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Scannell Wealth Market Commentary: February 22, 2018

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THE MARKETS

As New York Fashion Week ended, inflation strutted its stuff.

Ever since the Federal Reserve began raising the Fed funds rate in 2015, analysts have been anticipating higher inflation. The fact that price increases remained relatively small was a perplexing mystery. Then, last week, inflation increased faster than expected.

The Bureau of Labor Statistics reported the Consumer Price Index (CPI), one measure of inflation, rose 0.5 percent in January. As you might expect, the cost of some items rose faster than others. For example, energy costs rose by 3.0 percent, while the cost of food was up 0.2 percent. In total, during the last 12 months, the all-items index rose 2.1 percent. When food and energy are excluded, the increase was 1.8 percent.

Barron’s reported, “Leaving aside the month-to-month squiggles, the real story is that inflation is closing in on the Fed’s 2 percent target…And even if January’s rise in the CPI was overstated, a real cyclical uptrend is under way…Deflation in the prices of consumer goods we like to buy is ending; the rate of increase in the cost of things we have to buy either is rising, as for food and energy, or remains high, as for services or rent.”

Higher prices are one side of the inflation coin; the other side is higher interest rates. Inflation is one of the data points the Federal Reserve considers when determining how well the economy is performing. Rising inflation signals a robust economy. That may encourage the Fed to raise rates more aggressively during 2018 to prevent the economy from overheating. The possibility of more concerted Fed tightening helped bump U.S. treasury rates higher last week.

Higher interest rates could become a boon for income-oriented investors. For years, persistently low rates have caused some investors to accept higher risk than they might have otherwise. As interest rates move higher, there may be opportunities to reduce portfolio risk and still generate attractive levels of income.

Despite inflation-inspired volatility mid-week, stock markets around the world moved higher. In the United States, major indices once again moved into positive territory for 2018.

RIDICULOUS? SILLY? STRANGE? SOME IDES MAY SEEM THAT WAY

Albert Einstein is famous for having said, “If at first the idea is not absurd, then there is no hope for it.” In recent weeks, Fast Company has reported on some “world-changing ideas,” including:

  • Teaching happiness in school. The mandate of a school being built in India will be teaching children how to be happy. One of the co-founders said, “It’s our view that happiness – or emotional intelligence, or balance, or confidence, or self-esteem, or any other word for feeling good about ourselves and our place in the world – is the foundation on which great lives and great achievements are built.”
  • Cancelling student debt. “Collectively, [Americans] owe nearly $1.4 trillion on outstanding student loan debt. Research shows that this level of debt hurts the U.S. economy in a variety of ways, holding back everything from small business formation to new home buying, and even marriage and reproduction,” according to a February report from the Levy Economics Institute at Bard College.

 

The research estimates if the U.S. government purchased and cancelled student loan debt the U.S. economy would increase real gross domestic product – the value of all goods and services produced – by $861 billion to $1,083 billion over 10 years. Also, the step could lead to the creation of more than a million new jobs every year.

  • Revitalizing Haiti with blockchain. The details are still being hammered out, but the Blockchain Cotton Project hopes to use distributed digital ledgers (blockchain) to manage supply chains, making it easier and less expensive to source organic cotton. One member of the project said, “We’re still figuring out how the farmers do the live reporting. But we hope it will replace the normal organic or fair trade certification through a radical transparency approach.”

What do you think? Do they pass the absurdity test? Or are these ideas too tame?

 

WEEKLY FOCUS–THINK ABOUT IT

“The function of education is to teach one to think intensively and to think critically. Intelligence plus character – that is the goal of true education.”

–Martin Luther King, Jr., American Baptist minister and activist

 

Best regards,

The Scannell Wealth Management Team

 


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Sources:

https://www.cnbc.com/2018/02/14/us-consumer-price-index-jan-2018.html

http://fortune.com/2017/12/28/us-inflation-economists-2017/

https://www.bls.gov/news.release/cpi.nr0.htm

https://www.barrons.com/articles/the-ghost-of-inflation-reappears-1518837372 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/02-20-18_Barrons-The_Ghost_of_Inflation_Reappears-Footnote_4.pdf)

https://finance.yahoo.com/quote/%5ETNX/history?p=%5ETNX

https://www.globalbankingandfinance.com/tighter-monetary-policy-will-put-brake-on-corporate-profits/

http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html (Click on U.S. & Intl Recaps, “Equities regain composure,” scroll down to “Global Stock Market Recap” chart) (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/02-20-18_Barrons-Global_Stock_Market_Recap-Footnote_7.pdf)

https://wordplay.blogs.nytimes.com/2013/12/10/whats-taken-home/

https://www.fastcompany.com/section/world-changing-ideas

https://www.fastcompany.com/40528502/this-school-focuses-on-teaching-students-happiness-not-math

http://www.levyinstitute.org/pubs/rpr_2_6.pdf (Pages 6 and 50)

https://www.fastcompany.com/40525347/timberland-is-helping-rebuild-haitis-cotton-industry

https://www.brainyquote.com/quotes/martin_luther_king_jr_402936

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Scannell Wealth Management is registered with HighTower Securities, LLC, member FINRA and SIPC, and with HighTower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through HighTower Securities, LLC; advisory services are offered through HighTower Advisors, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors.

All data and information reference herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary, it does not constitute investment advice. The team and HighTower shall not in any way be liable for claims, and make no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice.

This document was created for informational purposes only; the opinions expressed are solely those of the team and do not represent those of HighTower Advisors, LLC, or any of its affiliates.