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Aug 23 2018

8/23/18 Market Notes

Stocks teetered near the flat line with a tilt lower on Wednesday, as investors shrugged off the latest
scandal related to President Trump, instead focusing on strong earnings, in particular from Target
(TGT) whose shares rose more than 3% on strong sales and foot traffic. 2/3rd of the DOW stocks
ended in negative territory as market breadth continued to be overwhelmingly negative. Technology
stocks led markets higher again, as Microsoft (MSFT) gained more than 1%. The U.S. dollar resumed
its bull run, while oil prices were slightly lower and U.S. Treasury prices remained unchanged.

Late Wednesday evening China announced it would retaliate in kind against the United States, whose
new tariffs on $16 billion of Chinese goods take effect today. This time China is targeting steel
products, automobiles and medical equipment, instead of agricultural products as they did in the last
two rounds. Simultaneously, trade delegations from the U.S. and China are kicking off new
negotiations in Washington D.C. today, although few expect any breakthroughs or material advances
ahead of the scheduled December meeting between Trump and Xi Jinping.

European and Asian bourse are slightly higher in overnight trading, while U.S. equity futures are flat
ahead of the three day economic summit in Jackson Hole Wyoming. Monetary policy and trade will
be front and center at the summit as several key transportation companies, including naval shipping
and trucking are reporting pricing pressures as a result of the escalating trade disputes.



The GGFS Investment Committee

Aug 22 2018

8/22/18 Market Notes

The big headlines came after the market closed within a small fraction of its January record high. All
major U.S. stock indexes ended higher as Consumer Discretionary and Telecom shares helped lead
the market higher. Strong earnings from the retail sector helped lift shares of Home Depot (HD) and
Nike (NKE) by about 1% each, while a rally in technology shares helped lift Intel (INTC) shares by
2.41%. Of course all eyes and ears were fixated on the outcome of the Paul Manafort trial and
Michael Cohen plea deal, and the potential implications for President Trump and his administration.
From an investment perspective, these events are unlikely to impact the Trump administration’s
policies and should therefore be viewed as inconsequential when making investment decisions.
However, President Trump’s announcement at a Tuesday evening rally that he plans to “slap at 25%
tariff on every car coming out of Europe” could prove dangerous for investors.

Although stocks rallied on the news that Shino-American trade talks are set to resume, a bit of caution
is warranted as talks between Mexico and the United States, which until about 1 ½ weeks ago were
reported as going very well, abruptly broke off last week. Moreover, while the U.S. trade delegation
has stated that they wanted to make Canada a priority, there is little sign by Ottawa that recent
proposals are even under consideration by our neighbor to the north. And President Trump’s
comments about tariffs on European made cars are likely to be met with a cold shoulder by the ‘oldworld’.

After renewed criticism of Fed Chairman Jerome Powell by President Trump, and (baseless)
accusations that Europe and China were manipulating their currencies, the U.S. dollar sold off slightly
on Tuesday, while U.S. Treasury yields ended lower with the benchmark Ten Year Yield ending
below 2.85%. The strength of the U.S. dollar is almost solely attributable to the strength of the U.S.
economy and consequently diverging Monetary Policies from the major Central Banks of the world.
Japan remains stuck in a zero inflation cycle, while Europe (as a whole) continues to contend with
subpar growth and weakness in the southern regions of the continent. All the while Britain’s Central
Bank is attempting to discern the impact of Brexit, while the People’s Bank of China is dealing with
an internal debt crisis. All of these factors are pushing these Central Bank’s to either remain
exceptionally accommodative in their policy approaches of become more accommodative. All the
while, the U.S. Fed is taking precautionary steps to ensure that our economy does not overheat and
that inflationary pressures remain at bay while wage growth remains tepid. In other words, based on
interests and policy direction, the U.S. dollar should trade at a premium at this time.



The GGFS Investment Committee

Aug 21 2018

8/21/18 Market Notes

Major U.S. stock indexes ended the day within 1% of their all-time highs, as expectations of renewed
trade talks between China and the United States and an absence of new controversy lifted investors’
spirits. The S&P climbed ¼%, bringing the indexes year-to-date return to 6.86%, and while the tech
heavy NASDAQ has struggled a bit as of late, its year-to-date return is nearly double that of the S&P,
standing at 13.29%.

On the economic front, the White House announced that it was not “anywhere close” to coming to a
new trade agreement with Mexico, contradicting statements made by White House economic advisor
Larry Kudlow as recently as last week. Additionally the WH indicated it would now focus its attention
to Canada, which it had placed on the back burner and indicated wasn’t a priority while negotiating
with Mexico. The change in strategy is a further indication of the complexities of trade negotiations.

