U.S. & World Economy by Mark:
Economy: The Trump “sugar rush” is over, yet we have landed on an economic sweet spot for inflation (approximately 2%). This combined with modest worldwide GDP growth, near full employment, and cautious hope on tax reform has lead global financial markets (both stocks and bonds) to end the first 6 months of 2017 with near YTD highs. Surprisingly, we’re also in a climate of lower volatility than one would have expected – the lowest in 50+ years according to Wall Street Journal – given the drama highlighted by the “news” and the media. However, first half of the year bets on higher inflation and domestic company growth have gone unrewarded as commodities (led by oil), managed futures, and small cap stocks have all underperformed this year so far.
By year-end we suspect that this current economic balancing act will have selected a specific direction: either there will be a belief that pro U.S. business policies will start (and work) and inflation/higher interest rates will resume; or hopes will peter out and our flattening yield curve (combined with high valuations) will lead to the next downturn in the economy and financial markets. We are not willing to make that “all or nothing” market call and thus we remain well balanced and positioned to accept either outcome.
American Exceptionalism: People can silo themselves into an echo chamber and only hear things that they already agree with, tuning out alternative views or facts. Such is the case with the topic of American exceptionalism. The question is whether there have been some unique factors that have spurred our U.S. economy above all others over the last two centuries or if this is just a pompous delusion? I would argue the former, that American exceptionalism is real and fueled by the product of freedom and opportunity, combined with limited government.
Throughout the years, when federal and state governments’ policies protected our freedoms and supported new opportunities our country grew and prospered at an exceptional rate. When our government and others impeded citizens with over-regulation, narrow freedoms of choice and limited opportunities, historically economies have stalled. I believe this is the crux of the crossroads we are heading toward under the GOP majority leadership. Can they come together to re-start our economic engine again or will American exceptionalism become a footnote in future history books? CONTINUE READING: Third Quarter 2017 Newsletter – Optivest