Market Risks Start With China & End with Congress

Market Risks Start With China & End With Congress

The Immunity Syndrome: A stock market that appears to be immune to the risks that are manifestly evident throughout the global economy.  Gargantuan debt in advanced economies?  No problem.  Bad first quarter growth in the US market?  No need to worry.  Civil unrest among minority enclaves in Europe and unknown outcomes from Brexit?  ‘Tis but a scratch.

While global events show signs of a crack in the post-war, American-led global order, the VIX is at a 24-year low indicating all is well with the market.  The media’s warning of a Trump Apocalypse, were he to be elected, did not come to pass.  If anything, despite the hysterics, the Trump Administration has provided some semblance of normalcy in American affairs.  There is an existing budget process coming in September. Foreign affairs have highlighted American leadership and strength.  Cabinet departments have not gone rogue on the American people, but are steadfastly implementing an existing rule of law. The headlines about North Korean despot Kim Jong Un and the dismissal of FBI Director Comey  highlight the potential for drama in the nation’s capital, but they have yet to upset the proverbial economic apple cart.  Make no mistake, North Korean nuclear threats and Russian trouble-making are risks to global peace… but the market has simply responded so far with a shrug.

The lack of visible risks to the economy does not mean there aren’t any, and the risks that do exist can come in rapid fashion.  Here are three key issues that, if they go the wrong way, could reverse the market in short order:

 1)  Anything related to China.  Currency devaluation, debt de-leveraging, or any combination thereof could cause a ripple effect in the global economy, and in turn, damage U.S. growth prospects.  China is in the midst of a long-term project on unloading a massive domestic debt load that commenced in the spring of 2015.  This has led to a half-trillion drop in their GDP, and significant risk of market contagion.  So far, it has not impacted U.S. markets, but analysts know that it could in the near term.

2)  Tech sector leads market in narrow range.  The big tech companies have led the surge in market cap in 2017 on the Nasdaq, and Apple has analysts predicting it will become the first $1 trillion-dollar company soon.   That’s good news and especially if you own stock in those companies.  But they are eerily similar to dot-com 2000, when the techies led a surge over several years… right before the fall.  Are these the ghosts of the dot-com bubble coming back to haunt us?

3)  The Congress continues to act like… well, the Congress.  The repeal and replace roll out was a PR catastrophe that was met with stiff resistance in the Senate from… Republicans!  This was just one example of a Republican Congress that has proven to be too unruly to provide a passable legislative agenda.  One commentator put it this way:  “The Democrats know how to govern, they just don’t know how to act politically.  The Republicans know how to act politically, they just don’t know how to govern.”   If Congress cannot solve the health care fiasco, fund the wall, pass some version of tax reform that lowers taxes on the middle class, or fail to pass a budget in the fall that satisfies their base, then you could be looking at gridlock that reverses our rather high market expectations.

Can a market correction lead to a recession?  Maybe – the underlying economic numbers have been “good,” that is to say, not as bad as the Obama years.  Unemployment seems tamed… there is a certain degree of price stability… but GDP was only 0.7% in the first quarter.  Is that a post-Christmas, seasonal number?  Perhaps.  Is it unnerving?  Absolutely.  Commodity prices have fallen… but perhaps that is part of the China slow down.  Bottom line, market indices remain at historic highs but the support for this market is fragile.  Among many market risks, China, dot-com ghosts, and the American Congress could be the biggest threats to continued gains.

Media Creates D.C. Chaos

Media Creates D.C. Chaos

President Trump’s first few months in office has left much to be desired.  While reversing Obama era executive orders and the attack on the Syrian air base were steps in the right direction, his base has grown agitated as budgets remain largely Democratic in nature and the wall remains unfunded.

 

Of course, the start of his administration has faced significant headwinds:  The Democrats have acted as a disloyal opposition – deranged and sabotaging the administration’s efforts to govern… many cities remain war zones and some college campuses have erupted into violence… the Republican Party remains impotent, useless, and terrified of the media and Democrats, despite being the majority… the establishment sits back and happily awaits Trump’s demise – regardless of the damage to both our domestic and foreign policy.

 

All of this is amplified by the media’s narrative of an administration, the nation’s capital in chaos, and Trump at the center of the storm.

 

But while Trump is slow to deliver on many campaign promises, the chaotic environment is more the fault of the mainstream media. At no time in our history has the majority of dominant media platforms been outright hostile and adversarial to one party over another.   The media has always been liberal, but something has changed in the last 8 years.  They have become the mouthpiece of a one-party state, and it is a dangerous circumstance for a free society to be in.  This is a situation that has no precedent.

 

 

Here are the Top 5 Media Narratives of the Trump Administration Since January. Fact or Fiction?

 

  1. Trump’s Campaign colluded with Russia, he is a Russian agent, and fired Comey to obstruct justice. Trump works for the devil if you listen to the media all day. You name the Russian story, and the media has blown it up into headline news.  The firing of FBI Director James Comey was a Nixonian attempt to obstruct justice and the investigations into Russian influence in American elections – and on Trump himself.  There are now calls for a special prosecutor to investigate ALL of the Russian campaign-meddling stories.

