates at the July meeting the market will rejoice.  If the Fed dawdles it could look like December of last year.

While the US economy is continuing to run at 2% or better, there is concern that the trade disputes with China, Japan and Europe will have a negative impact if agreements are not reached soon.  At the G-20 conference just concluded, the President met with the leader of China and agreed to hold off on increased tariffs in hope of restarting trade talks.  President Trump received media grief for his stance with China, but it was a necessary move.  It is comparable to complaints about the national debt, but no one wants to move to resolve the problem.  China is becoming a major threat to the US and must be dealt with.  By the way, the trade dispute has hit China very hard.  June factory production just hit its low mark for the year.  The currency is devaluing while the national debt is rising.  Add to China’s problems the revolt in Hong Kong where the capitalist society is fighting back against the socialist regime.

Third quarter issues that can be seen are what the Fed does with rates, the trade talks, tension with Iran, Brexit and a quickly growing international debt.  The length of the bull market also has some traders concerned.  But bull markets do not die of old age.  Something happens.  And quite often it is the unexpected.

The Oak Springs portfolio is designed to enjoy the up times and fight hard to stay in place against the bad times.  As always, your calls and questions are welcomed.  My wife and I along with our 2 new kids hope to be out of Mexico in the next 2 weeks.  While we wait my cell phone works great here.  Even though many other things do not.