Economy Growing, Facebook Falling — Weekly Observations for 7/27/2018

The growth of the US economy (GDP) as of the second quarter was reported this morning at 4.1% annualized — the best rate of growth in a while.

A good portion of that growth came from a massive increase in exports during May (soybean exports were up 50% year-over-year!), as buyers rushed to purchase US products before the tariffs kicked in. It is unlikely those sales will be repeated in the third and fourth quarters.

Regardless, 4.1% is nice to see.

A possible side effect of this higher growth rate is that it may result in the Federal Reserve continuing to raise short-term interest rates — the customary way to cool off inflation-inducing growth. But it also tends to trigger the next economic recession — and we are already very late in the current cycle.

Otherwise, it was a quiet week this week unless you own Facebook stock (we don’t), which fell 20% yesterday — erasing all of the gains since October last year. It’s another gentle reminder that prices don’t go up forever irrespective of value — whether the Nifty Fifty (1980), stocks (1999), houses (2007), Bitcoin (2017), or FANG stocks (Facebook, Amazon, Netflix, Google, et al) today.

If you missed last week’s email on the High-Income Roth IRA, be sure to review it. The strategy prompted quite a few questions and conversations with clients.