MID-YEAR TUNE-UP

     Last December, I wrote my forecast for the year 2019. It is now time to check the accuracy and substance of my comments. First on interest rates, I stated that the Fed would probably not raise interest rates for the immediate future. That was correct, the Fed is actually hinting at a rate cut this year if markets deteriorate. I also predicted a slower growth environment for earnings due to the rate increases last year. That also is proving accurate. I predicted that the trade war with China will drag-on, causing price increases on goods manufactured in China. So far this year, Chinese companies have absorbed some of the additional costs due to tariffs but that will not continue very long. Eventually, costs to US consumers will go up if this trade war with China continues. Higher costs means an increase in inflation which is exactly what the Feds want. I also mentioned that the world oil markets were weak which can hurt our export of gas and oil and reduce employment. The latest jobs report showed an anemic 27,000 new jobs created last month. Oil continues to be weak but I don't believe this is anything other than the dynamics of a the global market for oil. It would take many years for the electric car business to put a dent on world oil demand in my opinion. The electric car batteries will be recharged with household current generated mostly with natural gas and coal. Oil companies will continue to drill and I will continue to invest in them for the foreseeable future, My forecast mentioned the treasury yield curve and how it was inverted late last year. The inversion was between the 5yr and the 3mo notes. Recently long dated treasuries have dropped dramatically to where the 10yr note is very close to the 2% level. Currently many short term notes yield more than the 5yr note. When the yield on short rates exceed long rates, I get a little nervous. It shows a lack of confidence in our economy. Bond buyers should get rewarded with higher rates for buying longer term bonds due to many factors involving greater risk. I am currently selling some of my gainers into pockets of strength in this market and investing the proceeds into fixed income. When I look at my holdings, I consider dividend yield (can I get this from a CD?), market multiple (P/E ratio), political risks (heavy Chinese dependence), defensive posture (I like drugs, medical and health care), and finally analyst opinions. I am not giving up on stocks, just easing back and taking what the market has given me. If stocks do correct this year or next, I want plenty of dry powder to apply to my buy list.