Notes on the Week Ahead

In my admittedly conservative opinion, modern rackets have diminished the game of tennis as a spectacle. Booming serves from both opponents have led to fewer competitive games, with many sets turning into a rather dull march to six-all, ending in a tiebreaker. Now, there isn't any need for a tiebreaker in analyzing the long-run prospects for the U.S. economy since it really isn't a close call.

In America today, there is an obsession with how to stimulate demand, with fiscal policy, monetary policy and currency policy all being deployed to rev up the economic engine. However, America is facing a demographic pothole, and unless we fill it, growth will be mediocre, at best, regardless of how we try to stoke demand.

In days of yore, the sight of seagulls wheeling over an inland forest or fields was taken as a sure sign of a storm at sea. In a similar vein, last week, many investors took the sight of an inverted yield curve as a sign of impending recession.

I have always been a middle-distance runner. I think this serves me well today as, while many strategists and financial advisors talk about investing as a marathon, it is essentially a middle-distance discipline.

The economic recovery that began in 2009 has proven its endurance many times and is now the longest expansion in history. Our base case forecast is that it will continue into 2020 and probably beyond.

The week ahead, like last week, will be crammed with important market-moving events and data points. The challenge for investors will not be in predicting instant market reactions to this new information but rather in understanding how it could change the investment landscape going forward.

The formula in Hollywood today lacks imagination. It's all about remakes and sequels. Financial markets, too, are seeing a series of sequels and a few are opening this week.

In the financial landscape of 2019, the Federal Government and Federal Reserve are playing the parts of over-indulgent grandparents, the markets are cast as the over-stimulated grandkids and investors are left with the role of responsible adults, having to make rational choices and knowing that they will eventually have to deal with the consequences of too much stimulus.

On Wednesday and Thursday of this week, Fed Chairman, Jay Powell, will deliver his semi-annual testimony to Congress on the outlook for the economy and monetary policy. As he prepares, while he will focus on the clarity of his message, he may well be distracted by the potential reaction of political and market audiences.

My wife, Sari, is an excellent cook and sometimes, when I return from a long day, I'm met at the front door by the delicious scent of freshly-baked chocolate-chip M&M cookies. The problem is, with a pair of cookies eaten but a big pile of them still smiling up at me, can I stop at just two? The Federal Reserve faces a similar dilemma when it comes to rate cuts.