Brexit Deadlock and Investor Uncertainty

Markets welcomed the European Union’s decision in April to push the Brexit deadline back to October 31 in order to provide the UK with more time to reach agreement on the terms of a withdrawal treaty.

The risk that the UK would fall into an unwanted “hard” no-deal exit appeared to be substantially reduced. However, since that decision, there has been virtually no evidence of progress in the talks between the two principal political parties, Conservative and Labour. Political paralysis in London is a main cause of what the head of the European Central Bank, Mario Draghi, has called the “persuasive uncertainty“ affecting European markets. Both parties are severely split between those wishing to leave the European Union and be free of all EU obligations and those wishing to remain a member of the EU or at least be in a close trading relationship, a customs union, along with the obligations that arrangement would entail.

Last week’s local elections in England have shown the voters’ frustration with this situation, with both of the leading parties suffering major losses. The BBC projects that the Conservatives lost 1300 councilor seats and Labour lost 80, whereas the Liberal Democrats gained 700 seats, the Independents 600, and the Greens 194. The wave of rejection rising against the two major parties looks likely to become more evident in three weeks, on May 23, when the UK participates in the election of members to the European Parliament. There will be an important new party contesting in that election, the Brexit Party, which is unconditionally for leaving the European Union. It will attract strong “leave” supporters from Labour and even more from the Conservative Party.

Some three years have slipped by since the referendum vote to leave the EU, yet we are still unsure whether Britain will finally be able to make its mind up by October 31. Many possible developments in the next six months, such as a change in leadership of the Conservative Party, a new general election, or even a second referendum, could affect the outcome. With the nation’s being split on the issue and feelings on both sides running high, a period of political turmoil and continued uncertainty looks likely. If a compromise deal is struck, it probably will be a “soft Brexit” including some form of customs union and perhaps an agreement to follow EU standards on workers’ rights and environmental standards. Should October 31 arrive with no agreed deal, the EU will be faced with the difficult choice of further extending the deadline or permitting the UK to fall into a no-deal “hard Brexit.”

The most important effect of the continuing uncertainty about the UK’s future relationship with the EU is its impact on investment decisions. The British economy is deeply integrated with the rest of the EU, with the UK’s closest trading partners in the EU being Ireland, the Netherlands, and Belgium. The Economist notes that every day “nearly 3,400 lorries are ferried between Rotterdam’s port and Britain.” Finance, direct investment, and migrant labor flows are also important elements of this integration. It is understandable that many firms are postponing investment decisions or in some cases assuming the worst and relocating some operations to other EU countries. The effects on the City of London’s business could be severe. For example, in March the EU regulators announced that if the UK should leave the EU without a deal, European banks and asset managers would have to trade a number of UK stocks, including major ones like Royal Dutch Shell and Vodafone, in the EU rather than in London.

Financial investors also are being affected by Brexit uncertainty. The Financial Times reports that Morningstar’s research reveals that investment funds based in the UK experienced outflows in the 12 months to the end of March totaling 30 billion pounds as investors switched out of UK assets and into EU-regulated products. These flows also included internal transfers from the UK to the EU by several asset managers in order to protect their EU business.

It is not surprising that UK stock prices have been underperforming. For example, over the past three years, when the SPDR S&P 500 ETF, SPY, gained an average annual return of 14.08%, the iShares MSCI United Kingdom ETF, EWU, gained an average annual return of just 4.79%. Thus UK stock valuations are becoming relatively attractive – but only if one does not consider the Brexit risk. The FTSE price/book ratio is now 1.7 times (compared with 3.5 times for the S&P 500) and has attracted the return of some international investors this year. At Cumberland Advisors, however, we continue not to include UK-specific ETFs in our International and Global portfolios because we consider the risks knit into Brexit uncertainties to be too high.

Bill Witherell, Ph.D.
Chief Global Economist & Portfolio Manager
Email | Bio


Sources: Financial Times, Wall Street Journal, The Economist, Goldman Sachs, etf.com, Morningstar


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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Cumberland Advisors Week in Review (April 29, 2019 – May 03, 2019)

The Cumberland Advisors Week in Review is a recap of news, commentary, and opinion from our team. These are not revised assessments, and circumstances may have changed in the market from the time of original publication. We also include older commentaries that our editors have determined may be of interest to our audience. Your feedback is always welcome.

Week In Review

MATT MCALEER’S WEEKLY RECAP

Matt appears in this week’s video with his Kentucky Derby picks, dressed up in Derby attire!

Happy Kentucky Derby Weekend! What are we talking about this round?

  • Volatility
  • Tech Numbers have been solid
  • QQQ & Nasdaq at all time high
  • Concern about Energy
  • S&P Earnings
  • Where to put Cash

And we wrap up with picks for the Kentucky Derby by Matt McAleer, and John Mousseau.

Market Commentary - Cumberland Advisors - Week in Review with Matt McAleer

Yesterday, May 3rd, was World Press Freedom Day. We took a moment to stop and reflect on the role of a free press and how it affects our day-to-day lives. The Committee to Protect Journalists (CPJ) states: “Please join us as we pause to recognize the courage and commitment of all those reporting, whether local or global, as press freedom is increasingly threatened around the globe.” You can learn more about CPJ here: https://cpj.org

Cumberland Advisors recently invited Gretchen Morgenson to our conference, “Financial Markets and the Economy – Financial Literacy Day III,” and we encourage you to watch her keynote address, titled “Why Financial Literacy Depends on Press Freedom,” at the link further down in this update. She has some excellent takeaways and anecdotes underscoring how important the press is for an accurate window on what’s happening behind markets and the world of finance.

Her video along with others is on our YouTube channel, updated weekly with Matt’s videos and other content that we produce and feel will be of value to you. Link: https://www.youtube.com/CumberlandAdvisors

Thank you for joining us and have a great Kentucky Derby weekend.


Read the full Cumberland Advisors Week in Review here: Weekly Update.




Cumberland Advisors Market Commentary – Q1 2019 Credit Commentary

A positive tone continues for the credit quality of municipal bonds, and municipal performance has been strong as a result of low supply, high demand, and lower rates. (See John Mousseau’s “http://www.cumber.com/1q2019-review-tax-free-municipal-bond-a-shining-first-quarter-for-munis/.”)

Cumberland Advisors Market Commentary - Municipal Credit

After some states reported revenues tracking well below projections in January, fears of a substantial drop-off in state tax collections are being allayed, with tax collections up year-over-year in February and March according to Morgan Stanley’s META 13 state sample (“Municipal Early Tax Analysis”). New Jersey may be bucking that trend, as revenue collections, though somewhat improved, are still under budget.

