…S&P 500 and Nasdaq Comp hit record highs. Jerome Powell at Jackson Hole says economy is strong; Fed will be slow and steady moving forward. Trump Organization and Foundation under investigation. Weisselberg and Pecker have immunity. North Korean peace not happening. Godspeed John McCain.
Financial Review by Sinclair Noe for 08-24-2018
DOW + 133 = 25,790
SPX + 17 = 2874
NAS + 67 = 7945
RUT + 8 = 1725
10 Y + .01 = 2.83%
OIL + .74 = 68.57
GOLD + 20.70 = 1206.30
The S&P 500 index finished at an all-time high on Friday, snapping a 145-day run without a record close. The Nasdaq Composite also closed at a record high, the first in about a month. The Dow, however, remains about 3% short of its all-time closing high hit Jan. 26. Of the past 20 S&P 500 corrections, only two lasted more than 100 trading days. The average correction length since the inception of the S&P 500 is 51 trading days. The longest stretch in correction territory ever was a period of 229 trading days that ended in 1978.
While it is certainly difficult to buy into record highs, we are reminded that a trend in place is more likely to continue than it is to reverse. Right now, the trend on Wall Street is up. How much higher can it go? No idea, but a trend in place is more likely to continue, until it doesn’t.
Federal Reserve chair Jerome Powell sees plenty of reasons the US economy’s strong run will continue. In a speech delivered before the Jackson Hole Economic Symposium this morning, Powell said, “Over the course of a long recovery, the U.S. economy has strengthened substantially… With solid household and business confidence, healthy levels of job creation, rising incomes, and fiscal stimulus arriving, there is good reason to expect that this strong performance will continue.” Powell seems to maintain the economy is not too hot, not too cold, just about right, which means that Fed will keep with its current monetary policy, tilted toward normalization. Look for another rate hike in September, another in December, if the data holds solid. This is not unanimous among policymakers. The Dallas Fed’s president shared his dream of getting interest rates up near 2.75%, while the St. Louis Fed president backed standing pat.
Powell said, “The economy is strong. “Inflation is near our 2 percent objective, and most people who want a job are finding one.” He specifically rejected the fear that inflation might be accelerating beyond the level the Fed seeks, which suggests no abrupt rate increases are on the way. “While inflation has recently moved up near 2 percent, we have seen no clear sign of an acceleration above 2 percent, and there does not seem to be an elevated risk of overheating.”
In arguing for a risk management approach, Powell invoked a principle attributed to the economist William Brainard, saying, “When you are uncertain about the effects of your actions, you should move conservatively,” much like starting a patient on a small dose of medicine to judge the reaction. That implies the Fed should move in small steps and constantly re-evaluate its plans in light of the latest data. Powell added that a more aggressive strategy would be warranted in the event of a financial crisis or if the Fed’s credibility as an inflation-fighter were to come into doubt. The Fed, he argued, must learn from one of its past failures — allowing high inflation to take off in the 1970s — and a past success, of allowing the boom of the late 1990s to take hold rather than cutting it off out of misguided fear of inflation.
The plea agreement in federal court this week by Michael Cohen, who spent 10 years as executive vice president and special counsel at the Trump Organization and later served as Trump’s personal attorney, showed that federal prosecutors had excavated invoices, receipts, tax records, emails and other internal documents from Trump’s business. Federal prosecutors also made clear their willingness to squeeze friends of the president. David Pecker, a longtime Trump ally who heads the company that publishes the National Enquirer tabloid, will provide evidence in the Cohen case in exchange for immunity from criminal charges. Trump Organization chief financial officer Allen Weisselberg, who has served as Trump’s money man for decades, was granted immunity by federal prosecutors for providing information about Trump’s former personal attorney Michael Cohen. The interview, which focused on Cohen and the payments, happened weeks ago under a deal negotiated by his attorney. Weisselberg hasn’t been called back. Weisselberg also helped prepared Trump’s tax returns and is the only non-family member to serve as trustee of the trust that holds the President’s interest in his own companies. If you were trying to follow the money, this is the guy who knows where the money is and where it went.