Toll Brothers, one of the nation’s largest home builders, beat earnings estimates and raised its fullyear
outlook after the market close yesterday (Monday), citing strong prices and sustained high
demand for the positive outlook. This week’s home sales and price data will provide further insights
into the overall health of the housing market, which is critical to a healthy and vibrant economy.

U.S. stock futures are pointing to a higher open this morning, following the track of positive market
performance from Europe and Asia. The U.S. dollar is reversing earlier gains, falling to a 2 week low
against the Euro, while Treasury yields remain depressed ahead of this week’s Jackson Hole summit.

On the international front, the focus remains on Turkey and the Lira, after the Turkish Central Bank
issued new currency valued at 1/1000th of the previous denominations. The move was made in an
effort to curb hyperinflation, however experts agree that it is unlikely to be successful as this move
alone fails to address the underlying issues plaguing what only recently was one of the fastest growing
economies in Europe, fueled by heavy borrowing and low interest rates.



The GGFS Investment Committee

Aug 20 2018

8/20/18 Market Notes

Stocks are set to pick up where they left off on Friday, as equity futures are pointing to a sharply
higher open this Monday morning. Continued optimism that the U.S. and China will make progress in
their trade talks and that a prolonged tit-for-tat trade war can be avoided is lifting investor sentiment.
The U.S. dollar is also up on the news, as are oil prices, with WTI trading above $65 for the first time
since its recent sell-off of more than 10% from recent highs. U.S. Treasury yields are slightly lower
ahead of two relatively large three month and six month auctions to be held later today.

European and Asian bourses are mostly higher to start the week, as optimism over trade lifted shares
across the board. However, the ongoing Turkish debt and currency crisis is capping gains, especially
for Southern European markets whose economies are at somewhat greater risk of contagion than the
more insulated and robust Northern European countries. The timing of the Turkish crisis could prove
educational for international economists, as the terms of the bailout for once debt laden Greece are set
to wind down in the coming months. The process could illustrate further consequences from the
unprecedented steps taken by the world to rescue the beleaguered nation after the 2008 / 2009 global
financial crisis, and serve as an additional guide for Turkey.

The previously announced new tariffs on Chinese goods are set to take effect on Thursday August
23rd. While some investors are hoping for a reprieve as both sides have reportedly reengaged in talks,
most observers doubt that a reversal of course is likely at this stage. However, there is legitimate hope
that the talks will prove constructive enough to avoid counter-tariffs by Beijing, in particular in the
light of recent criticism President XI Jinping has received within China. Should this occur, it would be
viewed as a major policy win for the Trump administration, which has come under significant
criticism from all sides about its aggressive trade tactics.



The GGFS Investment Committee

Aug 17 2018

8/17/18 Market Notes

Word of newly scheduled Shino-American trade talks lifted investor mood and share prices on
Thursday. The Dow Jones Industrial Average climbed 396 points (1.58%) and the S&P 500 gained
0.79%, as sectors of the S&P ended higher. Telecom, consumer staples and utilities rose most, while
the technology sector edged up a mere ¼%. Treasury yields rose slightly after the U.S. dollar reversed
some of its earlier strong gains, and oil rebounded off its intraday lows. In a reversal of normal
patterns, it appears that U.S. technology shares traded mixed to lower in sympathy to a poor earnings
report by Chinese technology powerhouse Tencent, which is often compared to Amazon (AMZN) as
they have similar core businesses.

On the economic front, Housing Starts and Building Permits both came in below expectations in a
further sign that the economically critical housing market continues to cool off. While home prices
remain high, affordability is increasingly narrowing as rising interest rates and lack of supply have
driven costs higher. Southern California and portions of the North East, in particular States with
relatively high taxes (real estate and income), are feeling the most pricing pressure. This mornings
(Friday) Consumer Sentiment and Leading Indicators data will provide further insights into the
strength of the economy.

The Euro, Oil prices, and Treasury prices are all higher this morning as geopolitical and trade tensions
are easing. The next round of trade talks between China and the United States are preliminarily set for
late August, while talks between the U.S. and Mexico appear to be progressing at a steady pace. All
the while there is little progress being made between Canada and the United States, nor has there been
any material advances in trade talks with Europe. None-the-less, there does appear to be a change in
tone and a renewed willingness to negotiate by all sides, something investors are sure to welcome.

Next week could be interesting for market participants, as there is little economic news being released.
The Fed will release its FOMC minutes on Wednesday and the annual Jackson Hole economic
symposium kicks off on Thursday. International finance and business leaders will gather in Jackson
Hole, Wyoming to discuss the state of the world’s affairs and outlook.



The GGFS Investment Committee

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