Yesterday, Federal Reserve Vice Chairman Stanley Fischer spoke about the dangers of low-interest rates. Fischer, whom many think has a better handle on running monetary policy than even Janet Yellen, contradicted the chairman and upped the ante on the interest rate hike game.  The following are his warnings:

• Longer and deeper recessions
• Makes the economy more vulnerable
• Threatens financial stability

Ironically, maybe we are seeing in real time those warnings as the Atlanta Fed now sees the third quarter Gross Domestic Product (GDP) at 1.9%, after initially modeling 3.5%.

However, I was sure the fix was in for the third quarter GDP. Perhaps a surge in business investment can lead to a number north of 2.0%.  It’s amazing how much lower the assumption is now from only a month ago.  The irony is that this proves Fischer’s point. And yet, at the same time, it makes it harder for the Fed to hikes rates.

Oh!  What a tangled web we weave…

Earnings Season

Earnings parade after the market closed on Monday with mixed results:

Netflix (NFLX) beat consensus and streaming margins have increased to 18.8% from 17.5% a year ago.  With 8% of the float short, we could see a big squeeze this morning.

United Continental Holdings (UAL) posted earnings of $3.11. The Street was looking for $3.06, but shares skyrocketed higher.

International Business Machines (IBM) beat on the top and bottom lines, but management only reiterated its guidance and the Street has pounced.

Weighing the Economic Plans

The Tax Foundation has weighed in and found that Donald Trump’s plan significantly boosts the economy more than Clinton’s short-term plan, but it concludes that a longer-term growth would suffer from an additional $10 trillion in debt over the next ten years.

Presidential Economic Plans Tax Foundation Scoring	Trump	Clinton
GDP	8.2%	-2.6%
Cap Investment	23.9%	-7.0%
Wage Rate	+6.3%	-2.1%
Jobs	2.2 million	-697,000

 

Today’s Session

The earnings parade continues with the biggest name of the morning, Goldman Sachs (GS), crushing Wall Street consensus.  Revenue of $8.19 billion increased 19%, earnings of $4.88 up 57.9% with the best performance in fixed income up 34% from a year ago. 

For everyone that claims they don’t know what stocks to buy, and fret about the Fed even as they watch their hard earned cash lose purchasing power daily, take a look at Domino’s Pizza (DPZ).  The stock is a juggernaut because people like it more than its rivals.  If you picked this pizza over other options, then at some point, maybe you should have considered owning the stock.

This morning the company posted blow out earnings paced by same store sales up 12.9%.  The stock is up 445% over the past five years, and while I’m not sure where the top is, I wouldn’t be a seller for a long time (its long on our Sept 2015 newsletter).

 DPZ

Note: Home deliveries are a big reason Dominos is rocking, it has a convenience factor that offsets the groceries prices, which are at 30-year low to restaurants.  This morning’s CPI underscores this trend as food at home declined 2.2% from year ago while food away increased 2.4%.   Overall CPI at +0.3% might be a tad hotter than expected. Driven by medical commodities +4.8%, medical services +5.2% and shelter +3.0%.

Comments

Sometimes it appears we as a country we have lost our basic ability to reason. There is no accounting for the dynamic release of growth created by cutting taxes not to mention cutting regulations and getting the boot off businesses neck! FREEDOM! Again despite inflation and the fed raising rates to contain it, under Reagan we had one month that saw job growth of over 1.7 MILLION with 30 million less people!!!!! Ray Weldon on 10/18/2016 11:14:45 AM

The web is only tangled because we make it so. The Fed doesn't control rates. It only reacts. E.V. Wagoner on 10/18/2016 2:08:19 PM

If the economy could not stand a quarter of one percent increase in the interest rate, we are truly on the edge ready to fall off. Again, the old saying, "When the going gets weird, the weird become consultants." z on 10/18/2016 6:52:41 PM

Tweet

 

Home | Products & Services | Education | In The Media | Help | About Us | Disclaimer | Privacy Policy | Terms of Use | All Rights Reserved.