By Haddon Libby
With everything that you hear in the news, it is often easiest to just shut it all off and go about your life in a relatively oblivious way. When you stop and think about it, the words of President Trump, the Chairman of the Federal Reserve or the IPO of Lyft seem cannot possibly have much of an impact on your life – or can they? By understanding how these macro events impact your life, you are better positioned to make decisions in your life.
To keep things simple, let’s pretend that you want to become a realtor. If we are at the start of a home buying frenzy, it will be much easier for you to get started and become successful. If we are at the tail end of a home buying cycle, buyers and sellers alike will have better access to realtors with more experience – which is not as good for you as a start-up.
How could the Initial Public Offering of the ride-hailing service Lyft mean anything to you? Directly, nothing, unless you own their stock or drive a taxi. Investors seem poised to overpay for a company that does not have a clear path to profitability. History tells us that overpaying for new stocks is a sign that we are toward the end of a strong economic period. As last year was the strongest year in fifty years for the U.S. economy, it stands to reason that the IPO of Lyft is an indicator that the good economic times may slow over the next one or two years.
If the economy slows down, how could your job change?
The Federal Reserve was cock strong at the end of last year proclaiming with bravado that the economy was so strong that they could increase interest rates in almost an automatic way for some time to come. This was said while the European Union and China were slipping into recession. Did our Federal Reserve care about those offshore concerns? Not really because the United States was strong and they were following the playbook which said that increased rates were needed so that prices would not spiral out of control. One month after this bold pronouncement, Chairman Powell came out and in a very carefully scripted way stated that they could wait for a while on further rate increases.
Then came last week where Chairman Powell said (and I’m paraphrasing), “Sorry. My bad! Rates are high enough. You see, we were reading results from the summer and they looked amazing so we didn’t check again in the fall and well…you know, things definitely don’t look so good, in fact those problems in China and Europe seem to be hurting us and, like I’m new on the job…a really hard one and it does not help when President Trump of all people is right and we were well, not so right and so, hey we might even need to drop rates.”
If you followed the Fed’s actions over the last few months, you would have cut back on spending at Christmas only to buy a new car for Valentine’s Day to thinking that you could afford a second house on St. Patrick’s Day to wanting to pay off all debt for safety’s sake. For what it is worth, these double head fakes by the Federal Reserve did not happen until President Trump came to office. Janet Yellen did a similar move in 2016 only to be trumped by Powell last week. Normally, the pronouncements and actions of the Federal Reserve are good future indicators from which you can make better decisions related to your own future.
As coming to conclusions from all of these data points can be difficult if not impossible for most people, consider changing your news sources to less opinionated ones like CNBC, Bloomberg Radio/TV, AM1200 or barrons.com. While these news sources will not include the more sensational stories that consume the majority of traditional news media time, they share a lot of information and analysis that will ultimately help you in making decisions about your future.
Haddon Libby is the Managing Partner and Founder of the Fiduciary Only investment management firm, Winslow Drake. For more information, please contact Haddon at Hlibby@WinslowDrake.com or visit www.WinslowDrake.com.