 

Fact or Fiction: Media reports Trump colluded with Russia to steal an election? FICTION.

 

It is quite possible that Trump representatives had business dealings and meetings with Russian officials.  That, in and of itself, is not illegal. It could be, but not based on the information we have to date.  Hilary did as well.  But did the hair stylist or mechanic in Toledo change their 2012 vote from Obama to Trump in 2016 because a Russian told them to do it?  Of course not.  YES, foreign powers try to influence our elections. YES, Trump’s business dealings are global. NO, there is not any evidence which suggests a single vote was changed from alleged collusion with Russia.

 

As for the Comey firing, the media has gone full-blown deranged on this issue as well.  FACT:  Presidents can fire an FBI Director when they want to.  FACT: No existing investigation will stop because Comey was fired.  FACT: Bill Clinton fired his FBI director.  FACT: Had Clinton won the election, she or Obama would have fired Comey immediately for his blatant mishandling of the Clinton email scandal.  The current media narrative is simply untrue.

 

  1. Trump Travel Ban is Unconstitutional and Discriminatory. With headline after headline describing Trump’s Executive Order travel ban as “discriminating against Muslims,” the public would be forgiven if they believed the media’s narrative in describing it as a “Muslim Ban.”   The courts have aided in this matter by ruling against both the original and revised order.

 

Fact or Fiction: Media reports the Executive Order Travel Ban is in fact a “Muslim Ban”? FICTION.

 

The media said repeatedly there was no evidence of terror risk from these countries, when in fact over 113 documented convictions on terror charges had occurred from the 6 countries that affected the travel ban since 2010.  The media reported it was discriminatory against only Muslim countries, but most Muslim countries were left off the list which meant they could still travel the U.S.  The underlying reason for the Order was the 6 countries listed – Libya, Syria, Iran, Sudan, Yemen, and Somalia – are all failed states with no controlling government to properly vet those coming and going, or they are the sworn enemies of the U.S. (Iran).  It wasn’t a Muslim ban, but a prudent safety precaution… unless you belong to the mainstream media.

 

 

  1. Trump is Creating a Deportation Police. The media’s cartoonish reporting includes the hysterics that mother’s would have their children ripped from their hands and we would separate families from one another.

 

Fact or Fiction: Trump created a deportation police and has separated parents from children? FICTION.

 

There has been some high-profile reporting of fathers deported who were respectable and law-abiding.  How awful to take a father from their family. There was another story of a mom with an adult child being deported, but in both cases the children were not abandoned without a parent or the ability to take care of themselves. And that’s IF you believe the media’s portrayal of the events in question.  Bottom line, of the several thousand deportations since January, there is no evidence of family break-ups and children left alone without their parents.  It is a false narrative.  The only time we can remember a child being taken from their parents was under a Democrat! This was when Bill Clinton deported Elian Gonzalez back to communist Cuba.

 

 

  1. Millions will die if we repeal Obamacare. The media has headlined the horrors if we repeal Obamacare, and headlined the statements of Maxine Waters for days that millions could die.  We don’t know if this could happen since the “repeal” has only passed the House, and not the Senate.  But it is implausible that the government would allow a health crisis to occur because of a lack of insurance leading to millions of deaths.  People seem to forget the system we had before Obamacare worked… there were cost increases that were frustrating the public, but no one was dying in the streets prior to Obamacare.

 

Fact or Fiction: Media reports the Obamacare repeal will result in millions dying from a lack of health insurance? FICTION.

 

In fact, people are actually dying FROM Obamacare!  According to the Kaiser Family Foundation, which supported President Obama, more people are being waitlisted for the Medicaid in-home care option than would have occurred without Obamacare, and many have died while waiting.

 

  1. Trump Leaked classified information during visit with the Russians. Executive Order 12356, dated 4/1/1986, has never been rescinded. It defines declassification to include authority granted by the supervisory official.  It reads in pertinent part:   “Information shall be declassified or downgraded by the official who authorized the original classification, if that official is still serving in the same position . . . [or] a supervisory official.”  This has been interpreted as the President, the senior Executive Branch official, can declassify as he deems appropriate.  It may not be smart…it may not be wise…but it certainly is within his authority.

 

Fact or Fiction: Media Reports that Trump Leaked Classified Intel to Russians FICTION, maybe…

 

We don’t have enough information yet to definitively say no, he did not… but it would not be illegal.  His National Security Advisor, famed tank commander HR McMaster, says he didn’t and he was in the room.  But that has not stopped the mainstream media from piling on.  Are they investigating how many secrets were given away on Hilary Clinton’s basement server?  Uh… no.

 

There has always been bias in the media.  But there has never been anything like what we are living through today.  The media, and much of the politics, are unhinged.  Markets continue to go up, up, up… and yet we ALL know nothing lasts forever.  In this unprecedented environment, isn’t safety of principal and a reasonable rate of return the safer, more prudent way to protect your retirement money?