Source: AlphaWise, Morgan Stanley Research

Last quarter (see “http://www.cumber.com/q4-2018-credit-commentary-and-a-look-ahead-to-2019/”) we pondered whether the credit quality of municipal bonds was plateauing. However, with continued economic growth and upgrades still outpacing downgrades, we have likely not hit a plateau, though the upward slope in the improvement of credit quality is not as steep now. Economic activity and revenues are up generally, and many municipalities have built up rainy day funds, although wage pressure is appearing in budgets. And of course there are a number of municipalities that have not built up reserves or have not been able to attain structural balance and reduction of liabilities. There are numerous long term items that municipalities need to consider addressing sooner rather than later because they could become more burdensome.  These include funding pension plans, improving infrastructure and climate resiliency, adjusting to changing demographics, and being cyber secure.  The improved revenue picture has led some municipalities to add or expand programs and services while some have increased payments to pension plans or reduced debt. How municipalities plan and prepare are some of the determinants in assessing credit quality.

Upgrades continue to outpace downgrades

Moody’s released a rating revisions report for 2018 showing that for the fourth year in a row upgrades outpaced downgrades, demonstrating the continuing trend of improving credit quality across public finance. Rating changes were down almost 30% from 2017, with 480 upgrades compared with 392 downgrades; and, based on par, the value of bonds upgraded was more than double that of debt downgraded, at $99.4 billion compared with $42.0 billion. S&P’s most recent rating activity report, with data through the third quarter, also showed that rating-change activity declined and that upgrades outpaced downgrades. The only sectors to experience more downgrades than upgrades were Higher Education at both Moody’s and S&P and Healthcare at S&P. We have long noted the challenges these types of institutions have faced, such as declining enrollment at higher education institutions and a very competitive landscape for healthcare organizations.

Rating changes generally lag economic activity, for several reasons. A strong financial cushion or rainy day fund built up in good times enables a municipality to withstand a downturn in revenues or an unexpected increase in expenses. Rating agencies do not always immediately downgrade an issue on bad news; before they take action, they wait to see how the issuer will react and whether the issuer addresses the event or negative trend effectively. Other market participants can act sooner by exiting a bond before it is downgraded or buying a bond before it is upgraded. For example, Cumberland exited the bonds of the states of Illinois, New Jersey, and Connecticut years ago and avoided a long string of downgrades. Similarly, ahead of a major storm we compare our holdings with the trajectory of the storm and exit credits that might be affected negatively.

Many general-obligation bonds have lagged revenue collections, so that when the economy declined, revenues collected were based on an earlier period’s property values. This tendency is offset by lower growth in property tax collections during periods of recovery. New York City has a five-year lag in property valuations, and its debt has historically yielded countercyclical benefits.

Moody’s upgraded New York City’s general-obligation bond rating to Aa1 in March. The upgrade reflects continued strengthening and a diversification of New York City’s economy, reducing its reliance on volatile financial services. Moody’s cites the city’s competitive advantages, including a young and highly skilled labor pool, access to higher education and medical centers, strong domestic and international transportation links, and low crime rate. The upgrade also reflects the city’s ongoing strong budgetary and financial management, which includes frequent updates to multi-year financial plans, producing a transparent view of future budgetary pressures. Moody’s notes that although the city’s debt burden is above-average, the fixed costs for debt service, pensions, and retiree health care have decreased and are now below the median for the largest local governments and in the bottom five among the nation’s largest cities.

The municipality has historically budgeted conservatively and has mechanisms that trigger timely spending cuts or revenue increases. Much of the discipline involved in this process was instituted after New York’s financial crisis in the mid-1970s.

Sometimes states or municipalities that have been through a financial crisis emerge stronger. That may not be the case for Puerto Rico, however, because so far there is no discipline, and the people of the commonwealth and its bondholders are suffering. (See “1Q2019 Review: Puerto Rico,” by Shaun Burgess, http://www.cumber.com/1q2019-review-puerto-rico/.)

State Ratings Changes

There were no state rating changes in the quarter; however, the outlook for Connecticut’s rating was changed to positive by S&P, based on the increased likelihood that the state will preserve until the end of fiscal 2019 its recently replenished reserves at what S&P considers to be the strong level of 10.2%, and also based on prospects that the state’s high debt levels could moderate if the governor’s proposal for a “debt diet” is carried through into policy. The state has a plan to budget conservatively, use any excess income tax revenues above-budget to bolster reserves, and limit general-obligation debt borrowing. However, S&P notes that a budgetary balance could come from reductions in local aid, a tactic we have discussed before that provides states with flexibility, albeit at the expense of agencies and municipalities. Connecticut has a number of wealthy, highly rated municipalities that may have to raise taxes, a move which could cause a further exodus from the state. The state capital and other sizable cities have already challenged finances and ratings.

Internet Sales Tax Update

States’ 2020 budgets show incremental increases in sales tax collections through the taxing of transactions within a state from retailers that do not have a physical presence in that state – a result of the South Dakota v. Wayfair decision. We discussed the Wayfair decision in a commentary last July: http://www.cumber.com/scotus-two-major-rulings-with-positive-implications-for-municipal-bond-credit-quality/?print=pdf. Moody’s notes that, though small so far, the increases are a positive development for state governments, and a majority of sales tax growth is expected to come from remote retailers. Revenue estimates are just that, since data is currently limited and reporting issues need to be worked out. According to The National Law Review, 36 states have enacted laws allowing them to collect remote online sales taxes and an additional seven are considering legislation. Moody’s estimates these changes will help states that are rural and have few retailers, while states that have dense populations and numerous retailers will see less of an increase. All in all, this is a good development for municipal credits, because the trend of online purchasing continues to grow, and thus the new laws save a revenue source that had started to slow without the ability to collect on remote sales.

Changes in Accounting Improve Municipal Transparency – to a Point

Governmental Accounting Standards Board (GASB) Statement 88 requires that notes to financial statements present direct borrowings and direct placements of debt separately from other types of debt. Direct borrowings and direct placements may expose a government to risks that are different from or additional to those incurred with other types of debt, such as the option for early prepayment making direct debt a priority over public debt. Statement 88 also requires the disclosure of amounts of unused lines of credit, assets pledged as collateral for debt, and terms specified in debt agreements related to significant (1) events of default with finance-related consequences, (2) termination events with finance-related consequences, and (3) subjective acceleration clauses. This requirement will help to make evaluating a municipality’s’ debt picture much more transparent.

Incidentally, for years the National Federation of Municipal Analysts has encouraged municipalities to disclose information on new direct borrowings when those agreements are entered into, instead of disclosing those obligations only in financial statements. Such disclosures are especially important because most municipalities issue financial statements only annually, and many months after the end of the fiscal year. During the financial crisis, some bank loans and swap agreements resulted in bumped-up costs or large termination payments to municipalities, causing negative credit situations, so it is important for these items to be disclosed.

