2018/04/25 Commentary: Trump Triple Threat

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Commentary: Wednesday, April 25, 2018

Trump Triple Threat  

‘Triple Threat’: an old-fashioned American football term for a very talented player who can pass, run and kick. It is a popular unofficial high designation for any player, and usually not given unless there is sustained excellent activity in all of those areas. And going back into ancient history, President Trump was a three-sport varsity athlete in high school at New York Military Academy, playing baseball, football and some soccer. So at some point he was aware of the first rule of the running game: make sure your blockers are opening a hole before hitting the line. As President, Trump has a hard time with waiting for the team to open any holes for him. His iconoclastic impulsive style has certain benefits when it comes to fomenting changes that might not otherwise occur, and in any event was a major part of how his political base pushed forward to elect him.

Yet the downside is very bad, causing a huge amount of distraction and even some political damage at times. Recent examples are the resignation of Gary Cohn as National Economic Council Director due to a quick shift from targeted Chinese sanctions and tariffs to the impulse to impose broad steel and aluminum tariffs currently looming once again. And what Trump chooses to do about those into next Tuesday’s stated deadline for their imposition is one of the important factors vexing US equities right now.

And in that regard as well as geopolitical concerns, some sage advice has come from Trump’s new friend, French President Emmanuel Macron. While Trump is reasonably intelligent, it seems to us that Macron has a far better grasp of the broad picture and fine line details than his American counterpart. One need only to listen to Macron’s balanced and realistic views on everything from domestic social change to the contingencies around further action on the Iranian nuclear and weapons programs.

There was a bit of a tour de force in his pre-state visit interview by the estimable Chris Wallace on his Fox News Sunday political analysis show last weekend. While it was far-flung, Macron’s excellent sense of realpolitik was very pointed on Trump not putting trade sanctions on European security allies he also expected to then collaborate on military action or Iran agreement negotiations. It all makes perfect sense, and there is one more thing that likely inspires Trump…   

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2018/04/21 WEEKEND: Bond Blowup?

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WEEKEND: April 21, 2018

Bond Blowup?  

No, not THAT Bond. Yet there is a sense that US government bond market might be blowing up at present. Is this the major meltdown that has been anticipated for so long? Like the rhetorical question title of our Another China Syndrome? post last Tuesday (as in will the US-China tariffs tiff turn into an economic meltdown?), this is NOT as likely as some would suggest. Is further weakness of US government bonds likely on the back of higher yields that reach multi-year highs? Yes. Yet the issue of how aggressive that trend will be, and especially whether there will be any extensive acceleration, is much more problematic.

That is because while the US remains a bastion of economic strength at present, there is an unseemly weakening of European and UK economic indications. That speaks of a need for a still accommodative ECB and somewhat less hawkish Bank of England activity that might restrain long-term bond yields. It is very apparent in the classical activity of US long-term fixed income leading the way down, and the European govvies following later in the cycle as US strength foments more aggressive global growth. UK long-dated fixed income tends to track somewhere in between, as is the case now. We will revisit the specifics of the US and European govvies trends below, including graphical analysis.

Yet initially it is productive to review the drivers for these divergent trends that allow the US govvies to lead the way down, as seen late last year into January and again at present. The first is last week Tuesday’s OECD Composite Leading Indicators (our mildly marked-up version) that highlighted continued growth elsewhere but extensive reversal of recent economic strength in Europe. The critical importance of that is twofold. The first is the degree to which previously still weak Europe had seemed to join the global economic expansion. The second complementary aspect is the degree to which ECB president Draghi’s inclination for continued accommodation now seems justified. And that points to enough liquidity provision to also potentially buffer any weakness in other long-dated government bond markets… potentially spilling over into the US.

And that is only the tip of the weakening European economic iceberg…

Authorized Subscribers click ‘Read more…’ (below) to access balance of the discussion. Non-subscribers click the top menu Subscription Echelons & Fees tab to review options. As Market Observations (lower section) remain the same as our Commentary: Another China Syndrome? post updated Monday, there is no Extended Trend Assessment.

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2018/04/10 Commentary: Another China Syndrome?

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Commentary: Tuesday, April 10, 2018

Another China Syndrome?  

For the uninitiated, The China Syndrome was a 1979 movie about a television reporter and her cameraman discovering safety cover-ups at a nuclear power plant. The title reference is to a pseudoscientific theory that a nuclear reactor meltdown due to all the water draining from the containment vessel would cause the hot core to drop through the bottom of the vessel and tunnel through the earth all the way to China. As even the actor-scientists in the movie note, this is silly due to a reactor core hitting ground water being cooled, even if that would mean the creation of massive amounts of toxic radioactive steam. It is also silly because China is not actually anywhere near opposite North America on planet Earth. And how this relates to markets is the potential for the US-China tit-for-tat tariffs threats to turn into a global economic meltdown. Is that really a possibility? Likely NOT!! The fears are once again due to bombastic US President Trump charging off trusting his instincts, as well as sketchy tactical advice from a couple of key advisors. They both share and encourage his misguided views on how to counter what are indeed some aggressive trade and corporate positions by China. And while he is right to want to address those Chinese positions on tariffs and even more so intellectual property (IP), as usual his tactics are so misguided as to be counterproductive. This is one of the many instances that have the world less than trusting of the President and the US these days.

