2017 Archives - Buetow & Spitzley Wealth Management

May 19, 2017 By John Buetow

THE FED’S LATEST MOVE

The Fed did not raise interest rates at the May 2nd meeting. However, their official statement referred to “transitory signs of weakness in the economy, “balanced” economic risks, and “gradual” future interest rate hikes*.

“Transitory is Fed speak for ignoring any economic weakness and acting like everything is just fine with the economy. “Balanced” risk means there is roughly the same upside as downside for domestic growth. “Gradual” interest rate hikes means four 0.25% rate hikes/year thru 2019, unless we see disinflation, a stock market crash, or no job growth*.

None of those three “Pause” items is likely prior to the June meeting, so don’t be surprised to see a 25 basis point rate hike in June*.

The Fed was busy patting itself on the back because the unemployment rate had dropped to 4.4%. Sounds pretty good, right? Unfortunately, this is an absolutely worthless statistic because the labor participation rate continues to decline and wages remain flat. To illustrate the point, let’s say you have a room full of people and only one of them was looking for a job, while the rest of them were content to do nothing other than watch TV and eat junk food every day. If the one guy who actually wanted a job found a job, the unemployment rate would be 0.00%*. You all get the moral of the story, be careful about any numbers coming out of Washington.

The election of Macron in France this week will most likely result in a stronger Euro. Currency shifts vs. the dollar are always a “zero sum” game. A strengthening Euro will result in a weaker dollar*.

Thru interest rate hikes, the Fed is embarking on a tightening policy into an economy that is far from roaring. Tightening into a weak economy could produce a recession by this summer. If this happens, expect the Fed to resume a policy of easing and pause the September and December rate hikes*.
In conclusion, a weaker dollar and Fed easing creates an ideal environment for Gold to take off and test the $1,300 resistance level*.

* The Gold Speculator. May 9, 2017

These are the opinions of Jim Rickards and not necessarily those of Cambridge, are for informational purposes only, and should not be construed as investment advice.

May 10, 2017 By John Buetow

THIS ALARMING TREND IS JUST BEGINNING*

Storm clouds are gathering on the economic horizon: Default rates for car loans, student loans, and high yield corporate bonds have been creeping higher*.

Adding fuel to the fire was bad news from several of the largest credit card issuers. They have reported year-over-year declines in their net income. Management blamed larger than expected credit card losses for the dismal earnings report*.

Lenders’ profit margins largely rely on two factors: Low cost of capital and minimizing losses on their loans.

According to the US Department of Commerce, the US economy grew at a miniscule rate of 0.70% in the first quarter of 2017, which is well below the 4th quarter 2016 rate of 2.10%. The report attributes this poor performance to a large drop in consumer spending. American consumers are spending like we are already in a recession**.

These are indeed two troubling signs for the US economy. Keep a close eye on both of these items.

* Daily Wealth. April 29, 2017
** Stansberry Digest. May 1, 2017

These are the opinions of Justin Brill and not necessarily those of Cambridge, are for informational purposes only, and should not be construed as individualized investment advice.

March 13, 2017 By John Buetow

IS AN INTEREST RATE HIKE COMING?

Based on the “Fed Funds” futures market, it is about a 100% chance that the Fed will increase interest rates at its meeting next week (the week of March 13-17). According to the same futures market, the odds of a second rate hike in June are better than 50%.*

Before everybody panics, let’s take a deep breath and see what the actual impact of this is. The only interest rate the Federal Reserve controls is short-term Fed Funds rate, which is the rate Banks and Credit Unions lend to each other on an overnight basis. Historically, interest rate increases have been in 25 basis point increments. Prior to the market meltdown in 2008, the federal funds rate was in the 4.00% range. It is going to take quite a few 25 basis point increases to get back up to a more normal rate of 4.00%. Finally, the markets have anticipated interest rate hikes for years and increases have already been priced into the markets.*

In short, interest rate hikes are really much ado about nothing.

*The Stansberry Digest. March 8, 2017.

These are the opinions of David Eifrig and not necessarily those of Cambridge, are for informational purposes only, and should not be construed as investment advice.

February 14, 2017 By John Buetow

TIME TO CHECK OUT GOLD AND SILVER AGAIN?

So far this year, the Dow Jones Industrial Average is up 0.87%*. Not bad, but let’s take a look at how our gold holdings have done this year. Physical gold (coins and bullion) is up 6.59%**.

At $1240.30/ounce, gold is a bit pricey. Silver gives us a comparable hedging strategy, but at a significantly lower price, $17.79/ounce***. Year to date, physical silver (coins and bullion) is up 8.21%***.

If you will recall, both Gold and Silver had a terrific first half of the year last year, before pulling back. We don’t how things will play out this year, but at this point, it appears we are seeing the same set-up for 2017.

* Historical Quotes. Jan 3, 2017 and Feb 8, 2017 prices. Dow Jones Industrial Average: 19,881.76 and 20,054.34.
** Gold spot prices, APMEX. Jan 3, 2017 and Feb 8, 2017. $1163.60 and $1240.30.
*** Silver spot prices, APMEX. Jan 3, 2017 and Feb 8, 2017. $16.44 and $17.79.

These the opinions of John Buetow and not necessarily those of Cambridge, are for informational purposes only, and should not be construed as investment advice.

January 13, 2017 By John Buetow

HOW MUCH LONGER DOES THE TRUMP EFFECT CONTINUE?

Since the election in November, we have experienced the Trump effect. What exactly is the Trump effect? Rising stock prices, falling bond prices, a stronger US dollar, and falling precious metals prices.*

As we entered the first trading week of 2017, we have started to see a reversal in the Trump Effect: The US dollar pulled back 1.6% on January 4^th and 5^th• The yield on the 10 Year Treasury fell 2.36% (meaning bond prices went up). Gold has jumped up 2.05% in the three trading days of 2017. *

The moral of the story: Stay diversified

*Daily Wealth. January 7, 2017

These are the opinions of Justin Brill and not necessarily those of Cambridge, are for informational purposes only, and should not be construed as investment advice.