The Drive Higher

The big story this week was that the Federal Open Market Committee’s (FOMC) minutes were released from its last meeting. In those minutes it becomes clear that the FOMC is looking to reduce its balance sheet. Long time readers know that we feel that it was the increase in that balance sheet that helped greatly influence the stock market rally and raise prices of virtually all asset classes in the post crisis period. Any reduction in that balance sheet would logically have the opposite effect at some point. If the FOMC were to roll off its balance sheet the valuations of equity markets, driven higher due to easy money policies, may not be able to maintain their currently elevated plateau. Earnings alone will not be able to expand market multiples.

The bottom line is that the Fed needs more weapons to fight the next recession. The Fed must reduce its balance sheet before they raise rates further. If they begin to roll off the balance sheet it becomes another weapon for them to use because they can stop and start the process or move it faster or slower. If they remain static it is a liability and not an asset.

We have been pointing towards a looming crisis in the municipal finance area. The latest on our radar is the state of Connecticut. Connecticut’s largest moneymakers have been leaving town and sticking the state with the bill. Big earners know tax law and are incentivized to leave the state for greener pastures of low tax states like Florida. Atlas is shrugging. Courtesy of zero hedge comes the following.

The latest figures showed that tax revenue from the state’s top 100 highest-paying taxpayers declined 45% from 2015 to 2016. The drop adds up to a $200 million revenue loss for Connecticut. Connecticut Tax Cut

Oil had a rough week but it did manage to crawl back and close higher on Friday. It failed to close above the critical $50 a barrel on West Texas Crude (WTI). Equities are breaking out of the range that they has been trapped in for the last 3 months. The range of 2330-2400 on the S&P 500 was broken this week as the market closed on Friday at the 2415 level. This breakout could extend to 2475 if it gets legs. For now, volume is low and the few big leaders are influencing the advance. Summer markets are more prone to sharp moves as investors head to the beach. Our main thesis still holds that the market heads higher post Donald Trump’s victory with a move much akin to 1987.

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I  think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd  Blankfein

To learn more about us and Blackthorn Asset Management LLC visit our website at  or check out our LinkedIn page at .


A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill


Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.



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