Infrastructure Plan: Desires Are High, But Prospects Are Meagre

Many agree that US infrastructure is in need of an overhaul. The American Society of Civil Engineers report card on the quality of US infrastructure grades it D+! There is bipartisan agreement that something needs to be done and that the federal government should lead the way or at least provide some funding, but there are now disparate proposals and suggestions that go beyond giving municipalities better access to federal funds to finance infrastructure investment. Some ideas include resurrecting the Build America Bond program or forming an infrastructure bond bank, and in February the Senate Finance Committee introduced a Public Buildings Renewal Act that would authorize $5 billion in private activity bonds (PABs) for construction and restoration of public buildings and permit government-owned buildings to be eligible for public-private partnerships without giving up their tax-exempt status. However, with election-year politics already taking up Congresspersons’ time, the prospects for a full plan this year or next are waning. We expect there to be lots of activity around Infrastructure Week, May 13–20, but a final program is not likely.

Short of a full infrastructure plan there may be hope that some changes can be introduced to make financing of infrastructure more affordable. Municipal Bonds for America (MBFA), a nonpartisan coalition of municipal bond issuers and state and local government officials and other municipal-market professionals are working to explain the benefits of the tax-exempt municipal bond market. MBFA and other groups such as the National Association of Bond Lawyers have submitted suggestions for encouraging more investment in infrastructure to congressional committees. Major suggestions include the following:

  • -Restore advanced refundings
  • -Expand private activity bonds
  • -Restore direct pay bonds (BABs)
  • -Increase the bank-qualified loan limit

At Cumberland Advisors, we continuously follow legislative developments, accounting pronouncements, economic and demographic trends, and other news items, incorporate them into our views of the economy and markets, and employ them in our buy and sell decisions. The majority of our municipal bond holdings have AA ratings with diverse economic bases and strong financial performance.

Patricia Healy, CFA
Senior Vice President of Research and Portfolio Manager
Email | Bio

Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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Fed Appointees

“If the Fed had done its job properly, which it has not, the Stock Market would have been up 5000 to 10,000 additional points, and GDP would have been well over 4% instead of 3%…with almost no inflation. Quantitative tightening was a killer, should have done the exact opposite!” – President Donald Trump, April 14, 2019, 7:14 AM (source: Twitter, https://twitter.com/realdonaldtrump/status/1117428291227533312)

Market Commentary - Cumberland Advisors - Fed Appointees

“We’re strictly nonpartisan. We check our political identification at the door.” – Federal Reserve Chair Jerome Powell, April 11, 2019 (source: Washington Post, https://www.washingtonpost.com/politics/powell-maintains-his-distance-from-trump-in-speech-to-house-democrats/2019/04/11/d37ed30c-5cc7-11e9-b8e3-b03311fbbbfe_story.html?utm_term=.6e03fb627e71).

In response to President Trump’s stated desire to appoint Stephen Moore and Herman Cain to vacant seats on the Board of Governors of the Federal Reserve, on April 15, Steve Cecchetti and Kim Schoenholtz published a thorough, extremely well-reasoned piece rebutting the president, entitled “Qualifying for the Fed” (https://www.moneyandbanking.com/commentary/2019/4/14/qualifying-for-the-fed). (Cecchetti and Shoenholtz are highly respected, deeply qualified economists whose biographies may be reviewed here: https://www.moneyandbanking.com/the-authors. They are the coauthors of Money, Banking and Financial Markets (available from your local indie bookstore or Amazon https://www.amazon.com/Banking-Financial-Markets-Stephen-Cecchetti/dp/007802174X.)

The authors assert, “Monetary economists of nearly all persuasions are overwhelming in their condemnation of President Trump’s desire to appoint [Moore and Cain],” and they cite “the full-throated case for a high-quality Board offered by Greg Mankiw – former Chief of the Council of Economic Advisers under President George W. Bush.”

Mankiw published his thoughts in The New York Times on April 11, under the title “Keep the Federal Reserve I Love Alive” (https://www.nytimes.com/2019/04/11/business/mankiw-moore-cain-federal-reserve.html). Mankiw opens with this:

“I have a confession to make: I love the Federal Reserve. And I suspect that, in their heart of hearts, most other economists love the Federal Reserve, too. But I fear our love may be in peril.

“We live in a time when many public institutions seem to be failing us. The White House is in constant turmoil, with extraordinarily high turnover among top staff members. Congress is as polarized as ever, not having done much over the past two years other than pass the mess of the 2017 tax bill. Even the Supreme Court appears less dispassionate and more partisan than it should be.”

Herman Cain has now withdrawn his candidacy, because, he said, “I could not run my business; I could not pursue my business interest [if] I had to be politically correct in anything or be nonpartisan” (source: https://www.foxbusiness.com/politics/herman-cain-says-he-declined-trumps-fed-board-nomination-over-political-correctness).

Stephen Moore stated to The Wall Street Journal that he would withdraw from consideration if he became a political liability for the White House and Senate Republicans (source: https://www.wsj.com/articles/moore-hopeful-for-fed-post-but-says-he-would-bow-out-if-he-becomes-liability-11556143736).

Thoughtful readers are asked to take a few minutes to read the linked comments above and the essays and comments by Mankiw. Now let me get to my own thoughts on the Fed and politics.

Jay Powell states the Fed’s viewpoint nearly perfectly. As chairman, he has scrupulously avoided political combat with Trump’s Twitter assertions. His colleagues on the Board of Governors and his FOMC colleagues who are regional presidents (12 of them) follow the same protocol. To summarize it: The Fed is an independent policy-making institution and is above political partisanship.  That is usually true but not always.

Let’s start by reviewing a key moment in Federal Reserve history: the Treasury-Fed Accord of March 1951.  Inflation ran rampant in the US in the postwar era. By February 1951, CPI had reached an annualized rate of 21 percent; and with the Korean War heating up, the Fed faced the possibility of having to monetize a considerable portion of new government debt. But the Truman administration was committed to maintaining a low-interest-rate peg in order to protect the value of war bonds – a position the FOMC found increasingly untenable.

The website Federal Reserve History explains what unfolded next:

“The conflict came to a head when Truman invited the entire FOMC to a meeting at the White House. After the meeting, he issued a statement saying that the FOMC had ‘pledged its support to President Truman to maintain the stability of Government securities as long as the emergency lasts.’ But in fact the FOMC had made no such pledge. With conflicting stories about the dispute appearing in the press, Eccles decided to release the FOMC’s own account of the meeting with the president–without consulting the rest of the committee. As Eccles wrote in his memoir, ‘The fat was in the fire….’

