The world is fraught with troubling news of assassinations, terrorist atrocities and confrontation between China and the U.S. But in the financial news it is all about the DOW PUSHING 20,000. To quote Mr. Natural: “What does the Dow 20,000 mean? It don’t mean SH*T.” We become enamored with numbers but in real financial terms 20,000 is meaningless on its own. The U.S. equity markets are enthralled with the possibilities that a Trump presidency will present. Three weeks ago Rick Santelli laid it out very well. He noted if trump was successful in reforming the ACA, realizing genuine corporate and personal tax simplification and reform, and rolling back some of the regulations burdening small and medium businesses the Trump administration would be an unmitigated success. If the Dow is the barometer, then Mr.Trump should declare victory and spend the next four years writing his autobiography.
Hope is the current narrative for the Trump success but the REAL world is fraught with dangers and determined by the static musings of Wall Street. Uncertainty prowls the globe as China’s debt overhang, Middle East political uncertainty, U.S. political stagnation, too much debt and a multitude of problems in Europe all make 2017 far more treacherous than the DOW 20,000. It is far from GOOD NEWS WEEK.
***The assassination of the Russian ambassador to Turkey is a potential game changer as Putin is calm now. But with a lame duck in the White House and NATO on its heels, nothing prevents the Russians from quickly retaliating against the Turkish government. The most important element will be how NATO would respond to a Russian escalation of events. Remember, from an investment perspective don’t buy precious metals during times of heightened tensions for that is a fool’s game, and as the media likes to say, `well the assassination didn’t bother the markets because gold failed to rally.’ This is a flawed analysis for history has shown that buying gold on the outbreak of global violence has failed regularly during the last 40 years.
***The terrorist provocation in Berlin could be politically significant if Chancellor Merkel comes under pressure from the AfD for her flawed immigration policy. Tensions are elevated throughout Europe but the of course the story is Dow 20,000. Aiding the Dow is of course the ECB’S massive asset purchases, which as I point out in today’s CNBC appearance with Rick Santelli, the ECB says it will be finished for December by the end of December 22 and it appears that the ECB has to purchase a total of 26 billion to purchase this week. (They had 54 billion bought at the close of last Friday.) Whatever politics threaten to harm the ECB provides the salve of liquidity injections.
***A possible issue for the New Year will be how Trump’s ability to antagonize the Chinese leads to a drop in Chinese demand for U.S. agricultural products. In the U.S. third quarter GDP revisions, the positive additions were due to a massive increase in U.S. soyabean exports. Look for commodity markets to be volatile as China threatens to cancel orders for U.S. products and seek to purchase more from Latin America. The Chinese have proven very adept at manipulating prices by announcing changes in their purchasing plans. Trump may posture in order to negotiate better deals but the Chinese have the ability to respond in a dynamic way. The bottom line is the Chinese are always in need of agricultural products for high food prices can be politically destabilizing. With record production expected in Brazil and Argentina the Chinese will have the ability to project purchasing power and potentially hurt the American farmer.
These are things to be mindful of as we head into 2017. Also, the recent strength in the U.S. dollar makes European and Brazilian agricultural products much less expensive. Everybody discusses the impact of a strong dollar on U.S. corporations, but in a dynamically changing world of agricultural production the U.S. dollar could become a temporary headwind for U.S. farm incomes. Oh well, it’s good news week and onto the Dow 20,000.