Business Leaders Begin to Worry

Business Leaders Begin to Worry

Behind the record-setting bull market was the belief that the Trump agenda would reduce the regulatory state, pass tax reform, and create a pro-business climate that drives stocks upward well into the future.

Those expectations are beginning to change… there is fear the agenda may not be enacted.

Although Congress’s tax reform plan was met mostly with praise from conservative circles this week, that has not changed the growing fears in the business community.  As reported by, the CFO Signals™ Survey is showing a dramatic shift to pessimism by the leaders of companies in the U.S., Canada, and Mexico with revenue exceeding $1 billion per annum.

Overall, the data reflected a 15% drop from 44% optimism to 29% optimistic in the last quarter regarding future revenue.  In the manufacturing sector, the decline was even steeper, going from 52% optimism to 22% optimistic.  These were some of the largest shifts downward in the survey’s history.

The big risks to the economy we have listed many times before, but with each passing month, they are now apparently impacting the leaders of our nation’s largest corporations.  They include but are not limited to:

I. What market risks have American business leaders growing more pessimistic?

  1. Geo-political risk. This is repetitive, but obviously the growing verbal tit-for-tat between President Trump and North Korea has increased the risks of war in the Pacific Theater. Even without war, the increased costs of insurance, of changing distribution points and shipping, are already affecting the bottom line costs of global supply lines.  That, in turn, will raise the costs for consumers.
  2. Stalled Trump agenda. While most blame the incompetent Republicans in the Congress, assigning blame most agree is a fruitless exercise for business leaders.  The bottom line (which affects their bottom line) is there is little visible hope for meaningful tax reform on the horizon. If we get something, will it be too watered down to have the dramatic impact on the economy that they were hoping for?  The odds are something may pass by late 2018, but that is just window dressing for the economy.  While high corporate taxes are always passed on to the consumer, they still drag down sales, since the consumer buys less of something that costs more.  Lowering the corporate tax rate had been a high priority… CEO’s can now only hope they see some meaningful reductions.  Regulatory burdens have been lifted, but not broadly based – mostly helping just the energy sector.  The hopes of repealing Obamacare have been dashed.  The expected surge in GDP that would come from free market legislation has instead become the realization that little, if any, of a pro-growth agenda may pass.
  3. Trump’s unpredictable responses to a changing environment. Does frustration with Chinese inaction on North Korea lead to a trade war?  Do relations with European countries affect trade or our commitment to NATO?  Does debate over a border wall upend trade with Mexico?  The “Trump Factor” – so positive for the business climate from the election until recently – now appears to be an issue of uncertainty, and business leaders loathe uncertainty.
  4. Capital markets negatively impacted. So far a weakening dollar has driven foreign money into U.S. equity markets, and there has not been a dollar liquidity issue.  But many fear continued Fed tightening (which may now be ahead of the inflation curve) and foreign competition that is highly motivated to diversify out of dollar holdings, will lead to a disruption in capital liquidity.

But shouldn’t there be cause for some optimism?  If a bill can get out of Congress, Trump will sign it, and the Congress has an incentive to do something positive before the 2018 elections.