“Shortly after that meeting, the Fed informed the Treasury that as of February 19, 1951, it would no longer ‘maintain the existing situation.’ Needing to refund existing debt and possibly issue new debt, the Treasury knew it had to put an end to the uncertainty and public dispute.” (source: https://www.federalreservehistory.org/essays/treasury_fed_accord)

A compromise was negotiated between the Treasury and Fed, by which the Fed would continue to support the price of five-year notes for a short time, but after that the bond market would be on its own. Then, on March 4, 1951, the Treasury and the Fed issued a joint statement saying they had “reached full accord with respect to debt management and monetary policies to be pursued in furthering their common purpose and to assure the successful financing of the government’s requirements and, at the same time, to minimize monetization of the public debt.”

This accord “marked the start of the development of a strong free market in government securities, which continues today. In addition, the debate over the consequences of interest rate pegging marked a shift in thinking at the Fed. Monetary policymakers began focusing actively on bank reserves and the control of money creation in order to stabilize the purchasing power of the dollar. But most important, by establishing the central bank’s independence from fiscal concerns, the accord set the stage for the development of modern monetary policy.” (source: https://www.federalreservehistory.org/essays/treasury_fed_accord)

Rarely has a sitting FOMC member violated the Fed’s apolitical stance. One exception is existing Fed governor Lael Brainard, who made a political contribution to Hillary Clinton’s presidential campaign. (See https://www.wsj.com/articles/feds-brainard-made-recent-donations-to-clinton-campaign-1457456261 and https://www.washingtonpost.com/news/wonk/wp/2016/04/21/top-federal-reserve-official-donates-to-hillary-clintons-campaign/.)  Brainard’s action was greeted with silence by some in the economic and finance community who were fearful of criticizing a Fed governor. Others were openly critical. I was one of the latter, as I believe a political declaration by a sitting Fed official undermines the Fed’s claim to full independence.

Retired Fed officials, on the other hand, are freely acting citizens and are openly political on all sides of issues. Many are not afraid to constructively criticize the actions of their former institution and colleagues past or present.

What about proposed Fed officials?

Here we have a different construct. It is clear that presidents use Fed appointments for political purposes, and furthermore most presidents try to appoint those who favor their own views. History reveals plenty of bias here.

Nearly all presidents favor lower interest rates and easier monetary policy. Not one president has said “Raise rates” or “Tighten credit conditions” or “Please trigger a recession.”

At the same time, presidents want the Fed to fight inflation in periods when that action is needed (for instance in the 1970s and 1980s). But during wartime, presidents want help from the Fed to finance the war. In the 1940s, Franklin Roosevelt’s Fed followed a patriotic path for years, with low interest rates and nearly unlimited financial assistance to America’s war effort (a path that then led to postwar inflation and the Treasury-Fed crisis).

So prospective Fed appointees have political baggage in most cases. And many had previously served in the federal government or in advisory roles to the president. By itself, such service is not an impediment since the political process in the Senate around appointments to the Board of Governors is intense.  Most appointees have academic credentials in economics and finance.

Some appointees are from the business community. Elizabeth Duke was a banker who was well respected by her peers. (See https://money.cnn.com/2013/07/11/news/economy/elizabeth-duke-fed/index.html.) G. William Miller was a businessman and Carter political appointee who has been viewed unfavorably by historians. (See https://en.wikipedia.org/wiki/G._William_Miller.)

So Cain is now out, and Moore seems to be having trouble making it to the Senate confirmation process. (See https://qz.com/1579975/stephen-moore-a-federal-reserve-nominee-may-not-make-it-to-the-senate/.)

What happens next, then, with Fed appointees if both Cain and Moore have been rejected?

Probably nothing. That would allow President Trump to continue his Fed bashing whenever it suits his political convenience. It would also remove an item of distraction from a US Senate that has its hands full.

The Fed board now operates with five of seven governors’ seats filled. And the FOMC operates with ten voting instead of twelve: Five presidents and five governors decide interest-rate policy.  Politics has created the five governor pattern for over a decade.  A full seven member seated Board of Governors is now the anomaly.

The Fed is now on hold with rates and is tenaciously data-driven in word and deed. For guidance, we can now discern some probabilities in the distribution of dots in the Fed’s dot plots. We don’t get exact forecasts, just guidance. We also see Taylor rule models being used as guidance tools for Fed action rather than Phillips Curve models, which are now out of favor.

Our best guess is that the next Fed rate move will be up and is a year away. Closing output gaps suggest that outcome. Months of nuanced upward inflation may gradually allow the Fed to resume hiking.

We think futures forecasts of Fed cuts are overdone. And the same is true for the monster bond market rally. The Cumberland bond team has become more defensive, with weight added to the short end of the barbell.

As for politics and the Fed, Powell is to be applauded for his carefully scripted comments. With regard to Trump’s Twitter rages and Fed bashing, many market agents seem to ignore the president.  Trump moves markets on some issues but not on Fed bashing.

David R. Kotok
Chairman and Chief Investment Officer
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

Sign up for our FREE Cumberland Market Commentaries

Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.




Cumberland Advisors Market Commentary –  Deficit About to Worsen

The Bloomberg Close ended its April 22 daily report with the following:

“What retirement? For the first time in 57 years, the participation rate in the U.S. labor force of retirement-age workers has cracked the 20% mark, according to a new report. As of February, the ranks of people 65 or older who are working or seeking paid work doubled from a low of 10% back in early 1985. Rickety social safety nets, inadequate savings and sky-high health costs are all conspiring to make the concept of leaving the workforce something to be more feared than desired.” (source: https://www.bloomberg.com/news/articles/2019-04-22/america-s-elderly-are-twice-as-likely-to-work-now-than-in-1985)

Cumberland Advisors Market Commentary

Why worry? According to the April 22 Wall Street Journal,

“The Social Security program’s costs will exceed its income in 2020 for the first time since 1982, forcing the program to dip into its nearly $3 trillion trust fund to cover benefits. The shortfall comes two years later than projected last year – when the program was expected to dip into the fund, but ended up in the black. But by 2035, those reserves will be depleted and Social Security will no longer be able to pay its full scheduled benefits.” (source, WSJ {Subscription req.}: https://www.wsj.com/articles/social-security-trust-fund-to-be-depleted-in-2035-trustees-say-11555946113)

In one year, this watershed moment for the Social Security trust fund will begin to have a small negative impact on the US Treasury market. At first, the impact will not really be noticed in bond pricing, but it is destined to worsen each and every year. When will the market start to anticipate the trend? What will the change in pricing be? Will it affect the FX rates between the US dollar and other world currencies? Is there a period ahead when higher taxes will be necessary to try to stem the damage?

