In this latest issue of my weekly podcast, I look at the equity bull market--its melt up now extending into its sixth week. Further signs of accelerating inflation are appearing, including higher gold and silver prices, rising 10-year breakevens (accounting for virtually all of the climb in the 10Y nominal yield), and a falling dollar. 

The Fed is basking the glow of this new mini-inflation trend. The expectation of rising prices steepens the yield curve; it lowers the "real" interest rate; and it depresses the dollar. And a lower dollar, in turn, makes US exports more competitive, raises earnings for US multinationals, and eases the risk of financial crashes in the emerging market economies. What's not to like here?

Economic news in the U.S. over the last three weeks was mixed. The best signal was a still-hot housing sector--plus a huge budget deal in Washington DC that avoided a fiscal stalemate gave American consumers half a trillion worth of tax cuts and spending hikes over the next decade. (Nothing like spending our kids' money that brings political parties together, right?) The bad news was the same old same old: manufacturing. The SMI manf PMI was under 50 for the fourth month in a row; durable goods orders were down again; and the Philly Fed index dropped almost all the way to zero. 

Abroad, the economic news tilted more toward the negative. China's numbers remained pretty much unchanged from last month. But most of the rest of Asia (Japan, South Korea, India, and Australia) continued to lose steam. In the Eurozone, the new manf PMI for Dec came in at 45.9--which is lower than last month and represents the 10th straight month of contraction. Eurozone consumer confidence dropped to its lowest level in 3 years.

Two questions will determine if the good news economy will last. The first question is whether the U.S. economy continues to grow and whether the global economy continues to stave off further deceleration. Looking at the U.S. and China, markets could be in for a downward adjustment. The second question is WHICH President Trump we are likely to see during this coming year: the deal maker or the populist disrupter. Remember, what helps Trump politically might not help the economy.

The race for the Democratic nomination is a garden that needs weeding. The left's biggest problem, at the moment, is that they have too many candidates. Currently, polls show Biden in the lead with Sanders in second. Both Warren and Buttigieg have started to slip, while Bloomberg’s ad blitz has him around 5%. Klobuchar, Yang, Steyer, Gabbard, and Booker all remain in the low single digits.

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