II. What are the reasons for optimism in the market and economy?

  1. Geo-political risk has always been with us. The entire Middle East collapsed on President Obama’s watch, which temporarily drove gas prices up on multiple occasions during the last Administration. While there were dips along the way, the market has remained elevated for some time.  The Trump Factor and the degree of risk with North Korea are substantial, but so was the Russian invasion of Crimea.  Perhaps the risk wasn’t as great since the entire planet knew President Obama would not do anything about it, but nonetheless, we certainly have known that calamity could strike the country and our markets at any given time.
  2. Congress could actually do something right. They should be highly motivated to take action – since the midterm elections could be nasty if they don’t have something to show their constituents.  While media debate can provide the impression that the country is split on Obamacare, that is not the case in most Congressional districts held by Republicans, where the expectation of repeal was a clear majority.  Tax reform is near Biblical canon for the Republican Party, and to have talked about but not passed any serious tax legislation by 2018 seems impossible to fathom.  Bottom line, CEO concerns are real, but it seems almost impossible to imagine Republicans won’t pass something from the Trump agenda before the 2018 election.
  3. Trump’s unpredictability helps, not hurts, potential market and GDP gains. The public elected Trump as a disruptor, and wanted him to disrupt the Swamp in DC.  When he tweets or seems to create a furor that the mainstream media then attacks him for it – it gives comfort to 40-50% of the public that he is doing what they sent him to do.  In a deep sense of irony, the chaos created by Trump often encourages a large sector of the public in their daily routine, and that keeps them buying, selling, and engaging as they would in the marketplace.  Could he spark a trade war?  Of course, but most of the public knows what CEO’s ignore – any trade war can be damaging, but the US never loses in a trade war, everyone wants, and needs, to trade with us.
  4. Capital Markets will be just fine. Forward guidance from in-house analysis teams such as Putnam Investments shows no risk to liquidity or capital markets.  Fear over such disruption is usually unfounded, capital flows for the dollar benefit the US in either direction.  The liquidity fears relate to a system-wide collapse in 2008, which such risks are out there, but then every asset class will have collapsed, and there would be no safe haven (unless, of course, you invested in index annuities, which allowed our clients to safely avoid the 08 collapse).

CEO pessimism in the U.S. stock market and the U.S. economy is based upon well-founded fears, and you should consider safer investment allocation given those fears. There are good reasons to have comfort in our current state of affairs despite the chaotic social order we see on television.  However, at the same time, the market cannot go up forever.  At some point, genuine fear is proven correct.  Some of the most informed investors are further diversifying their retirement money to achieve greater levels of safety and volatility protection while still maintaining reasonable rates of return.  That is often achieved through diversifying into non-traditional safe money assets like the index annuity. Call 877-912-1919 to speak with one of our qualified financial advisors to learn more!

U.S. Constitution

U.S. Constitution: A Celebration of Freedom

Many countries have claimed the title of “republic” throughout the centuries, but it was in name only.  A republic is defined as representative government, representatives who are subject to the democratic voting public (citizens, usually men, but in the late 19th and early 20th century to include women). What has made the American republic unique, and still standing to this day?  Our Constitution.  This week passed the 230th anniversary of our Founding Document!

Progressives believe it should be a living, breathing document… that it changes with time.  But that is because they wish to interpret it how they see fit, to change the culture without democratic debate.  Conservatives align with the Founding Fathers – that the document should remain true to the Framer’s intent, which prevents rule by the mob. If you wish to change it, there is a process: amendments.

This week we celebrated Constitution Day on Monday, September 17th – and we are reminded of the importance of keeping its “original intent.”  It should also be a reminder of how important this seminal document is to our history, our freedoms, and as we watch the news each day… our future!

 I. Why the Constitution Should be Applied Utilizing the Framer’s “Original Intent”:

  1. Ensures that decisions are rooted in history, tradition, culture, and the rule of law. Critics of “originalism,” “strict constructionism,” and/or “original intent” usually follow the same script:  minorities could not vote, women could not vote, and therefore the document is flawed.  That of course is flawed thinking.  The Framers were men of the Enlightenment, and as stated above, they left a process in place to make such changes – it was called amendments.  And where the Constitution did not address a particular social injustice when signed – such as universal voting rights or the immorality of slavery – the amendment process eventually corrected those issues over time.
  2. Framers were enlightened men, inspired by divine guidance. John Adams said it best – “Our Constitution was made only for a moral and religious people. It is wholly inadequate to the government of any other.”  Interpreting the Constitution with “original intent” helps us remain fervently committed to a just and moral foundation of right and wrong.  Each ruling that has gone against the Framer’s intent has usually resulted in a decline in morality… that of course is self-evident today.  And as morality and justice give way to progressivism, the social decline will continue.
  3. It works… always has. Recent cases such as DC v. Heller – which preserved the 2nd Amendment – helped preserve Constitutional protections for U.S. citizens.  Without a Constitution that is foundational and fixed to certain moral and civic truths, then future governments can simply change the meaning of your rights as the mob of voters dictate.  The Constitution is here not to give us our rights, but to protect us from government taking them.  Freedom of speech, trial by jury, no search and seizure… American freedom from tyrannical government is enshrined in the hallowed words of our founding document!

