USA: Trump honeymoon over yet?


Thursday, January 26, 2017 // Written by Enzio von Pfeil

Since Trump's November victory, the Dow has surged nine per cent. Quo vadis

The Dow Jones Industrial Average has crossed the 20,000 level for the first time in its history, and 64 days after crossing 19,000. The Dow first hit 10,000 on March 16, 1999.

The Dow Jones, launched in 1896, is a price weighted index of 30 well-known U.S. companies.  Unlike the S&P 500 or the NASDAQ Composite Index, stocks with a higher price have a bigger impact on the index regardless of the size of the company.

In the 78 days since the US election the index has advanced over 9%. Shares in Goldman Sachs, which trade around $237 a share, have accounted for the largest portion of the gains since the US election, rising 29%. Goldman Sachs alone has accounted for more than a fifth of the Dow’s gains since the election. And 6 stocks account for half of the gains (GS, JPM, Boeing, IBM, Home Depot and United Health).

1.  America’s Economic Time® buttresses the Dow’s march past the 20K "meta".

a.  Her Economic Clock® suggests an

                                         i.    Excess demand for money, but an

                                       ii.    Excess demand for goods.

b.  Indeed, it is precisely because her Economic Time® is so “robust” that the Fed deems it strong enough to raise rates, to create an “excess demand for money”.

2.  But beware of banking stocks. Even if Goldmans and Morgans have done well, how will they fare under a flatter yield curve in 6 months?

a.  The yield curve flattens becuaase

                                         i.    Short term rates rise, courtesy of more Fed Funds hikes, and

                                       ii.    At the long end of the curve, the long bond yield FALLS because risk-averse global investors keep piling into this safe haven, knowing that the dollar will keep rising….

                   iii.     Besides, people are confusing bad demand-pull inflation with "not so bad" cost push inflation.  Central Banks can control only the former, but not the latter. Once markets wake up to this subtlety, watch punters load back up on Treasury bonds, thereby driving prices up and thus yields down.

US NATIONAL SECURITY

US President Donald Trump has signed an executive order approving the immediate construction of a physical wall on the United States’ southern border with Mexico, to prevent illegal immigration, drug and human trafficking, and acts of terrorism. In a TV interview, Mr. Trump said Mexico would “absolutely 100%” reimburse the US for the cost of the wall.

He also signed an action to strip funds from US cities that are sanctuaries for undocumented immigrants.

Mr Trump is next expected to announce immigration restrictions from some African and Middle Eastern countries, including Syria, Yemen, and Iraq.

1.  The TEQUILA WALL.

a.  According to the Congressional Budget Office, the CBO, he hasn’t a dime to spend

                                         i.    This means that Congress as well as the CBO have to approve additional spending plans.

                                       ii.    According to Bloomberg, “With Federal debt at around 77% of GDP, US debt levels are already the highest of any country with an Aaa rating.”

b.  Trump won’t be able to build this wall overnight, anyway, and

  1. He certainly won’t get reimbursed by the Mexicans in a timely fashion….

PROTECTIONISM

Jens Weidmann, the president of Germany’s Bundesbank, has warned the Trump Administration of the dangers of trade protectionism. Speaking at a G20 conference which Germany is hosting, he said; “In our view the success of the G20 process depends on the conviction that international cooperation and an open markets approach provide benefits for all countries and peoples involved.”

Germany's vice president, Sigmar Gabriel, believes Germany will be a big winner from America’s exit from the Trans-Pacific Partnership. He says: "If Trump starts a trade war with Asia and South America, it will open opportunities for us." He told the Handelsblatt newspaper: "Trump must simply recognise that the US economy often isn't competitive, while the German economy is."

Meanwhile, Professor Ted Malloch, who is tipped to be Donald Trump’s next ambassador to the EU, has told the BBC the euro “could collapse” in the next 18 months.  He said he would "short the euro". He also said Britain could agree a "mutually beneficial" free trade deal with America in as little as 90 days. And that it was best for the US if Britain executed a "clean" Brexit.

1.  Mercantilst.  Trump is a mercantilist. It was the rage in the 16th – 18th centuries, and basically stated that "to be rich is virtuous", aka  "to have a trade surplus is virtuous".

2.  Flag waving.  To state that the German economy is more competitive than America’s misses a vital point: America’s multinational corporations, her MNCs, are thriving abroad! Inceed one third of their global earnings come from overseas. Having said that, Germany's unique strength is her very deep education dedicated to vocational training.  We have too many PhDs and not enough car mechanics!

3.  Euro: it won’t collapse, but it keep skidding


ASIAN TRADE

There have been economic data out of Asian nations which are very dependent upon trade.

Japanese exports have grown for the first time in 15 months. Exports rose 5.4% year on year in December, easily beating forecasts. Exports to China rose by 12.5% year on year while shipments to Asia were up 12%.

Imports fell 2.6% year on year in December. That left the trade surplus for December more than double economists’ forecasts at ¥641.4bn.

Japan recorded its first trade surplus in six years in 2016. Its $60 bn surplus with the US, its largest with any nation, comes as Mr. trump has singled out the Japanese auto-industry for putting up barriers to US car exports.

In South Korea, GDP growth has fallen to the lowest level in a year. The economy expanded by 0.4% in the 4th quarter compared to 0.6% in the previous quarter. Annual growth in 2016 was 2.7%

In Taiwan, GDP rose 2.58% year-on-year in the fourth quarter. That was up from 2.06% in the third quarter. That brought GDP growth for the whole of 2016 to 1.4%, double the rate in 2015. Growth in exports of goods and services more than doubling to 8.24% in the 4th quarter. That helped push manufacturing growth to over 6%, which was the biggest contributor to headline GDP.

1.  JAPAN

a.  Exports. Her improving export data reflect an on-the-whole “ok”-ish global Economic Time®, wjhich is caught in subtle recovery mode.

b.  Imports. But that her imports fell suggests weak domestic demand; this never is a good sign for any economy, given that private consumption runs 70% of the economy….

  1. Trade surplus. This is what happens when exports rise faster than imports

2.  SOUTH KOREA

1.  Sluggish domestic demand must have been the key “driver” of growth. As we pointed-out just now, private consumption oin goods and services accounts for 70% of any economy, Korea included!  Thus, where private consumption goes is the ultimate artiber of national growth rates.


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