October 2024 Newsletter

Waterstone October Newsletter - Hefty Fed Rate Cut

Uniquely Waterstone for our unique Waterstone clients 

In this Issue: 

• CNR Oct Speedometers – after rate cut
• Key Takeaways – basics: people spending money
• European competitiveness lagging
• Innovative European energy strategies
• Sharpen your focus – WFS overview
• WFS updates – Osaic, texting, FB
• Election reminder: Wall St sees green

CNR Oct Speedometers – 3 rd qtr; after rate cut
Forward looking 6 to 9 months

_{CNR.com for a thorough summary and discussion on each indicator.}

CNR speedometers started the year solidly neutral much to satisfaction of the Federal Reserve. The anticipated rate cut was “baked into the markets” since April when the indicators started to improve. Consumers, the drivers of 70% of the US economy, are feeling calmer and more optimistic. They’re spending.

Key Takeaways:

Reminder: The Federal Reserve has a dual mandate to promote maximum employment and stable prices for the American people. Federal Reserve policymakers closely monitor the unemployment rate to help judge whether the U.S. economy is at (or close to) maximum employment and make decisions about the appropriate federal funds rate that will best support maximum employment while maintaining stable prices.

The US is a mature economy: It is still a sturdy economy with slow, gradual weakening over the last three years. The economy grows in complexity, shifting with new technologies, changing demographics and labor needs. CNR puts odds of recession at 30%.

Perhaps maturity can include wisdom. We look for wise and innovative thinking from our investment partners. We want independent “due diligence” data to reassure us that our investment partners still navigate wisely on our behalf.

Julex Capital’s Rob Brown’s birthday gift from a client.

The basics – An economy is people spending money.

People earning money. Labor is now in the Fed’s sweet spot at 4.5% unemployment as full employment.

People spending money. Inflation: too many dollars chasing too few goods. Strong income earners are still spending and fueling profits. Lower income earners are starting to build credit card debt. Inflation is approaching the Fed’s targeted 2%. It’s enough to show growth and enough complicity is slow growth.

Market valuations work off earnings - Earnings growth is higher and broader than expected.

• 79% of S&P earnings exceeded expectations as reported mid year.
• Broader investing beyond the Magnificent 7 tech stocks; More normal
  balance in the market; Recognized opportunities across sectors, styles and
  size trading at reasonable valuations.
  

Conclusion: Currently conditions are balancing. The US continues strong within world dynamics.

European Union needs new economic thinking:

No coal in UK! For the first time since 1882, UK will have no coal-fired power plants. Coal was the source of 90% of its total electricity. Long term factors that forced coal out: the growth of natural gas plants and renewables, pollution controls, carbon pricing and a government goal to hit net-zero greenhouse gas emissions by 2050. It takes gov’t policy, economics and shared vision. No coal is progress. ^{(arstechnica.com, John Timmer, 9-30-24)}

Europe’s Heat Pumps Put America’s to Shame – If switching one home to a heat pump improves energy efficiency, why not whole cities? Scandinavian countries take the lead in impactful, wide spread use of heat pumps for homes and community. In the United States, home heat pumps have been gaining traction (and gov’t subsidies) as highly energy-efficient replacements for gas-fired boilers and furnaces. Heat pumps slash emissions dramatically. In the US, home heating is 50% of energy use. ^{(The Atlantic, Bryn Stole, 9/24,24)}

Think hurricanes. Think carbon emissions. Support alternatives.