Land mines ahead?


Warning: Trying to access array offset on value of type bool in /bitnami/wordpress/wp-content/themes/the-newspaper/theme-framework/theme-style/function/template-functions.php on line 673

Tracking trends is an understanding of where we are and how we got here to forecast where we’re going.

It may sound simple, but in a society dumbed down by a daily diet of mainstream-media junk news, the past is ancient history. What is recalled is mostly distorted to fit agendas.

Go back to The Great Trump Equity Rally that began the day after Election Day 2016, when dark-horse reality-show champion Donald Trump beat the pollsters’ favorite, Hillary Clinton, to win the race for the White House.

FOOL ME TWICE

Not only was Clinton the pollsters’ choice, Wall Street bet on her too. In the run-up to Election Day, markets climbed along with her poll numbers. And markets declined when support in those polls weakened.

Again, the facts of the past have been distorted by agendas. Outright lies are peddled as truth.

For example, Clinton blamed her surprise loss on interference by Russian hackers, for which no evidence has been provided. She also blamed actions taken by former FBI Director James B. Comey in the campaign’s homestretch.

“If the election had been on October 27, I would be your president,” Clinton proclaimed in May at a Women for Women International event.

Yes, on October 28, Comey sent a letter to Congress saying he had reopened the bureau’s investigation into Clinton’s use of a private email server.

However, on November 6, just two days before the election, Comey notified Congress that the FBI had found no new evidence. “Based on our review…” he wrote, “we have not changed our conclusions that we expressed in July,” that Clinton should not face criminal charges after a review of a new batch of her emails.

Despite Clinton’s post-election whining, the indisputable fact is that Comey’s proclamation was roundly applauded by Wall Street and the media. The numbers prove it. On news that Clinton would not face charges, equites soared November 7, the day before Election Day:

Dow roars 371 points after FBI clears Clinton again

You know it’s a wild election season when a letter from the FBI sparks a global stock market rally.

The Dow soared 371 points on Monday — the biggest burst of buying since late January — after FBI Director James Comey sent a letter to Congress on Sunday once again clearing Hillary Clinton in its email investigation.

The S&P 500 also jumped 2.2 percent, ending a nine-day streak of losses, the longest such slump since 1980. The Nasdaq raced 2.4 percent higher.

The latest FBI bombshell is clearly being interpreted on Wall Street as a boost to Clinton, the favored candidate of investors.

Investors are essentially “voting” with their money about which candidate they think would be better for the market.

“There’s no doubt that the day after the election, there will be less uncertainty if Hillary Clinton wins than if Donald Trump does,” said David Kelly, chief global strategist at JPMorgan Funds.

In fact, there’s new Deutsche Bank research that predicts the opposite — a 10 percent plunge for European stocks if Trump wins on Tuesday. (CNN, 7 November 2016.)

In fact, Wall Street was so pro-Clinton that Dow futures tanked some 800 points and gold spiked over $50 per ounce when it appeared Trump would beat her after the polls closed on Election Day. However, just hours later, in a sharp reversal, a Trump election rally — in its sixth month as we go to press — has sent stock indexes to new highs.

THE FUTURE IS NOW

As is common knowledge, and as we wrote immediately following his election, the Trump rally was fueled on expectations he will:

•dramatically reduce taxes
•cut federal regulations affecting the financial sector and various industries
•renegotiate trade deals and impose tariffs on imports that the Trump Administration claims will create higher-paying manufacturing jobs at home
•invest in rebuilding the nation’s rotting infrastructure.

Marginal progress has been made on the trade front with China. Efforts there would boost a variety of US exports, such as beef and natural gas, while allowing US banks to open up credit-card-payment systems in the world’s second-largest economy. And, with the recent swearing-in of Robert Lighthizer as US trade representative, the Trump administration is positioned to renegotiate the North American Free Trade Agreement and other trade deals.

On the domestic front, GDP growth in the first quarter has been soft; corporate earnings were stronger. And while the Trump Administration has softened some regulations, actual progress on trade, tax reform and infrastructure improvements has been negligible.

Despite this lack of progress, as evidenced by the Volatility Index of the S&P 500 stock index touching multi-decade lows in mid-May, Wall Street remained optimistic on the Trump rally that began immediately after Election Day.

But on May 17, market optimism sank. That VIX index spiked 46 percent and the Dow fell 370 points following accusations that Trump may have interfered with a federal investigation, and news that a special counsel would investigate possible collusion between Trump’s 2016 campaign team and Russia.

How low will the markets sink? Would it be a correction or a crash?

The markets mildly rebounded the next day. However, prior to this Trump wild-card event, we made a forecast in our Trends In The News broadcasts: Absent the implementation of financially sound economic tax-reform measures and major infrastructure-investment progress, the VIX would again spike and equity markets would correct an estimated 10 percent.

Again, without a major Trump administration meltdown or wild-card events — be they man-made or from Mother Nature (war, terror strikes or major natural disasters) — we forecast a continuation of moderate Gross Domestic Product growth.

And, with nearly 70 percent of US GDP consumer-driven, especially with US household debt at $12.75 trillion, exceeding the Panic of ’08 peak, Main Street will tumble should Wall Street tank.

THE GLOBAL ECONOMIC VIEW

On the geo-economic landscape, Europe will continue to slog forward with a moderately tepid 1.8 percent growth projection. While China is growing at a pace that’s at a 25-year low, we anticipate Beijing will continue to provide stimulus measures and government policies to maintain 6.5 percent range GDP growth at home and increase financial expansion abroad.

Among the major nations, India’s GDP is still expected to expand some 7.3 percent this year and nearly 8 percent in 2018, despite the massive rupee recall last November and the ensuing bank/financial turmoil. Thus, if there are no major military conflicts or wild-card events, India is high on our list for future investment and equity-market potential.

There is more than $3 trillion in dollar-denominated debt. Should the US Federal Reserve raise interest rates two more times this year and the dollar increases in value, we forecast rapidly falling equity markets and declining GDPs in emerging markets.

Should the dollar, which has retreated from its post-Trump rally back to pre-election levels, trade in the current range, emerging-market nations void of socioeconomic turmoil will maintain current growth rates, as will speculative-market trading/investment opportunities.

And the scenarios rely on far more than just riding on the dollar. When Brazil (which makes up 7.43 percent of the MSCI Emerging Markets Index) was rocked by a political scandal and its stock market plunged 8.8 percent in mid-May, posting its worst performance since the Panic of ’08, stock markets across South America took hard hits.   TJ

Leave a Reply

Skip to content