Notes on the Week Ahead

I should state, at the outset, that I do not profess to have any deep understanding of quantum mechanics. However, the U.S. bond market and the U.S. stock market seem to coexist in alternative realities today.

On Wednesday, the Federal Open Market Committee (FOMC) of the Federal Reserve will hold its fourth meeting of the year. The Fed is not ready to change interest rates yet.

Following Friday's May jobs report, and in reaction to slower growth, lower inflation and trouble in the global economy, the Fed is clearly taking a more dovish stance, making at least two rate cuts likely by the end of 2019.

Commercial interests dictate that the public must always be shocked or scared out of their complacency and so the "worst case scenario" will always get top billing.

Despite a better than expected outcome from earnings season, the economy once again appears set for a slowdown with second quarter economic growth potentially coming in at less than 1% annualized. Numbers due out in the week ahead should help clarify whether the slowdown is for real this time.

I ran in a local 5K race over the weekend. As the assorted participants milled around at the start, I noticed just how many of them looked on the young side. But this happens more often these days –every year there are more runners younger than me and fewer that are older. And so I huffed and puffed my way around the course, breathing in the dust kicked up by the heels of some young teenager in front of me.

One of the great lessons of history is to avoid slavishly applying the lessons of history. A particularly tragic example of this relates to the First and Second Gulf Wars. The relative ease with which U.S. and Allied forces dislodged Saddam Hussein from Kuwait in 1991 emboldened the U.S. to undertake the far more difficult task of overthrowing Hussein altogether and occupying Iraq 12 years later. Apart from its terrible human toll, the negative results of that second conflict are still being felt today, both in the U.S. and throughout the Middle East.

The U.S. economy of 2019 is, for the most part, a very healthy one and this is fully reflected in the valuations of stocks and bonds. However, it is a complex environment for the implementation of monetary policy. 

The week ahead will see a flood of data which will amount to an all-systems check on the investment environment. The numbers are likely to be positive. However, for investors this should not be seen as a "go for market launch" but rather as a cautious OK for a more pedestrian advance.

Just over eight years ago, HBO launched its very successful series, "Game of Thrones," set in the mythical medieval kingdom of Westeros. The first episode was entitled "Winter is Coming," and we were warned that winters in Westeros were particularly harsh and could last for years.