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), dot.com 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.