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Politics, Markets & Where to From Here

An election year is only months away. One that we will likely enter with a President well into a full blown Impeachment inquiry, and an overly expansive Democratic candidate list. All of which only increases the risks to an expansion phase well into the late innings.

We never take political sides over here, rather we bring to light the risks of any outcome and prepare accordingly. To that end lets be clear about one thing, love him or hate him, impeachment proceedings are never good for the economy or populace. The faster we get to an outcome, whatever it may be, the better it will be for all those involved. Unfortunately these things take focus away from all the work that must be done to maintain and build both our economy and country. That leads us to the Election, it also causes focus to be moved from operating the country. Before we even move on to how late we are in the expansion phase, we have two major headwinds to future growth.

Will this be the straw that breaks the camels back? Time will tell, but with these factors mixing with changing interest rates and an economy/market near all time highs, the camel’s pace is not what it once was.

The end of the year looks to stay on a modest growth track and we will close this year with solid numbers yet again. It has always been our belief, that when every piece of information says we are nearing the end of growth, its time to begin the transition to protection of the returns we have created. Many of you will begin to see more funds being placed into treasuries, inflation-protected securities and treasury/inflation-protected based ETF’s based upon account size and planning. We do not believe in getting involved in the rush to safety at the last minute, rather we softly begin the move to safety when markets are still riding high.

We have said many times in past articles, not to fear the end of growth, but to prepare for it. I am personally known for stating a very specific quote far too often, “Money doesn’t disappear when markets drop, it just goes somewhere else.” We do everything in our power to already be somewhere else before that transition happens. Current markets suggest that the money will not move outside the U.S. (at least not now or in the near future), rather it will be a “Flight to Safety.”

History has shown that the rush to safety is always short lived. Sooner rather than later, the next big market makes itself apparent. It has been my belief that the next big market will be the return of the next 30 year Fixed Income market.

After the rush into Treasuries, interest rates will begin to both normalize and increase, regardless of what the Federal Reserve does now. One major misconception about interest rates has always been that the Fed controls them. They can manipulate them and adjust the market to soften the blow, but the market itself will always set where things are headed and should be. In fact we have seen just this happen already with the Mortgage Market. Despite the lowering of interest rates by the Fed, we saw mortgage rates increase. This IS a market telling the Fed and all of us that rates are not where they should be and will rise in the future.

 

Alexander Cooke

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