The Economy: The numbers released this week underscore the difficulty in evaluating the economy. Consumer confidence is at all-time highs; as is bullish sentiment. Auto Sales disappointed. ADP Jobs report on Wednesday were blow-out; far above expectations. Yet the very similar NonFarm Payrolls were far below expectations on Friday. Oil has rallied, dipped and rallied back on each OPEC announcement. Fed Minutes were released and showed a more hawkish stance towards raising interest rates. They also contained a comment that stocks may be overvalued. The nuclear option on Gorsuch was exercised without causing a ripple. This is the conundrum of soft versus hard data. Soft data is about how you feel or what you think. Hard data is information that has some basis in statistics. With the manipulation of statistics you now have to frame hard data in terms of what might be fake news. For example, are any numbers provided by the Chinese Communist Party real? For better or worse, they certainly drive the markets. For the U.S. the consensus is that the Trump rally is intact regardless of the healthcare fail, the headwinds of tax reform, a looming trade war with China and as of today, a possible hot war with Syria/Russia. We continue to hear that regardless of the macro picture, bank lending standards remain tight.
Food for Thought: The relentless upward bias of the stock market stumbled Wednesday when the Fed Minutes were released. Two comments were taken as bearish for stocks. First, further interest rate hikes are coming in 2017. Second, the statement that stocks may be overvalued was viewed as a warning. Together, these comments stopped the rally and caused the largest reversal in 15-months. Markets closed down dramatically. But like so many other issues that should have paused this bull market, the reversal was forgotten overnight. Stocks had a positive day as the prospect of a Syrian war and the adage, “buy on the sound of cannons, sell on the sound of trumpets” was heard. Last week Tillerson indicated that Syria was best left to the Syrians. Today, Trump bombed ‘em. U.S. military intervention in Syria. Perhaps it’s the Art of The Deal, but it seems that there’s a lot of U.S. saber rattling going on. We have U.S. troops in Poland, on the Russian border, for the first time in history. We’ve turned-up the anti-Russian volume on Ukraine. We’re threatening North Korea with unilateral action. We’re flashing the sabers at China over the South China Sea. Perhaps the Central Banker stock market, which has morphed into the Trump Bump market will evolve into the global war market. To Infinity and Beyond.
Music of the Week: Billy Idol’s “Charmed Life”
The Economy: The only data of note was that Existing Home Sales surprised to the downside. But all talk of the economy was framed by the new administration. True to his word Trump began working the day of his inauguration with an executive order that formally put Obama Care in the crosshairs. Monday there were executive orders withdrawing from TPP, renegotiating NAFTA, freezing Federal hiring except for the military and freezing all new and pending regulations. Tuesday were executive orders for the Keystone and Dakota Pipelines. Wednesday were executive orders for the wall and to bring “Sanctuary Cities” to heel. All of these are seminal events that will have enormous economic impact. Their final forms are unknown, but with the Republican legislature and SCOTUS appointments you can expect dramatic changes. The military is expecting a windfall; many non-profits are feeling the chill wind of fewer Federal grants.
Food for Thought: China appears to be the centerpiece of a new U.S. foreign policy that openly acknowledges the adversarial relationship between two super powers. Gone is the benign acceptance of Chinese activity in the hope that U.S. companies will benefit. There appears to be a muscular, new U.S. approach that puts American national self-interest first. Expect confrontations as the U.S. reasserts its military and economic hegemony in Asia. “… you don’t need a weatherman to know which way the wind blows.”
Music of the Week: US Military & Patriotic Favorites: “U.S. Navy Classics Vol.1”
The Economy: Economic news has been positive this week. Of course this doesn’t mean that Janet and the Seven Dwarfs will raise interest rates anytime soon. While the rest of the planet teeters on the verge of another banking crisis, the U.S. has already moved beyond the Wells Fargo Follies and on to other jollies. Wells Fargo finished up revelations of fraudulent accounts with revelations that they illegally repossessed automobiles of servicemen and women; many of whom were serving overseas. The Wells Fargo culture has obviously taken a page from the leadership manual of Schwarzenegger’s Conan the Barbarian who famously said that what is best in life is, “To crush your enemies (customers), to see them driven before you, and to hear the lamentations of their women.” Then there’s the parallel saga of Deutsche Bank with more than $30 TRILLION in derivatives exposure. Huh?!? That’s twelve times the GDP of Germany. Lehman Brothers was leveraged 21:1 when they blew up. According to some wags, Deutsche Bank is leveraged 40:1. Someone’s laughing, Lord, Kumbaya Someone’s crying, Lord, Kumbaya; Someone’s praying, Lord, Kumbaya; Oh Lord, Kumbaya.
Food for Thought: The next episode of Circus Maximus comes to you this Sunday when our American Gladiators again face off in their second “Ruder Than You” slug fest. The hapless moderators have been swept-up in the noxious atmosphere and are now part of the show as they struggle for the perfect amount of uncivilized behavior. As Americans we’re guaranteed that whoever wins this odious election will be able to swagger in to any international confrontation with their bones made.
Music of the week: Ruder Than You’s Album “Philly Stylee”