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The answer to "What's going to give the Fear Index a boost ?" was staring us in the face all along .... The threat of Thermonuclear War,...

August 11, 2017

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A looming election and economic ignorance at the top ..... and we're not talking about the UK.

December 9, 2019

 

ref :- "Tills ring out for two-term Trump" , Irwin Stelzer's American Account, The Sunday Times Business Section 8/12/19

 

No, not the UK .... we'll by-pass those much put-upon British voters and their general election on Thursday .... save to say that even if the polls predicting a Conservative majority are proved correct (always a big "if" with UK polls) the government will still have a very long way to go to conclude the kind of deals (trade and otherwise) with the EU and elsewhere that the markets will view charitably. "Getting Brexit Done", in the sense of getting it through parliament, may soon be achievable but that's really just the start of it. Given that the country still seems split down the middle on this most divisive of issues, realistically one can see no end to the blood-letting. Still, markets being markets would be grateful for even the limited clarity that a Conservative majority would bring, and have driven the Pound up through USD 1.3150.

 

Rather, Mr Seltzer is concerned with the US of A and we enjoy reading his columns for number of reasons. Not least, although Mr Seltzer is not an obvious fan of President Trump he reminds us from time to time of some of the bigger reasons why the President got elected. Promises to address the concern over the trade practices of China (and others), uncontrolled immigration and the country's allies not paying their way resonated with the electorate, and still do. Many may recoil at Mr Trump's methods and behaviour but few would deny that one way or another these issues had to be tackled in a way that his predecessors had failed to do. And there is still a widely-held feeling that, on immigration just for example, a border wall may not be one's preferred choice but then neither is doing nothing. We'd all do well to remember that if we hear gasps of disbelief should Mr Trump's poll ratings start to climb.

 

Actually , truth be told we've always had a sneaking suspicion that come November the incumbent President will be the one to beat even as the odds-makers have disagreed (though his price is shortening). Much of that is down to his likely Democratic opponent, and the frankly ludicrous process of selection that has seen a small army of candidates for the Democratic nomination tearing lumps out of each other. Democrats are likely to be left with a choice of an experienced hand who is nevertheless prone to making gaffes and who would be almost 87 years old at the end of two terms (Biden), two "big government" left-wingers both radical by US standards (Warren / Sanders), and the mayor of South Bend, Indiana (pop : 100,000) who would have to counter the sad probability that his sexuality will not attract the votes of conservative Afro-Americans in the South that will probably be crucial (Buttigieg). Oh ..... and the heavyweight newcomer, a Wall St-based multi-billionaire who has flipped from Democrat to Republican and back again and is probably the epitome of everything those that turned to Donald Trump last time don't like (Bloomberg).

 

Since we're at it, for what it's worth we might as well add that though we have no evidence of this whatsoever, we subscribe to the view that the impeachment process brought on by the Democratic party, regardless of its merits or otherwise, will of course be defeated in the Republican-controlled Senate and will backfire against the Democrats amongst large swathes of the electorate come election time.

 

Anyway, speculating about an election in eleven months time may seem a bit premature, particularly as it was in this instance prompted by one month's set of economic data. But as monthly data goes the employment release carries a lot of weight, and Friday's strong numbers across the board were quite a surprise to the market :

 

Non-Farm Payrolls up 266,000 (due +180,000)

Unemployment Rate 3.5% (back to the lowest for50 yrs and due 3.6%)

Average Hourly Earnings + 3.1% (due +3.0)

 

There are weak spots in the US economy, particularly in manufacturing as in other parts of the world, but the service sector is still expanding. Above all, consumer spending is driving the expansion of the economy. The confidence of consumers is reflected in a sharply higher reading in the closely followed University of Michigan index of consumer sentiment, and unsurprisingly the strong data was greeted triumphantly by President Trump. A still strong(ish) economy while other nations struggle and rising levels of confidence amongst the public are good news for his re-election campaign, even this far in advance. After all, they couldn't reject him if the stock market's still going up, could they ?

 

The problem for Mr Trump is that these strong numbers mean that the Federal Reserve's decision to pause their lowering of rates seems entirely justified. The President called the Federal Reserve "boneheads" after their decision, and has called for rates to be slashed to zero or lower. Where does one start with that ? The entirely inappropriate behaviour of a US President perhaps, or his desire to move to negative interest rates (even with a strong economy) when other nations are desperate to get away from them if they could. The fact that Mr Trump cannot seem to grasp that economic growth and lower rates do not go together is another example of what Mr Stelzer calls ""his impenetrable, irremediable ignorance of economics".

 

One might also include Mr Trump's astonishingly simplistic view that high stock market prices must mean an all-round strong economy, even if you've used questionable tax-cuts that leave government finances in a precarious position to goose the market. But actually Mr Stelzer uses the president's trade policy and nonsensical interpretation of currency markets to illustrate his description of Mr Trump.

 

Because he feels he is winning the battle with China by the widespread application of trade tariffs, Mr Trump is now revelling in the nickname of "Tariff Man" as if they are the answer to all problems  --  well let's face it, such an adversarial tactic suits the presidential style. He is upset with Brazil and Argentina for example because he says they are manipulating their currencies lower to gain a trade advantage, and has slapped tariffs on them. Now please understand this Mr President : Brazil and Argentina have weak currencies because their economies are weak (a total basket-case in Argentina of course, and not much better in Brazil) . The US Dollar is strong because the US economy is strong. Things are as they should be. The idea that the Fed should slash rates below zero, with all the problems that would bring and at a time of decent growth, just attempt to gain a boost for US goods despite all the downsides is ..... well, beyond ludicrous.

 

But Mr Trump is a man not given to listening to advisers, and worryingly for his opponents his supporters don't seem to care as he stumbles, or maybe leaps, from one crisis to the next. Whether it's economic ignorance, foreign policy betrayals (some would say)  or arguably impeachable misdemeanours, he seems Teflon-coated for those who elected him the first time round. And love it or loathe it, we can already hear the chanting "Four More Years ! Four More Years !". It would be wise to prepare for what that might mean for markets, and for the wider world.

 

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