“The Constitution is the guide which I never will abandon” – George Washington, 1795.  It is pretty hard to argue with that sentiment, and it speaks to the finite nature of the document.  How can something guide you if you are allowed to change it?

The country celebrated a week of important moments in American history, this past week, yet they were hard to notice from the news coverage.  In addition to Constitution Day, we also celebrated the birthday of the Air Force and the CIA.  Take a moment to reflect on the importance of these American institutions.  They help protect our freedoms, and what protects our freedoms from government intervention – the Constitution – is the most important American institution of all!

War on Terror - 9/11 Twin Towers

War on Terror: We Didn’t Start It, But We Will Have To Finish It

The 16th anniversary of 9/11 passed this week.  The war on terror continues abroad and at home.  It is complex and challenging and some would say lacking clearly defined measurements of victory – but it goes on nonetheless.  The 9/11 memorial events of this past week are a reminder of why we continue the fight, and to keep our promise as a country to “Never Forget.”

War on Terror - 9/11 Twin Towers

Many question the reason we stay in the fight – they argue:  the world has changed … the Middle East is a quagmire … our presence is what brought about 9/11 in the first place … but those are the arguments for the uninformed as they watch the mainstream media.  While much of the fight could have been smarter, and we certainly have made some mistakes along the way, America has no choice but to continue the global war on terror – because George Bush was right, we “fight them over there, so we don’t have to fight them here.”  Bringing the war to America was Osama bin Laden’s primary objective.

Terror - Twin Towers on 9/11

What are the reasons for and against the continuing of the War on Terror?  Why have we not won the war … is it winnable?  These factors remain as important today as they did when the planes struck on September 11th, 2001.

I. Why Critics Say We Should Stop Fighting The War on Terror and Come Home:

  1. Our presence is what caused 9/11, and continues to cause blowback to this day.  It’s a famous line bin Laden used, and it has nothing to do with hating our freedoms or our rock music.  Bin Laden always specifically outlined and stated his beliefs for all to see and hear.  His fatwa against America in 1998, and his “Letter to America” in November 2002, both clearly stated his reasons for going to war against America: (a) Western support for attacking Muslims in Somalia; (b) supporting Russian atrocities against Muslims in Chechnya, (c) supporting the Indian oppression against Muslims in Kashmir; (d) the Jewish aggression against Muslims in Lebanon; (e) the presence of U.S. troops in Saudi Arabia;  (f) U.S. support of Israel; and, (g) sanctions against Iraq.  Bin Laden of course leaves out the U.S. support of him and the mujahedin in the fight against the Soviets; U.S. support to remove the British, French, and Israel from the Suez Canal in the 1950’s; U.S. protection of Muslims in the Balkans in the 1990’s; U.S. aid to the people of Afghanistan was more than any other country throughout the 1990’s; the U.S. was protecting Muslims from the tyrannical regime of Saddam and Iraq when he invaded Kuwait.  It wasn’t the American presence, but the legal and justifiable actions of American policy that bin Laden did not like.  America could not help but be present – you can buy a pair of Levi’s and Coke on every corner of the globe, including the deserts of the Middle East.
  2. We can’t win. “That’s why Americans have never lost nor will ever lose a war; for the very idea of losing is hateful to an American.”  General Patton’s belief that America will not and could not ever lose a war is true today as it was true during World War II.  But what constitutes winning, and what defines victory, have changed since the end of World War II.  No opposing army can face the U.S. military in a straight up contest without suffering catastrophic defeat, so no one tries.  They rely upon guerrilla warfare, asymmetrical warfare, and, among other doctrines – terrorism.  Bin Laden’s war aims were to bait the U.S. into wars in the Middle East (he succeeded), topple Arab governments (we helped him in Iraq and Libya but so far, his main target Saudi Arabia, has been unaffected) and establish a Middle Eastern caliphate (so far he has failed).  This war he has started with the Americans is also an ideological one – do Arabs want freedom from the tyrannical nature of Wahhabi Islam, or would they prefer a measure of freedom?  Many argue that it is not our fight – but we do have the only winning formula that people want – freedom – so it is a war that can be won.  Besides, what other choice do we have, the enemy gets a vote.
  3. We are responsible for most of these problems. The “Blame America” crowd on the left often uses this refrain, albeit an incoherent and untrue line of reasoning.  Billy Joel had a famous song which was true then, and true now – “We Didn’t Start the Fire.”  Critics point to U.S. meddling in the Middle East back to the Suez Crisis, the overthrow of the Mossadegh government in Iran, and our unwavering support for Israel as the reasons for the rise of Al Qaeda, bin Laden, and Islamic Terror.   As stated above, bin Laden lists these reasons and more.  Critics claim our unfettered thirst for oil also brought us into the Middle East over the last 100 years.  But the critics miss some crucial points – (a) the Middle East was unstable and a battlefield for global hegemons for centuries, long before we arrived; (b) the U.S. was asked by the Saudi’s to defend them from Saddam; and, (c) the Palestinian homeland is not mentioned in the Koran – a fact bin Laden and his followers simply ignore.  The U.S. was responsible for maintaining global order – and the Middle East always required policing because its inhabitants were and remain largely dysfunctional.  That dysfunction existed long before we were ever present in the Middle East.