 

Call now to learn more at 877-912-1919.

Non-fundamentals keep stock market afloat

“Non-Fundamentals” Keep Gravity-Defying Market Afloat

So much is written regarding the “fundamentals,” and every analyst has their favorite “formula” or “calculation” or some historical reference point where “when this event happens….” 1929 occurs, or 1987 Black Monday, or the dot-com bubble burst.

But maybe the new normal, as evidenced by the “secular stagnation” that leading academics and former Treasury Secretary Lawrence Summers have warned about, has more to do with a change in how we look at the fundamentals. Maybe the new normal is the era of the non-fundamental.

The non-fundamentals are the opposite of indices: they are the opposite of bond yields, P/E ratios and tax rates. Those traditional measurements of where the stock market may or may not be going have always guided the Wall Street trader and the market analyst on how stocks should perform. If the bond yield was rising, stocks are usually falling… if the historical P/E ratio is 14 and today we are at 26, stocks are falling… if the Fed Funds rate is at virtually zero, and begins to creep up – again, stocks are probably falling.

These indicators and “fundamentals” are occurring right now. This would suggest, by historical comparison, that the market is overpriced and we should begin to see a downward movement in stocks – if not an outright correction. The “perma-bears” in the media have been preaching market correction for years, and yet nothing seemed to stop the upward momentum.

It seems uncontroversial to point out the obvious: the new normal reflected an unprecedented policy of accommodation from the Fed and fiscal stimulus, the likes of which has never been seen in world history. The intervention by the government into the marketplace after the collapse of Lehman Brothers in 2008 had never been tried before, and it remained unending through the most recent Presidential election cycle. The combination of Fed zero-interest rate policy, quantitative easing both publicly and privately reported, and gargantuan budget deficits during the Obama era provided an artificial stimulant which kept markets afloat and therefore provided positive (albeit anemic if existent at all) economic growth. The creation of such levels of debt, it was believed by conservative economists, would lead to massive inflationary pricing. It hasn’t yet. It was also believed that debt-supported growth could not be sustained. While it will never be compared to Reagan or Clinton levels of growth, the government did buy 7 years of no recessions and barely above water GDP numbers with an ever-growing stock market. Assets gained in value due to the price inflation from the printing of money.

So, when do the chickens come home to roost?

They should have already. The fact that they haven’t is testament to the non-fundamentals. What do we consider the non-fundamentals? They are the three S’s: sentiment, strength, and safety.

Here is a brief description of the non-fundamentals:

1. Strength: Strength in terms of public perception, the dollar, and national certitude is often overlooked in the psychology of personal investing. No one will likely suggest the country is unified, or that we are not divided at levels have not been seen since the 1960s. But the perception that we have been weak, or passive, on the world stage has led to a general dread among the public, even if disengagement is preferred in most polling. President Trump may not be everyone’s savior, but the perception of strength has resonated with a large cross-section of the country. The “Right Track-Wrong Track” polling was all the way into the teens near the end of the Obama Presidency, and is now in the 40s. The strength of the dollar is equally appealing to the psychology of the investor. While the dollar may not be backed by gold, nor has it been backed by our relative military strength over the last 8 years, it is certainly stronger relative to other currencies. Whether it is good or bad for exports and imports is another debate – national “strength” impacts investor sentiment.

2. Sentiment: Speaking of “sentiment,” Consumer sentiment is at its highest since 2000, and most recently beat analysts’ expectations. It is the most important indicator of “sentiment,” since consumer spending underwrites the profits of U.S. corporations. Investor sentiment is bearish, however, according to data released by the American Association of Individual Investors (AAII). That’s usually a good thing, since the individual investor rarely times the market correctly. Simply put, “sentiment” as a non-fundamental supports a continued growth in the stock market.

3. Safety: This is the most important of the three non-fundamentals. As our withdrawal from global leadership has helped bad actors fill the void – countries, investors, regular people – ALL have flocked to safety. Where do you go when things look dicey? The US of A. Deepest capital markets… a fraying yet still intact rule of law… physically safe storage for gold, silver and other tangible assets of value… large corporations with cash reserves and a presence around the globe… brand value that extends into every corner of the planet – seemingly every terrorist or insurgent firing an RPG is usually drinking a coke and wearing Nikes… in times of turmoil, the safest place to invest has been, and probably always will be, the good ol’ US of A!

Wall Street has enjoyed a meteoric rise since the depths of 2009. The fundamentals have been pointing towards a correction for the last several years, yet the market shakes it off and keeps heading upward. In the immortal words of Lou Mannheim from Wall Street : “…You’re on a roll kid… enjoy it while it lasts, because it never does.”

But maybe it has lasted this long because of the non-fundamentals and the three S’s of investing which has changed our perception of the market – strength, sentiment, and safety. The new normal may be that the stock market is no longer driven by the fundamentals of yesteryear, but rather the “non-data” of the new market environment.