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  • ABRAHAM GULKOWITZabe@gulkowitz.com917-402-9039

    2017 issue 4February 26, 2017

    Turning the Corner? The equity and credit markets are roaring, and even the Federal Reserves clear signals on the need to raise rates have not checked the rallies. Thiscontrasts with earlier episodes recently when even a hint of moving off an extreme easing posture resulted in eruptions in markets. Investors are evenincreasing their bets on a European recovery and rethinking emerging markets as well. Some of this market liveliness is founded on hard evidence. Afteryears of weak, irregular growth, evidence of a steadier recovery has taken hold across much of the global economy. Surveys show business activity at a six-year high in the Eurozone. UK markets have shrugged off the threat of Brexit. China carefully dodges financial accidents; its ongoing growth, though reducedfrom boom years, continues to propel other markets. But most of all, the key basis of optimism has been Donald Trumps promise of higher growth, lowercorporate taxes and lighter regulation. The new Treasury secretary asserted this past Thursday that a very significant tax reform could raise growth above 3per cent by next year. This would come after years of subpar growth in the U.S. Any such acceleration might be accompanied by a return to corporate pricingpower, with a lift to corporate profits. One should not forget that there are obstacles to all these developments. Even overseas there are a long string ofseemingly impossible problems. China is struggling to contain capital flight. China faces a demographic time bomb (see headline below). Europe faces aseries of nerve-racking elections that may yet challenge the very nature of the Eurozone. The UKs resilience will be tested as tough Brexit play out. Andbelligerent countries have elevated risk concerns in many regions. Your head may be spinning with all these developments, in DC and around the globe butmarkets which supposedly hate uncertainty have roared ahead.

    Weak yen helping hundreds of companies

    China's Stable Growth Reflects Stimulus Not SustainabilityChina's strong macroeconomic performance remains an important rating strength, but the continuation of policy settings that prioritize short-term growth targets is becoming a more significant risk to medium-term macroeconomic stability.

    China is considering forcing steel and aluminumproducers to cut more output, banning coal in oneof the country's top ports and shutting somefertilizer and drug plants as Beijing intensifies itswar on smog, a draft policy document shows.

    Oil fell after an OPEC report showing high compliance with lastyear's landmark production-cut deal underwhelmed investors whilesigns of rising U.S. crude output continued to weigh on prices.Worst Gasoline Glut in 27 Years Could Be Oil Rallys NemesisStorage levels swelled - the highest in EIA records dating to 1990

    Ford Motor Co plans to invest $1 billion over thenext five years in tech startup Argo AI to help theDetroit automaker reach its goal of producing aselfdriving vehicle for commercial ride sharingfleets by 2021

    Lower US tax receipts may crimp spending plansHouse Republicans seek tobundle a border tax with lowertaxation, higher spending andreducing the deficit

    Italy, along with certain other 'Club Med' nations, has passed the point of no returnin terms of big government, demographic decline, and societal dependency...

    Fedtoraiserates50bp??

    The German two-year debt yields fell to -0.96% onFriday, the lowest level on record, amid rising concernsabout political stability across European countries.

    DutchParliamentToDebateLeavingTheEurozone

    Chinese authorities are lookingat ways to encourage peopleto have more children, lessthan 18 months after droppingthe countrys contentious one-child policy in a bid to boostbirth rates and stave off ademographic decline.

  • The PunchLine...

    2

    February 26, 2017

    In This Issue

    Headlines and data appearing in The Punch Line came from widely available publications including national and international newspapers, trade journals, economic and industrial bulletins and news websites.

    Engines of GrowthWeak world trade and severe geopolitical risks, along with high debtlevels and policy limitations, still cloud the global economic outlookDespite extensive and massive easing, most of the global economystill faces woefully inadequate growth prospects and difficult policyoptions. The U.S. stands alone in the shift in monetary policy and theimprovement in job markets. Very obvious financial vulnerabilitiesand serious geopolitical concerns are aggravating the uncertainty.And lets not forget that many of the challenges are not fleeting, andmany cannot be resolved easily or quickly (pg 5)

    Dislocation, Dislocation (pg 6) The Likelihood of Unlikely Events (pg 7) The Market Roar (pg 8) Households (pg 9) You Cant Handle the Truth ! (pg 10) How Do You Figure? (pg 11) Credit (pg 12) Pumping Iron (pg 13) The DNA of Business (pg 14) Real Estate and Construction (pg 15) More Real Estate (pg 16) Will Life Ever be the Same? (pg 17)

