“The future ain’t what it used to be.” Besides“If the world were perfect, it wouldn’t be.” YOGI

You simply have to love Yogi! He was a true genius of his day. These two Yogi isms kind of sum up what we have experienced over the last 45 days. ?

Today, I would like to address two separate issues that will significantly impact the economy and all financial markets. I will address the Federal Reserve's cutting rates by three-quarters of a percent and the economic impact of the presidential election. The economy is on very solid ground, and we continue to improve inflation while keeping labor at near full employment. This is kind of a Goldilocks scenario, yet the Federal Reserve is still restrictive, given the improvements made in the inflation rate .

Let me try to put this in perspective. The Federal Reserve Bank of San Francisco has done extensive studies to determine the natural rate of return under various economic scenarios. According to the Federal Reserve, that number is 2.99% to 3.25%. The natural rate of return is the rate that fed funds should be to maintain non-inflationary growth yet full employment. It is sometimes referred to as r-star.

Today, the Fed funds rate is 4.50% to 4.75%. This basically means the Federal Reserve will cut rates an additional 1.25% to 1.5%. Let's assume that over the next year and ?, Fed funds rates are at three ?%. The Fed appears to be gradually well on its way to cutting rates toward this 3.25% objective.

Last Friday, I was on a conference call with one of the greatest economic minds of our day, Professor Jeremy Siegel of the Wharton Business College. He pointed out that the yield on the 10-year treasury has historically traded at 1 to 1 ?% above the Fed funds rate. By doing the math, you can see that with fed funds at three ?%, the 10-year treasury historically should be trading between 4.25% and 4.5%. Today, the 10-year treasury is yielding 4.28 sent, approximately 30 basis points above where it was selling that day the Federal Reserve cut its fed funds rate by ?% back in September. The story's moral is that the yield on the 10-year treasury has already priced in the fed funds rate at three ?%.

Furthermore, it is interesting to note that 30-year mortgages are back over 7% again. Remember, all assets are priced off the yield on the 10-year treasury. Higher rates do not bode well for new home sales. Many people will need help to qualify for loans at these current rates.

Prof. Siegel said to stay away from long-maturity fixed income, especially if there were a Trump sweep and long equities, as deregulation and tax cuts would add more fiscal stimulus to the economy.

On Wed, Professor Siegel was proven correct as the DOW soared over 1500 pts and just topped 44000 for the first time.

It's a mute subject now. A Kamela sweep would have been bad for equities and good for bonds, the exact opposite of what happened.

The Wall Street pundits clearly wanted a divided government. They hoped neither candidate would gain total control of Congress to temper runaway government spending.

It will be interesting to see the Federal Reserve's reaction if excessive fiscal policy continues. This question was raised in Chairman Powell's Q and A after the FOMC meeting yesterday. The question posed was: Could large fiscal spending slow the Federal Reserve's cutting of interest rates? Furthermore, could it potentially cause the Federal Reserve to increase rates? The answer was unclear, which left the press asking the question again this morning.

At least the election is behind us in the muddy water, which is a little clearer. We have an interesting four years ahead of us.

Hence, "The future ain't what it used to be, and if the world were perfect, it wouldn't be." Thank you, Yogi, for your insight!

I hope all of you will have a wonderful Thanksgiving. Regardless of who you voted for, we still have the greatest nation in the world and should thank everyone who participated. Please pray for our country and elected officials in these uncertain times. GOD BLESS AMERICA.

Thanks, Mike

? Before making investment decisions, consider your financial situation, investment objectives, risk tolerance, and needs. Not all strategies discussed may be suitable for all investors. Investment advisory services are offered through World Equity Group, Inc., member FINRA, and SIPC, a Registered Investment Adviser. Dogwood Capital Management is not owned or controlled by World Equity Group, Inc.

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