This follows the steel and aluminum tariffs the President announced with such fanfare on March 1^st now seemingly fading in the rearview mirror of bad ideas. While ostensibly on a one-month delay until the end of this month, we suspect they will be left on hold for quite a while in order to not offend trading and security partners whose support is needed on other fronts. Similarly, the manner in which Trump has announced the proposed Chinese tariffs and the degree to which they are not likely to accomplish their stated goals is once again benighted. Untenable positions espoused by Professor Navarro and Commerce Secretary Ross are leading the President down his own questionable path.

Authorized Silver and Sterling Subscribers click ‘Read more…’ (below) to access the balance of the opening discussion. Non-subscribers click the top menu Subscription Echelons & Fees tab to review your options. Authorized Gold and Platinum Subscribers click ‘Read more…’ (below) to also access the Extended Trend Assessment as well.

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2018/04/03 Commentary: Bonfire of the Techies

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Commentary: Tuesday, April 3, 2018 (early)

Bonfire of the Techies  

It’s not like it is just Facebook… it’s the model. While seeming to supply a friendly connection conduit for family, coworkers, and friends old and new, there was always a more troubling side to Facebook and other social media and e-commerce sites: the user information that was accumulated and could be used for unauthorized purposes. And the recent revelations on the survey question responses that made it from Facebook to a Cambridge University researcher and onward to the personal profile analysis firm Cambridge Analytica have the social media sites ablaze. This is possibly not a total surprise, as Facebook has already experienced such problems previous.

Yet its commitment to address those issues now rings hollow, leaving CEO Zuckerberg’s apology and commitment to address them more forcefully less than adequate. That has brought on predictable, somewhat well-warranted attacks from the legal and governing classes. Yet the moral position taken by most accusatory players (the US Congress and Federal Trade Commission as well as the various wings of the European Commission) in this issue are specious at best, and the height of self-serving hypocrisy at worst. 

The quote of the week goes to the various folks who have shared a blind flash of the obvious, “If you are on a social site and not purchasing a product (and we add it is also true in many cases where you are doing so), then you are the product.” If users were either too dumb or too enamored of social connection or easy commercial transaction benefits, that’s their problem. There are multiple other aspects of the current idiocy and major hypocrisy in this area that we will visit below that include Facebook’s failures.

Yet in the meantime there is the real-world equity market valuations issue that is inflicting damage. That is due to concerns about social media and e-commerce models, and whether they will fail to produce the growth and profits under more regulation. And that does not even touch on any legal expense stemming from current public outcries. It all has do with outperformance shifting to major underperformance, with uncertainties now afflicting what were perceived as perpetual profit sources. Sound familiar?

Authorized Subscribers click ‘Read more…’ (below) to access balance of the discussion. Non-subscribers click the top menu Subscription Echelons & Fees tab to review options. As the Market Observations (lower section available to all Gold and Platinum subscribers) remain the same as in our previous Commentary: Trump Tribulation post that were updated after a week ago Friday’s Close, there is no Extended Trend Assessment.

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2018/03/20 Commentary: Trump Tribulation

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Commentary: Tuesday, March 20, 2018

Trump Tribulation

There is one problem with the possible meeting of the minds on trade tariffs at the G20 meeting: it didn’t happen! While there might be further news later this week, for now the situation seems to be that Messrs. Mnuchin and Ross are sticking with the US ‘looking out for its own economic interests’ party line. That leaves the EU in particular (which does not have the temporary steel and aluminum tariffs exemptions enjoyed by Canada and Mexico) ready, willing and able to impose retaliatory tariffs. Regardless of the potential economic and market implications, the political context means that European leaders cannot just let the US impose sanctions on their industries (and workers) and NOT respond. The likelihood of a response from countries affected by the pending US tariffs has been played down by some in the Trump administration. This is folly. Commerce Secretary Ross is an experienced businessman who should know better. Yet there is a problem with another Trump advisor.

And as we have noted since shortly after the March 1^st tariffs announcement, it seems Professor Navarro is an over-educated fool. Right after the original steel and aluminum tariffs announcement Navarro appeared on Sunday news shows, expressing confidence other countries would not retaliate… because the US has such a large economy(??). What in the world does that have to do with likely retaliation of trading partners?

It demonstrates a breathtaking lack of understanding of realpolitik. Based on what we have seen in the wake of the G20 not resolving the US push for those steel and aluminum tariffs, things might get fairly dicey again after a period of upbeat calm into Wednesday’s FOMC rate hike, projection revisions and press conference. We shall see. Yet there is more to bother the equities and US dollar and potentially bolster the govvies in the recent activity within the Trump administration beyond the very prominent tariffs issue.

Authorized Silver and Sterling Subscribers click ‘Read more…’ (below) to access the balance of the opening discussion. Non-subscribers click the top menu Subscription Echelons & Fees tab to review your options. Authorized Gold and Platinum Subscribers click ‘Read more…’ (below) to also access the Extended Trend Assessment as well.

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