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America Is the Best Place in the World, Shellady Says

The U.S. economy has a lot to be proud of right now.

As I look back at my 29-year-long career, so much has changed and so much has not.

I have lived outside of the U.S. for roughly half of my career. It gives one a unique perspective on U.S. politics and more importantly the U.S. markets.

And in that time, I have seen technology basically change the business, so much that it doesn’t look anything like the business that I started in way back in 1988.

The one thing that has stayed the same and endured the test of time is the influence of the U.S. on the world.

It always amazes me that in my travels I run into American influence pretty much every day. From the music we listen to and the movies we watch to the news shows in other languages reporting on our leaders and their actions. We definitely have our ills, and there is a load of room for improvement, but we still have a lot to be proud of.

Take it or leave it, the USA is the best place on earth – right now.

The jobs and wage numbers on Friday were not decisive enough for anyone. They show that the economy is still growing, albeit slowly, but the wage numbers were definitely disappointing.

At its core, that is the biggest issue that I think is facing the Fed – why do the jobs numbers keep coming in pretty good, but we still can’t get any wage inflation? Are the jobs numbers just not any good anymore? What are they really telling us? Sometimes I feel like we should not give them the importance that we have as of late. The real important numbers are the GDP and the Labor Force Participation Rate (LFPR). One is getting better while the other is languishing.

We have seen some upticks in the GDP, unfortunately getting our hopes up because the Labor Force Participation Rate just slid back a bit on Friday. The one single thing that can get the economy going is the LFPR. We still are hanging around that 40-year low, so the good news is we have a lot of room for improvement. So, a better GDP and a softer LFPR – just a big bowl of cold oatmeal. Probably good for you, but it doesn’t taste very good.

I am getting angry with myself as I watch the wrangling in Congress begin about the recently announced tax overhaul plan. Would I ever have imagined that in November we would be talking about getting something meaningful passed with a Republican-majority Congress? No way – but here we are.

I keep getting sucked in only for the used car salesmen that we call lawmakers, to disappoint me over and over again. My apologies to used car salesmen, you are better than to be compared to Congress. This whole charade is such a joke. These guys were given the ball that they longed for and fumbled behind the line of scrimmage.

Do I think that tax reform could help the economy? Absolutely. Do I think that what has been proposed will be what comes out the other end of the sausage grinder? No way. Do I know when it will happen? All I know is when I would like it to happen and so far, I have been disappointed at every turn. They aren’t going to do it to me again. Show me the money. Show me the bill. Show me some integrity.

Today, we hear that Bank of America believes that the economy will be just fine without a tax overhaul, but the stock market might be a little different. I say this: With only 35 days to sort things out business-wise between now and the end of the year, Congress stays consistent and disappoints us yet again.

And another thing...

An interesting read from Artemis Capital Management on volatility. It talks about the never-ending fearless trade of late, which is to go short volatility.

Just look at the VIX index and ask yourself where, if any, is the fear. The powerful takeaway from the story is the ‘reflexive’ nature of volatility, meaning that the less volatile things are the less volatile they become.

The problem lies in the fact that the market is betting even bigger that volatility will stay low. The bet is bigger than the bet that the stock market stays high. And the basic premise of the report is that when the trend reverses, with the amount of money involved we will see hyper spikes in volatility.

Because as the reflexivity of lower volatility begets lower volatility, it will happen in the reverse on the way up – higher volatility will bring us higher volatility. That will not be a pretty site.

These behaviors are the direct result of the quantitative easing that the global Central Banks embarked upon in an effort to be seen as doing something – rather than nothing.

I think that in hindsight, the option of doing nothing and letting nature take its course would have been a better outcome than the mess we find ourselves in today, for the basic reason that there is no painless way out. Markets have not been behaving the way that they normally behave.

Trader after trader is being blown out of the water when he or she uses memory and the lessons learned as their lighthouse in the trading world. Nothing acts like it used to and it won’t, until the last bloodied trader has had his or her memory beaten out of them. Then and only then will the markets go back to acting like they used to.

So, now we have Brexit on our doorstep, a Germany that is secretly preparing for a breakup of the EU, North Korea, the Saudi drama, and a downward spiral in volatility. This all gets us to this point where as the movie says, “Something’s got to give, baby.” The when and the what are the billion-dollar questions.


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