Dear Friends and Family,

Financial Fake News is like other fake news in that it generally fits into two categories. The smaller category is simply wrong information, while the larger category is incomplete information. Both types of fake news are due to intent or ignorance. The intent may be quite different however. One case is the intent to lie. In the other, the good intentions may be constrained by the time the news has been gathered or reported. President Truman asked for a one-handed economist because his advisors were always saying “on the other hand”. “On the other hand,” is usually where the important information is hidden.

Yesterday’s 332-point rise in the Dow Jones Industrial Index is an example of the reaction to a fake news report. The highlight in the report was that average hourly earnings increased only 0.1%. Great news because rising earnings pushes up inflation which forces the Fed to raise interest rates which causes a recession. Like all believed fake news, this all sounds right, and the stock market reacted positively. But what if everything about this report is fake news.

Some of the world’s greatest economists have concluded that inflation is always caused by monetary authorities (FED) and it is a tax increase without legislation. In this model the Fed manipulates the money supply which causes inflation. The Fed then corrects its mistakes by raising rates and causing a recession. Employee raises appear to be provided primarily because the employee has advanced their skills. Labor supply and demand issues appear to have smaller impacts. Punishing the economy because employees are improving their skills does not make sense.

The Fed in the past few years created (printed, counterfeited) four plus trillion dollars out of thin air. Isn’t it more likely that inflation is caused by the Fed rather than the hourly workers?

Just to be clear we are opposing the fake news not the higher stock prices. We believe the economy is strong and growing and that opportunities for investing at reasonable prices are still available.

When signing into your Morning Star accounts this month you will find our most recent Privacy Policy Document in your folder. This is for you to review at your leisure. If you have any questions regarding the document, please do not hesitate to reach out to any one of us. If you would like the complete ADV brochure, please let us know and we will be happy to provide it.

Sources: Morningstar, Stanford Center on Longevity, Barron’s, AAII and The Economist

Katz Family Financial