II. Why We Must Keep Fighting The War on Terror:

  1. Failure is not an option. As Bush stated, we either fight them there or fight them here.  The U.S. fought the Cold War for 46 years (1945-1991). However, many forget there were many “hot” wars in between:  Vietnam, Korea, Afghanistan, Nicaragua, Grenada…. along with CIA and client state battles fought throughout Africa, Asia and Latin America.  The safety of the homeland, and of U.S. citizens, requires us to stay in the fight.
  2. Leaving won’t stop the war from being waged against us. While bin Laden never mentions our freedoms as a reason for 9/11, our belief system stands in direct opposition to his radical Islamic nightmare.  A totalitarian regime based upon medieval religious practices is almost worse than atheistic communism.  American values are universal, and as long as we stand for freedom and democracy, our belief system is a threat to their power.  Therefore, we will always remain a target.
  3. The safety of U.S. citizens, and those who have relied on us, depend on us. As already stated, the Islamic terrorists have declared this war, we did not.  We don’t have a choice as to whether to stay in the fight, because they are bringing the fight to us.  Israel is not going to be uprooted… we have already left Iraq (with horrific consequences) … we had already left Saudi Arabia almost 20 years ago… our role in the world has been pre-determined by our size, our strength, and the goodness of the American people.  The presence we have in the Middle East is less than when bin Laden launched his terror war, yet our departure has only resulted in a humanitarian horror for those left behind.  For our safety, for the safety of those who have relied on America, we must continue to fight the War on Terror.

September 11th is a seminal moment in the nation’s history, and we all now recognize that the neatly divided world of the Cold War is over.  The world’s great fear of America’s power is diminished, and a multi-polar world with multiple, evolving threats is the new normal.  America is uniquely blessed with the people, skills and resources to deal with this new reality.  It only is a matter of will.

The big mistakes of the past 16 years have not been defending ourselves and protecting our country, but instead it has been in the execution of some rather big-ticket items: nation-building in Afghanistan; the previous administration’s withdrawal from Iraq; the failure to enforce our so-called “line in the sand” with Syrian chemical weapons. We are in this mess from taking a position of weakness, not from acting against our enemies.

As American’s spent this past week reminding ourselves to “Never Forget,” that should include never forgetting that we didn’t start this fight, but we will have to finish it.