The Committee for a Responsible Federal Budget (CRFB) has just published a paper that summarizes and comments on the looming issues with Social Security. Called “Analysis of the 2019 Social Security Trustees’ Report,” the April 22, 2019, paper pulls no punches – I suggest readers have two stiff shots of scotch or vodka with this one. Maya MacGuineas, CRFB president, has kindly given us permission to share the entire report with our readers. The report is here: http://www.crfb.org/papers/analysis-2019-social-security-trustees-report.

Remember, there is an arbitrary and politically driven budget accounting method that has allowed the Social Security and other trust funds to dampen the size of publicly stated deficits. Politically motivated financial legerdemain is ending and the reverse negative effect is about to commence.

David R. Kotok
Chairman and Chief Investment Officer
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.




Cumberland Advisors Market Commentary –  US-Canada Economics: An Interview with Susan Harper, Consul General

Financial Markets and the Economy – Financial Literacy Day III, the conference that Cumberland sponsored at the University of South Florida Sarasota-Manatee (USFSM) on April 11, featured a conversation between myself and Susan Harper, Canada’s Consul General in Miami.

US-Canada - An Interview with Susan Harper, Canadian Consul General, Miami

I opened the interview by expressing my personal view of the importance of the durable relationship between the US and Canada and why we must not undermine it. Then I gave Susan the floor. She shared with us some very interesting and quite eye-opening statistics on the US-Canada economic relationship.

The US and Canada are each other’s largest trading partners, but what is somewhat surprising is the extent and significance of the Canadian economic presence in Florida and in the Florida West Coast. Some 500 Canadian companies are present in Florida, at nearly 3500 locations.

Exports

When we think about the impact of a foreign country on our economy, we tend to think first in terms of exports – how much do we sell to them? Well, the US exports more goods to Canada than it does to China, the UK, and Japan combined (Source: Susan-Harper-Canada-Conversation-Slidedeck).

US-Canada - An Interview with Susan Harper, Canadian Consul General, Miami Trade Chart

Among all nations, Canada ranks second in exports from Florida and third in services exports. Canada is also third in imports to Florida, first in visitors to Florida, and second in investment in Florida (figures from the Florida Chamber of Commerce).

Thirteen percent of Florida’s exports go to Canada, an amount totaling $51.6 billion in 2018. For Hillsborough Co. (Tampa), those figures were 25% and $5.7 billion. The value of exports to Canada from other West Coast counties is as follows:

Pinellas (St. Pete, Clearwater) $381 million
Manatee $72 million
Sarasota $99 million
Charlotte $29 million
Lee $72 million
Collier $100 million

Source: Susan-Harper-Canada-Conversation-Slidedeck

Jobs

Susan told us that if trade with Canada ceased, 600,000 (plus or minus 20,000) jobs would be lost in Florida. She had figures on potential West Coast county job losses, too:

Hillsborough (Tampa) 77,420
Pinellas (St. Pete, Clearwater) 25,507
Manatee 5,951
Sarasota 8,062
Charlotte 2,111
Lee 8,286
Collier 9,594

Source: Susan-Harper-Canada-Conversation-Slidedeck

Tourism

Canadians are by far the largest source of international tourism to Florida. (The UK is second, with about half Canada’s total.) In 2018, some 3.5 million Canadians visited Florida (out of a total Canadian population of 35 million)! Of that number, 26% visited Tampa and 12% visited Sarasota (Source: Susan-Harper-Canada-Conversation-Slidedeck).

Real estate

Canada’s residential real estate portfolio in Florida totals $53 billion, with about $4 billion (net) purchased annually. Thus Canadians contribute over $500 million a year in property taxes.

Note residential real estate portfolio figures for the West Coast counties:

Hillsborough (Tampa) $35 million
Pinellas (St. Pete, Clearwater) $142 million
Manatee $121 million
Sarasota $194 million
Charlotte $50 million
Lee $471 million
Collier $630 million

Source: Susan-Harper-Canada-Conversation-Slidedeck

Issues

Pondering this data, I remarked to Susan, “When you think about the conversation about tariffs, trade, and all the flow of news, there is a different perspective when this kind of information is in front of you.” We then tackled some of the issues that are disrupting the US’s relationship with its most important economic partner.

The perverse notion that Canada is a security and defense threat to the US was invoked by the Trump administration in order to levy steel and aluminum tariffs. Ironically, the administration has subsequently granted far more waivers of these tariffs to Chinese firms than to Canadian ones. According to Susan, for the 25% steel tariffs, 40% of waiver applications from China have been granted, but only 2% of those from Canada. For the 10% aluminum tariff the ratio is even worse: 85% of Chinese waivers have been approved, but only 0.2% of Canadian ones.

The irony is heightened by the fact, as Susan noted, that the Canadian armed forces and Mounties have a substantial presence right in Florida itself (as well in many other states), through joint US-Canada defense and security arrangements. For instance, Americans and Canadians work together at the major NORAD (North American Aerospace Defense Command) facility at Tyndall Air Force Base in the Florida Panhandle. Susan mentioned that a Canadian was actually in charge there when the 9/11 attacks struck, and so he was responsible for the defense of US air space.

Susan was vehement in expressing her feelings about the steel and aluminum tariffs:

“Canadians find it insulting to be considered a national security risk to Americans, given our history and our current situation. You know, we’re people; we’re hurt by this. Secondly, we consider it an illegal application of tariffs; it’s an illegal tax. Canada has had to retaliate in an equal amount. This has been very bad for US business, and obviously it’s bad for Canadian business. But it’s bad for US business, and now we’re seeing some of the implications.”

She added: “The Manufacturing Association of Florida has come out very vocally against these tariffs.”

She summarized the economic argument by saying, “We build things together”; and she gave us an amusing but instructive example: The Canada-Florida Burger, comprising a baked bun and ketchup from Ontario and beef from Alberta, married with onions, mushrooms, tomatoes, and lettuce from Florida.

You can view my full interview with Susan Harper at this link or embedded below: https://youtu.be/_jwOOIUmSV4. Her presentation slidedeck is available here as a PDF: https://www.cumber.com/pdf/Susan-Harper-Canada-Conversation.pdf.


 

Thank you, Susan, for making the trip and for your presentation of facts critical to our understanding of our vitally important relationship with Canada.

We again thank the cosponsors and many supporters of our annual Financial Markets and the Economy – Financial Literacy Day. Our partners for the event were USFSM, the Financial Planning Association of Florida (FPA), and the Global Interdependence Center (GIC). You can learn about upcoming activities of GIC here: https://www.interdependence.org/events/.