    Turning the Corner?The equity and credit markets are roaring, and even the Federal Reservesclear signals on the need to raise rates have not checked the rallies. Thiscontrasts with earlier episodes recently when even a hint of moving off anextreme easing posture resulted in eruptions in markets. Investors are evenincreasing their bets on a European recovery and rethinking emergingmarkets as well. Some of this market liveliness is founded on hard evidence.After years of weak, irregular growth, evidence of a steadier recovery hastaken hold across much of the global economy. Surveys show businessactivity at a six-year high in the Eurozone. UK markets have shrugged off thethreat of Brexit. China carefully dodges financial accidents; its ongoinggrowth, though reduced from boom years, continues to propel other markets.But most of all, the key basis of optimism has been Donald Trumps promiseof higher growth, lower corporate taxes and lighter regulation. The newTreasury secretary asserted this past Thursday that a very significant taxreform could raise growth above 3 per cent by next year. This would comeafter years of subpar growth in the U.S. Any such acceleration might beaccompanied by a return to corporate pricing power, with a lift to corporateprofits. One should not forget that there are obstacles to all thesedevelopments. Even overseas there are a long string of seeminglyimpossible problems. China is struggling to contain capital flight. China facesa demographic time bomb (see headline below). Europe faces a series ofnerve-racking elections that may yet challenge the very nature of theEurozone. The UKs resilience will be tested as tough Brexit play out. Andbelligerent countries have elevated risk concerns in many regions. Your headmay be spinning with all these developments, in DC and around the globe butmarkets which supposedly hate uncertainty have roared ahead. (pg 1)

    In This Issue (pg 2) Alternative Facts (pg 3) The Future Aint (pg 4)

    Contact information:

    Abraham Gulkowitzphone: 917-402-9039 email:abe@gulkowitz.com

  • The PunchLine...

    3

    February 26, 2017

    Alternative Facts- Careful Reading

  • The PunchLine...

    4

    February 26, 2017

    The Future AintWhat It Used To Be

    Fed Chair Yellen: 'Unwise' to wait too long to hike interest rates

    U.S. Household Debts Climbed in 2016 by Most in a DecadeTotal household debt climbed by $226 billion in the final three months of 2016 to $12.6 trillion, driven by broad and steady increases in credit card debt, auto and student loans, and a surge of mortgage originations.

    Foreign property investment by Chinese companiesplunged 84 per cent last month as Beijings capitalcontrols choked off foreign acquisitions. In an effort tocurb capital outflows and ease downward pressure on therenminbi, Chinese regulators have in recent monthsimposed restrictions on outbound dealmaking. The curbscame after outbound investment in non-financial assetssurged 44 per cent in 2016 to a record $170bn. Therestrictions have had an effect. Overall non-financialoutbound investment fell 36 per cent in January from ayear earlier to Rmb53bn ($7.7bn), the commerce ministrysaid yesterday, following a 39 per cent drop in December.The commerce ministry did not reveal actual figures forJanuary, but the sharp fall in foreign real estate investmentcomes after an overall 53 per cent surge last year to arecord $33bn, say separate data from JLL, a global realtor.

    More US car owners behind on loan payments than at any time since 2009The car loan delinquency rate also remains lowerthan for other types of debt. Americans continue toprioritise car loan repayments, a sign of theimportance they attach to their vehicles. Bankers sayoverall credit quality remains good. The mortgagedelinquency rate is significantly higher than the carloans rate, at 2.28 per cent, although this remains lowby the historical standards of the home loan market.

    Political turmoil in EU

  • The PunchLine...

    5

    February 26, 2017

    Engines of Growth

    Retail sales in Brazil fell 2.1 percent month-over-month in December of 2016, following adownwardly revised 1 percent rise in Novemberand in line with market expectations. It was thebiggest drop since January last year,

    Weak yen helps to fuel Japanese growth

    Escalating riots could benefit French National FrontPresident Francois Hollande is trying to calm protests sparked by a violent police arrest

    Consumer gloom will limit retail recovery in BrazilDepressed demand may encourage rate cuts, but a rapid retail uptick is unlikely