Chairman’s Message


Fed Chair Jay Powell recently noted that the economy is experiencing “extraordinary times.” There are several events to which he could have been referring. He could have been alluding to the trade war with China, which has dominated headlines for much of the year. He could have been referring to oil prices which have risen from $40 to over $70 and then collapsed to below $50. Another item to which he could have been referring is the yield curve, portions of which have already inverted. Risky leveraged loans are at record levels. And there is a whole array of geopolitical issues which may have been on Chairman Powell’s mind including all of the European drama (Brexit, Italian budget issues and Paris riots), election of a left wing president in Mexico and more.

Yes, we are living in extraordinary times. But other times can also claim to be extraordinary. Certainly the global meltdown in ‘08 merits that claim. 2010 gave us the Greek debt default crisis which threatened the existence of the Euro. In 2011 a Japanese tsunami destroyed the Fukushima nuclear power plant. That year also marked the deaths of both Osama Bin Laden and Muammar Gaddafi. Additionally 2011 had the first ever reduction in credit rating of the United States. This budget crisis led to a shutdown of the U. S. government in 2013. That same year also marked the start of North Korean missile testing.

2014 brought the beginning of a collapse in oil prices from over $100 to their ultimate low of $30. In 2015 the oil patch crisis culminated in bankruptcies for several indebted oil producers. The effects of the slowdown in drilling created a recession in the industrial sector. 2016 featured the astonishing election of Donald Trump as President of the United States. In turn that brought sizeable tax cuts into law in 2017.

So, our extraordinary times may be rather ordinary in their extraordinariness. Headline writers thrive on turning the ordinary into the extraordinary. They love dramatic headlines. That’s what sells newspapers…and digital clicks. Headlines will always portray any news as sensational.

The reality is that for most, these “extraordinary” events have little impact on our lives. I don’t mean to minimize the impact of these headline events on those directly involved. Victims of natural disasters have experienced a tragic event. Wars impact many lives. Headlines rightly point to these events as exceptional. But for most of the world life goes on as normal.

There is one truly extraordinary item to which Powell might have been referring–full employment but no inflation. Economists have named the normal trade-off between employment and inflation as the Phillips curve. Tight labor markets almost always induce inflation. In turn, inflation leads the Fed to tighten rates to slow inflation. In turn these tighter rates slow the economy. Is it possible for us to remain in our current full employment with subdued inflation Goldilocks situation?

A couple of concerns threaten. One is the length of our expansion, one of the longest on record. Some believe that sooner or later our growth must end simply because it has been going on for such a long time. But a couple of events suggest that our boom isn’t as long lived as feared. One is the oil patch woes of 2015. The drop in the oil price caused producers to halt investments. Industrial production declined for most of 2015 marking recessionary conditions. However we did not record an official recession. This is because the relative size of our industrial base was not large enough to lead to declines in GDP.  The other is the correction in stock prices we’ve experienced this year.  While the S&P 500 is about flat for the year, many stocks are in bear market territory and so have already been punished.

Another concern is inversion of the yield curve, which has been a reliable recession indicator. Currently the yield curve is close to inverting but hasn’t yet inverted. So no official recession prediction yet. Even if the curve should invert, the inversion leads a recession by a long time. So we have more time to enjoy our robust economy.

I believe that excesses are what lead to recessions. Currently, some excesses are visible, especially those related to debt. But by and large our economy is healthy. I further believe that the stock market is driven by the economy. A healthy economy should produce a healthy market. This does not mean that I expect stock prices to go straight up. But I’m not expecting a correction any greater than the four 10% drawdowns we’ve had this year.


We are settling into our new offices in downtown Salt Lake City. This is quite a change for me. At Wasatch I looked out at the world through a wall of windows on our semi-rural setting. As the seasons changed my “wallpaper” changed. The outdoors often called to me. I went on a daily walk to enjoy our setting.

Our new offices are in a lovely old building in the center of Salt Lake with smaller traditional windows. Unfortunately the building has been modernized and our windows have been sealed shut so no fresh air. My less alluring view is of office buildings. But I can see both Wasatch’s second and third offices. I enjoyed the tranquility of Wasatch’s setting. I enjoy the bustle of SCA’s urban setting.

Josh and I recently visited Morningstar’s Chicago headquarters to tell the Seven Canyons story. We were accompanied by Josh’s seven year old daughter. Willa sat in on our meeting, spending the time coloring. Josh and I thought our meeting went well. But, at the conclusion, when I asked Willa if the meeting was good, she unhesitatingly responded “Nope.” Hopefully the Morningstar analysts were more impressed.

Spence has been our most prolific traveler. From his late summer trip to India: “I got my long awaited metro ride in Mumbai. My vision of crammed bodies smelling of sweat and spice was nowhere to be found. It was clean tidy and spacious. Quite a contrast to my NYC subway days. But also somewhat discouraging as our culture is becoming more globalized and less diverse”

He just return from a trip to London and Prague: “Traveling so far for a conference isn’t the norm, but worthwhile when I can get a bottom-up view on Turkey, Poland, Russia and the many smaller CEE countries. It’s certainly not the same as on site visits but there are other benefits.”

“I met Ukrainian company along with other analysts. With no intention of stoking any flames I mentioned the recent Russian seizure of Ukrainian ships and crew. It was like I lobbed a grenade. The ensuing debate was intense but cordial. The passion of the Ukrainian woman was moving. The leaden view of the Russian analyst presented quite a contrast. This lone interaction made the trip worthwhile.”

“I spent the past week in Prague where the gothic cathedrals make the perfect backdrop for a Christmas market. Food and handicraft stalls offer an ancient shopping experience. Everyone should consider visiting Eastern Europe at Christmas time. There’s nothing like listening to a Mozart symphony in the same hall it was debuted 200+ yrs ago.”


Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced in a period of time, often annually or quarterly.

Phillips Curve is a supposed inverse relationship between the level of unemployment and the rate of inflation.

ADI SCE000123

debt, economy

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