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

Sign up for our FREE Cumberland Market Commentaries

Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.




Cumberland Advisors Week in Review (April 15, 2019 – April 18, 2019)

Week In Review
The Cumberland Advisors Week in Review is a recap of news, commentary, and opinion from our team. These are not revised assessments, and circumstances may have changed in the market from the time of original publication. We also include older commentaries that our editors have determined may be of interest to our audience. Your feedback is always welcome.

MATT MCALEER’S WEEKLY RECAP

Short week. The equity and bond markets were closed on Friday. We talk about some of John Mousseau’s strategies in the bond market and we plan to get John on camera next week to talk about interest rates and munis. On the equity side, a fairly benign week outside of healthcare. We recall some of the atmosphere from 2016 when healthcare costs were top of mind for politicians and the news cycle. Headline risk creeps in on medical which includes medical device companies and biotech and we take a moment to explain.


April is Financial Literacy Month and Cumberland Advisors just held the event, “Financial Markets and the Economy: Financial Literacy Day III” with our partners at the University of South Florida Sarasota-Manatee. Take an opportunity to check out our YouTube channel and take advantage of the breadth and depth of the subject matters, speakers, and panelists we’ve assembled. Gretchen Morgenson’s keynote address from the conference is up and we’ll be posting more videos over the next week or so including our talk with Susan Harper, the Consul General of Canada in Miami, Florida. www.cumber.com/youtube . In the meantime, here is a link available to the full day of talks and panels to enjoy until our video segmentation process is finished. Enjoy!

Our partners at USF Sarasota-Manatee have provided a streaming video link of Cumberland Advisors’ annual event, “Financial Markets and the Economy – Financial Literacy Day III.” It was an open forum for individual investors, state and local officials, financial institutions, pension trustees, philanthropy activists, policy makers and policy wonks – all were welcome. At Cumberland Advisors, we believe everyone benefits from increased financial education. Topics included but were not limited to philanthropy and its impact and stewardship, financial market developments, the outlook for the U.S. stock market and the world, the U.S. banking system, and the global economic outlook.

We are busy segmenting panels and talks for our YouTube Channel. Until these are produced, below is an outline of the entire day’s activities to help you navigate and select where in the hours long streaming video you’d like to watch:

FEATURED VIDEO

FINANCIAL MARKETS & THE ECONOMY Financial Literacy Day III Full Day Video Link from USFSM

Streaming Video Link

April 11, 2019

8:00 – 8:30 a.m. | Registration and Coffee

8:30 – 9:00 a.m. | Welcoming Remarks

David R. Kotok, CIO, Cumberland Advisors, GIC Board Member

Karen Holbrook, Regional Chancellor, USF Sarasota-Manatee

9:00 – 10:00 a.m. | Session I – The Stock Market

Matt McAleer, Executive VP & Director of Equity Strategies, Cumberland Advisors

Richard Hoey, Senior Economic Advisor to BNY Mellon Wealth Management

Tripp Zimmerman, Director of Research at WisdomTree Asset Management, Inc.

Moderator: Maryanne Waldman, RBC, Boston, MA

10:00 – 10:15 a.m. | Break

10:15 – 11:30 a.m. | Session II – Health Hunger and Philanthropy

Judith Monroe, President and CEO, CDC Foundation

Erin McLeod, CEO, Friendship Centers, Sarasota, FL

Lisa Marsh Ryerson, President, AARP Foundation.

Gabriel Hament, Cumberland Advisors

Moderator: Lisa Shaw, CFP, CIMA, Managing Partner, Cygnus Asset Management, LLC

11:30 a.m. – 12:00 p.m. | Special Report on the Use of the Bloomberg Terminals – Two Years Later

Paul Bova, Director of Development and/or Dr. GJ de Vreede, Dean,
University of South Florida Sarasota-Manatee College of Business

Noon – 1:00 p.m. | Lunch

1:00 – 1:15 p.m. | Report on National and International Financial Literacy on-line exams

Christine Brown, CFA Tampa Bay, Society Executive, Tampa, FL

1:15 – 2:00 p.m. | A Conversation with Canada’s Consul General in Florida

Susan Harper, Canadian Consul General in Miami, Former Economic Minister for Embassy of Canada

2:00 – 3:00 p.m. | Session III – How the World Looks to Me

Leland Miller, CEO, China Beige Book International

Paul O’Brien, Former Deputy Chief Investment Officer, Strategy and Planning Department, Abu Dhabi Investment Authority, ADIA.

Moderator: Alison Gardner, Senior Vice President & Financial Advisor, RBC Wealth Management

3:00 – 3:15 p.m. | Break

3:15 – 4:00 p.m. | Keynote Speaker

Gretchen Morgenson, Senior Special Writer in the Investigations unit at The Wall Street Journal

4:00 p.m. | Concluding Remarks

See and read more of this at MailChimp’s site:

https://mailchi.mp/cumber.com/cumberland-advisors-week-in-review-april-15-2019-april-18-2019




Defending First Amendment Freedoms – Part 3

Defending First Amendment Freedoms, Part 3

Gretchen Morgenson delivered the keynote address, titled “Why Financial Literacy Depends on Press Freedom,” at Financial Markets and the Economy – Financial Literacy Day III, the annual major conference that Cumberland sponsors at the University of South Florida Sarasota-Manatee (USFSM).

Morgenson is Senior Special Writer in the Investigations Unit at the Wall Street Journal. She is a Pulitzer Prize-winning journalist notable as the longtime writer of the Fair Game column for the New York Times. In November 2017 she moved from the Times to the Journal.

Following the conference, she signed copies of her book Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon at an event that benefited the Committee to Protect Journalists, an independent, nonprofit organization that promotes press freedom worldwide. The CPJ “defend[s] the right of journalists to report the news without fear of reprisal. around the world.” Learn more about the CPJ here: https://cpj.org/about/.

Here is a YouTube of Morgenson’s keynote: https://www.youtube.com/watch?v=SoFDUbQdsBo.

She then engaged with the audience in a Q&A session. Here is a YouTube: https://www.youtube.com/watch?v=bGNxZcSV3Ss.

Financial Literacy Day III was open to the public, and the auditorium was packed. Registration cost was just 50 bucks, which included lunch. Our partners for the event were USFSM, the Global Interdependence Center (GIC), and the Financial Planning Association of Florida (FPA).

We are proud supporters of all three partner organizations and were pleased to bring this high quality dialogue to the greater Florida Westcoast region and to the rest of the world via the event livestream. From our email flow we see that viewers responded from five of the seven continents – we are not sure about the Antipodean realm or Antarctica.

