Carefree Season?

The Dog Days of Summer typically brings with it the last carefree days of the season before schools starts back and parents write checks for tuition (yes - that's a Gen X reference to something people hardly do anymore - write checks). Markets have also

provided investors with some carefree days before seasonality kicks in. The inspiration for this week’s musings is the ultimate carefree song, the 1977 hit “Margaritaville" by Jimmy Buffett. Here’s some trivia about the song:

• While the song peaked at #8 on the Billboard charts in 1977, it has forever remained a favorite of fans. It has sold more than 50 million copies worldwide since it was first released.

• Buffett wrote the song about an experience he had after doing a tour in Texas and having a margarita at a Mexican restaurant with a friend. He got back to Key West and wrote the lyrics.

• Buffett asked producer Norbert Putnam to work with him on the "Changes in Latitudes, Changes In Attitudes" album. Putnam heard Buffett's idea for the song "Margaritaville" and thought it was a "terrible idea for a song." Putnam said that Buffett came back a few days later and played the main chorus for the group and everyone knew it was a hit song.

• The song is highly autobiographical. The line "I blew out my flip flop, Stepped on a pop top, Cut my heel had to cruise on back home" actually happened on the day he met a friend at the Mexican restaurant. Buffett played it off when interviewed years later saying, "I was lucky enough to get my thumb on the pulse beat of what people perceived the tropics to be."

"Don't know the reason

Stayed here all season

Nothing to show but this brand new tattoo

But it's a real beauty

A Mexican cutie

How it got here I haven't a clue

Wastin' away again in Margaritaville

Searchin' for my lost shaker of salt

Some people claim that there's a woman to blame

Now I think hell it could be my fault"

Here's what we've seen so far this week..

Do They Know The Reason? At this point, the talk about interest rates has probably driven investors to the point of boredom. Between Powell and Trump, it's been a

non-stop game of chicken to see who will blink first. If you haven't seen yesterday's video of Trump & Powell touring the new Fed building - you're in a for a treat. A rate cut or two would definitely be bullish for markets and helpful to consumers. In addition, there is the $9 trillion in U.S. government debt maturing that needs to be reinvested. Powell has drawn a line in the sand on inflation due to tariffs, which doesn't yet seem to be an issue for consumers. No one wins in this game of chicken and the two sides should figure it out.

In the meantime, Fed futures continue to show a 97% probability of no change in rates at next week's FOMC meeting, with a 67% probability of a rate cut at the next meeting in September. The other element at play here is the housing market. The rate on a 30-year mortgage has been above 5% for more than 3 years, which provides zero incentive for current homeowners to either move (having a current mortgage at 3% or less) or to refinance their mortgage. If we get to September and rate cut is indeed what we get, there could be a small jolt to economic growth.

Stayed Here All Season. Equities have hardly melted up, as the number of positive trading days this month have not exceeded +1% on any given day in July. However,

this July has already beaten the average seasonal return, as the latter half of July is typically flat-to-negative. Investors should remember that all-time-highs in the market are not necessarily a reason to exit. Markets are higher one year from all-time-highs 82% of the time. To state it another way, markets only correct by 10% or more after all-time-highs one year later only 9% of the time. So, the odds are on the side of the bulls at the moment.

And yet, Summer seasonality suggests that we could be in for flat-to-negative returns over the next few months. The August through October period tend to be sideways and with the out-of-ordinary performance in July, it shouldn't be any surprise that the next few months would underwhelm. The economic backdrop still remains positive. Jobless Claims have dipped for 6 consecutive weeks and are now below trend. Consumer Spending remains solid, with Redbook Sales remaining above trend. As the Dog Days of Summer lull investors to sleep and parents prepare for "Back To School" season, investors should stick to their investment plan and not become too focused on a month or two of lackluster returns.

Buffett impromtu performance of Margaritaville...

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