The kids are back in school, and Congress and the Federal Reserve are back in session. The big news in September had to do with the Federal Reserve’s unwinding of its post-financial crisis monetary policy. At a two-day meeting this month, Fed members unanimously agreed to reduce their $4.5 trillion portfolio of bonds and other assets. Starting in October, they will curtail the practice of fully reinvesting the principal payments of maturing bonds into new bonds. As a first step, the Fed will allow $10 billion to roll off without reinvesting. Each month, they will add $10 billion to that total, maxing out at $50 billion a month.
How will this action play out? That’s uncertain. It’s like those ancient maps where people mapped out the edges of a territory while serpents and dragons exist on the fringes. There is no equivalent event in history. No one knows for sure what will happen. Perhaps one comparison is to the Savings and Loans crisis of the 1980s and 1990s. Between 1980 and 1984, the FDIC closed more than 1,600 banks that it insured, while others received FDIC financial assistance. In resolving the crisis, the federal government ended up appropriating $105 billion. But that amounted to only a fraction of the size of what the Fed is doing now.
The Economy Keeps on Keepin’ On
While Houston and Louisiana got battered by Hurricane Harry, Florida by Irma, and the Caribbean by Irma, Jose, and Maria, the anticipated market volatility in September didn’t occur. The economy appears to be growing at a moderate rate with price inflation and unemployment low remaining low. Some people are scratching their heads. “I can’t easily say I can easily point to a sufficient set of factors that explain this year why inflation has been as low,” Fed chair Janet Yellen said. In the months to come, weather-related disruptions may distort economic data, making it difficult to clarify the logic behind the numbers.
Even as investors anticipated the Fed’s decision, the markets kept plowing ahead. The three major stock indices hit record highs—the Dow Jones Industrial Average, 22,370.80; the S&P, 2,506.65; and the Nasdaq Composite, 6,641.32. And there remains room for optimism. Over at Blackstone, investing guru Byron Wien predicts that we won’t see bear market or a recession until at least 2019. He thinks strong earnings growth will continue to drive the market higher. Let’s hope he’s right!
On a Lighter Note
For avid runners, it’s time to gear up for San Francisco’s October 1, 2017 12K Bridge to Bridge Run and Expo. It’s your pick as to whether to run 5K or 12K on a scenic waterfront route from Justin Herman Plaza to a post-run party with food and music at the Marina Green.
Fleet Week kicks off on October 2 and includes Navy ship tours at the Marina Green, as well as band concerts, a Friday parade of ships under the Golden Gate Bridge, weekend air shows with the Blue Angels, and fireworks on Saturday.
And for country bluegrass lovers, mark October 6 to 8 on your calendars. Hardly Strictly Bluegrass presents 100 country and bluegrass acts on multiple stages with food sold by 50 vendors in Golden Gate Park. It’s free, thanks to the festival’s founder, Warren Hellman, an American private equity investor and co-founder of Hellman & Friedman, a multibillion-dollar private equity firm.
Click this link to view the balance of the Vista Partners September Macroeconomic & Investment Newsletter, which centers its focus on the Dow 30 and Select Emerging Growth companies.