Part one of our Defending First Amendment Freedoms is here: https://www.cumber.com/cumberland-advisors-market-commentary-defending-first-amendment-freedoms/. Part two is here: https://www.cumber.com/cumberland-advisors-market-commentary-defending-first-amendment-freedoms-part-2/. For future GIC program plans see https://www.interdependence.org/events/.

We hope you found the conference and the First Amendment series worthwhile.

David R. Kotok
Chairman and Chief Investment Officer
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

Sign up for our FREE Cumberland Market Commentaries

Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.




Cumberland Advisors Week in Review (April 8, 2019 – April 12, 2019)


Week In Review
The Cumberland Advisors Week in Review is a recap of news, commentary, and opinion from our team. These are not revised assessments, and circumstances may have changed in the market from the time of original publication. We also include older commentaries that our editors have determined may be of interest to our audience. Your feedback is always welcome.

MATT MCALEER’S WEEKLY RECAP

As part of Cumberland Advisors’ continuous effort to maintain strong customer relationships, we offer this week’s short video discussing current market conditions and how we are positioning portfolios.

Interesting week in the equity market. A couple of things jump out at us. Continued strength in the equal weighted indexes vs. cap weighted. We like to see that. That’s showing capital spreading out in the market. What else we noticed and like to see is some underperforming sectors like energy and financials getting a little bid in here.

There are multiple ways to trade a tough position. Financials! The “dogs” of the last 24-36 months. We look at them. And how things relate to pricing power.

On April 11, 2019, Cumberland Advisors’ held the event, Financial Literacy Day III: An Update on Financial Markets and the Economy. We really enjoyed this opportunity to connect with our friends, clients, and the community that live and work near us in Florida.

If you couldn’t attend or you did attend and want to re-experience this information packed day, we’re posting talks and panels from the event on our YouTube channel. Included in this email is Gretchen Morgenson’s keynote address and Q&A session from the conference. We’ll be posting more videos over the next week or so. Enjoy!

Gretchen Morgenson’s keynote address

Gretchen Morgenson’s Q&A with audience

 

See and read more of this at MailChimp’s site:
https://mailchi.mp/cumber.com/cumberland-advisors-week-in-review-april-8-2019-april-12-2019




Defending First Amendment Freedoms – Part 2

Dear Readers,

I got praise and punishment on “Defending First Amendment Freedoms” part 1. As expected, the deep and intense political division in our nation showed itself again. And there was the usual “blowback” about my writing about something more than just market analysis. For those critics who are money-only focused, I’ll start this piece with a prefatory comment that applies directly to your wallet.
Cumberland Advisors Market Commentary by David Kotok
Just think for a minute. Without an unrestricted free press, would you be able to read Gretchen Morgenson’s story on insurance regulation in the WSJ? (“A State Investigator, the Financial-Adviser ‘Heir’ and an Elderly Client: How Lines Get Blurred in Insurance Regulation,” April 6, 2019: https://www.wsj.com/articles/a-state-investigator-the-financial-adviser-heir-and-an-elderly-client-how-lines-get-blurred-in-insurance-regulation-11554548401) Or could you find Heather Long’s reporting in the WAPO on Steve Moore? (“Trump’s Fed nominee Stephen Moore was found in contempt of court for failing to pay ex-wife more than $333,000,” April 5, 2019: https://www.washingtonpost.com/business/2019/04/06/trumps-fed-nominee-stephen-moore-was-found-contempt-court-failing-pay-ex-wife-more-than/?utm_term=.14176d11ed50)

The free press tells investors about a large aircraft maker in trouble or about a huge bank misbehaving or about an auto manufacturer’s misdeeds. First Amendment rights are the most basic underpinning of American life, our economy, and our financial markets.

Now let’s get started on free speech.


Defending First Amendment Freedoms

Part 2: Freedom of Speech

First Amendment rights are a big part of what has made America great; and yet, tragically, for most of their history the US government and the states have systematically and legally denied the fundamental rights of many of our citizens. Early American governance was white, land owning and male. Indeed, until the 14th Amendment was passed in 1868, African Americans were not even recognized as citizens; and citizenship was not extended to Native Americans until 1924. Remember that women’s suffrage was ratified as the 19th amendment in 1920, and we will celebrate its 100th anniversary next year in conjunction with the presidential election.

The yawning gulf between America’s aspirations as the Land of the Free and its political realities, especially with respect to race and religion, was so obvious that when, in 1935, the German National Socialist Party sought to codify the Third Reich’s race-based legal philosophy, it dispatched a team of 45 lawyers to the US, to gain “special insight into the workings of American legal and economic life through study and lectures.” The delegation was warmly received at a reception organized by the New York City Bar Association.

This disgraceful episode in our history is detailed in a November 2017 article in The Atlantic, entitled “What America Taught the Nazis,” by Ira Katznelson, a professor of political science and history at Columbia University. Katznelson focuses on the work of James Q. Whitman, Ford Foundation Professor of Comparative and Foreign Law at Yale Law School and author of the book Hitler’s American Model. Katznelson writes:

“Every day brings fresh reminders that liberal and illiberal democracy can entwine uncomfortably, a timely context for James Q. Whitman’s Hitler’s American Model, which examines how the Third Reich found sustenance for its race-based initiatives in American law.”

Let’s recall that even as the Nazis were relocating and then exterminating vast numbers of Jews and other ethnic and socially marginal populations in Europe, the US, under the guise of President Roosevelt’s Executive Order 9066, was stripping tens of thousands of American citizens of Japanese ancestry of their property and forcing them to relocate to internment camps (even as many of these loyal citizens enlisted in the US armed forces and went on to fight bravely against the Axis powers). Tom C. Clark, retired Associate Justice of the US Supreme Court wrote:

“The truth is – as this deplorable experience proves – that constitutions and laws are not sufficient; they must be given life through implementation and strict enforcement. Despite the unequivocal language of the Constitution of the United States that the writ of habeas corpus shall not be suspended, and despite the Fifth Amendment’s command that no person shall be deprived of life, liberty or property without due process of laws, both of these constitutional safeguards were denied under Executive Order 9066.”

And not just in shaky legal underpinnings has the US failed its citizens and given comfort and support to the forces of racial, political, and economic oppression; we have done so in the public arena as well. For instance, on February 20, 1939, 20,000 people filled Madison Square Garden to celebrate the rise of Nazism. This largely forgotten event is recounted in a documentary film titled A Night at The Garden, directed by Marshall Curry and produced by Laura Poitras and Charlotte Cook. The seven-minute film, which consists entirely of archival footage of the event, premiered at Sundance in 2018 and was nominated for the Academy Award for Best Documentary Short. The film can be viewed here: https://vimeo.com/237489146. See also https://rarehistoricalphotos.com/american-nazi-organization-rally-madison-square-garden-1939/.