Cohen was prosecuted by the US attorney’s office for the southern district of New York, acting on a referral by special counsel Robert Mueller. A third team of prosecutors, in the Manhattan district attorney’s office, said on Thursday that they were beginning an investigation of whether the reimbursements for the hush payments broke state law. Separately, the New York state attorney general has filed a civil lawsuit against the Donald J Trump Foundation, Trump’s purported charity. It was not clear whether Weisselberg’s deal required him to offer testimony in matters not pertaining directly to the Cohen case. But Cohen was subpoenaed to provide testimony regarding the suit against the Trump Foundation. Weisselberg is also the treasurer of Trump’s charity. One potentially threatening aspect of the suit for Trump and his children is that, should a criminal case develop, any conviction would not be pardonable by the president, who can pardon only federal crimes under the constitution.
Meanwhile, David Pecker, chief executive of the company that publishes the National Enquirer, the tabloid magazine involved in hush-money deals to women ahead of the 2016 US presidential election, was granted immunity by federal prosecutors as part of the investigation into Trump’s former personal lawyer Michael Cohen. Although Cohen’s indictment does not name the Enquirer or its parent company, American Media Inc (AMI) – they are identified as “magazine 1” and “corporation 1” – both have previously been identified in press accounts and court records related to payments to Daniels and McDougal. The Associated Press reported that, according to people familiar with the agreement, the National Enquirer kept a safe of documents related to hush money and other damaging stories it killed as part of its cozy relationship with Trump. The safe was emptied prior to Trump’s inauguration, according to the AP.
The Trump Organization and the Trump Foundation were apparently run more like a family business than a blue-chip corporate empire; there was no oversight of independent board members or pesky shareholders. That veil of secrecy is now being cracked open. Where it leads, we don’t know, yet. But over the past few days, Trump was tentatively identified in court documents as an unindicted co-conspirator; and Trump himself raised the prospect of his own impeachment. This was an historic week. And it looks like Mueller’s team is playing 3D chess, while Trump’s team is playing checkers.
A couple of months ago there was a big summit between North Korea and the US. Trump met with Kim Jon Un, and after all the photo ops, we were told that we could all sleep easier at night because North Korea was on the path to denuclearization. There were details that needed to be worked out. There were follow-up meetings. The today, Trump tweeted: “I have asked Secretary of State Mike Pompeo not to go to North Korea, at this time, because I feel we are not making sufficient progress with respect to the denuclearization of the Korean Peninsula. Secretary Pompeo looks forward to going to North Korea in the near future, most likely after our Trading relationship with China is resolved.” Trump didn’t blame himself or even North Korea explicitly for the lack of progress. Instead he singled out China, with which the United States is currently engaged in an escalating trade war.
The Senate passed an $857 billion bipartisan spending bill last night, a move that Republicans and Democrats alike hope will avert the threat of a government shutdown next month. This isn’t the final version — the Senate still needs to meet with the House in conference and hammer out major sticking points. But with the midterms in a few months, there is a strong incentive to try to make sure a spending bill sails through without drama. The massive bill, which includes more money for the military, as well for as the departments of Health and Human Services and Education, has something for almost everyone…, almost. One huge wild card stands in the way of this being just another spending bill Congress can check off its list: Trump has publicly and repeatedly threatened to shut down the government if he doesn’t get funding for a border wall — and he has recently expanded his demands. With just 11 working days left to go, the House and Senate must scramble to agree on a spending package in conference and get it to Trump’s desk to be signed. The clock is ticking; the threat of a government shutdown looms on September 30 — the day the government will run out of money.
Senator John McCain will no longer receive treatment for brain cancer. The McCain family issued a statement this morning which said: “The progress of disease and the inexorable advance of age render their verdict. With his usual strength of will, he has now chosen to discontinue medical treatment.”