At this gathering, Nazi Fritz Kuhn, a German-born, naturalized American citizen, calls for America, assuredly a nation of immigrants, to be controlled by only a subset of the myriad citizens who built and defended the country:

“Ladies and gentlemen, fellow Americans, American patriots, I am sure I do not come before you tonight as a complete stranger. You all have heard of me through the Jewish-controlled press as a creature with horns, a cloven hoof, and a long tail. We, with American ideals, demand that our government shall be returned to the American people who founded it. If you ask what we are actively fighting for under our charter, first, a socially just, white, Gentile-ruled United States. Second, Gentile-controlled labor unions, free from Jewish, Moscow-directed domination.”

There is something quite familiar today about this language of exclusion, this valorizing of one group paired with the systematic disparaging of others, including those who raise their voices to object. Do take the time to watch this short film. Then ponder this question: if American Nazis were to pack Madison Square Garden for a rally today, would their First Amendment right to free speech be protected? An article on History.com explains,

“The U.S. Supreme Court often has struggled to determine what types of speech is protected. Legally, material labeled as obscene has historically been excluded from First Amendment protection, for example, but deciding what qualifies as obscene has been problematic. Speech provoking actions that would harm others – true incitement and/or threats – is also not protected, but again determining what words have qualified as true incitement has been decided on a case-by-case basis.” (Source: https://www.history.com/topics/united-states-constitution/first-amendment#section_3)

We may get a sense of the current limits to free speech by examining the Unite the Right rally that was held in Charlottesville, VA, from August 11 to 12, 2017. According to Wikipedia (see https://en.wikipedia.org/wiki/Unite_the_Right_rally),

“Protesters were members of the far-right and included self-identified members of the alt-right, neo-Confederates, neo-fascists, white nationalists, neo-Nazis, Klansmen, and various militias. The marchers chanted racist and anti-semitic slogans, carried semi-automatic rifles, Nazi and neo-Nazi symbols (such as the swastika, Odal rune, Black Sun, and Iron Cross), the Valknut, Confederate battle flags, Deus Vult crosses, flags and other symbols of various past and present anti-Muslim and anti-Semitic groups.”

The march was allowed to proceed; but on the morning of August 12, Virginia governor Terry McAuliffe declared a state of emergency, stating that public safety could not be safeguarded. Then, within an hour, the Virginia State Police declared the rally to be an unlawful assembly. By then, however, the event had turned violent after protesters clashed with counter-protesters, leaving more than 30 injured. And a couple hours later, at around 1:45 PM, self-identified white supremacist James Alex Fields, Jr., deliberately drove his car into a crowd of counter-protesters about half a mile away from the rally site, killing one person and injuring nearly 40 others. Readers are invited to read the rest of the documentation of this recent history for themselves. There is much political debate from all sides about Charlottesville.

Fast forward, and on March 22, 2019, President Trump issued an executive order requiring colleges to certify that their policies support free speech as a condition of receiving federal research grants. The president had promised earlier in the month in an address to the Conservative Political Action Conference (CPAC) that he would do something about what he called a political climate on liberal college campuses that discourages discourse. His executive order makes research funding conditional on “compliance with the First Amendment” and directs federal agencies to ensure that institutions receiving federal research or education grants “promote free inquiry.” (Source: https://www.npr.org/2019/03/22/705739383/trump-and-universities-in-fight-over-free-speech-federal-research-funding)

Political posturing aside, we agree with President Trump’s use of the words “compliance with the First Amendment.”

It takes freedom of speech to defend the First Amendment and articulate why you are doing so. This essay is an example. And it takes freedom of the press to investigate and report. It takes a citizenry willing to think about issues and engage in civil debate for a democracy to succeed. If we, the public, are lazy or distracted, we end up with the government we deserve. History says we won’t like the government we get if most of us are passive about it.

I personally defend the rights of writers and media personalities, even when I disagree with them. I use their work in my time-consuming effort to sort out facts from opinions. At Cumberland, we constantly review all media in our daily effort to comprehend finance and economics. In the opinion category, we watch the pro-Republican Fox trio of Carlson, Hannity, and Ingraham and the pro-Democrat CNN trifecta of Cooper, Cuomo, and Lemon. We see or hear Maddow and Limbaugh. We can list many others. Watching or hearing or reading all of them is to get a more holistic view of the divided America we have become.

Only a vigorous defense of the US Constitution, and the First Amendment in particular, stands between our repeating history and suffering further tragic outcomes. That is why freedom of speech and of the press are so important. George Santayana’s famous dictum applies: “Those who cannot remember the past are condemned to repeat it.”

On April 11, 2019, Pulitzer Prize winning journalist, Gretchen Morgenson, is the keynote speaker at Cumberland Advisors’ “Financial Markets and the Economy – Financial Literacy Day III” event in Sarasota, Fla. Gretchen champions the free press; it’s not a left-right issue. Pertaining to her Fannie Mae investigative reporting, she cited the secrecy at the Obama White House as yet another sign of a pattern that Margaret Sullivan (public editor at The New York Times) identified as the administration’s “unprecedented secrecy and attacks on a free press.”
FINANCIAL MARKETS & THE ECONOMY Financial Literacy Day III Keynote Gretchen Morgenson (Book - Reckless Endangerment)
We encourage you to join us April 11th at the Selby Auditorium of the University of South Florida Sarasota-Manatee and hear Gretchen Morgenson’s accounts of exercising our cherished First Amendment to uncover truth at the highest levels of government and business. Details below.


Update (04/12/2019): Gretchen Morgenson’s keynote address and Q&A session from the conference are posted here. Enjoy!

Gretchen Morgenson’s Keynote Address

Gretchen Morgenson’s Q&A with audience


Cumberland Advisors’ “Financial Markets and the Economy – Financial Literacy Day III” event, was held April 11, 2019, at the Selby Auditorium of the University of South Florida Sarasota-Manatee.

The focus was “Financial Markets and the Economy”, featuring:

Panels-
•    The Stock Market
•    Health Hunger and Philanthropy
•    How the World Looks to Me – A Global Economic Outlook

Special Presentations-
•    A Conversation with Susan Harper, Canada’s Consul Gen in Fla, on Trade/World Affairs
•    Keynote by Gretchen Morgenson, Senior Special Writer in the Investigations Unit at The Wall Street Journal and Former Business and Financial Editor for the New York Times.

We welcome and encourage the participation of our friends, colleagues, and clients.

Learn more: https://www.cumber.com/financial-literacy-day/


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

Sign up for our FREE Cumberland Market Commentaries

Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.Aa