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.
(Click on the image to watch me and Rick discuss everything except the Dow)
***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.
Tags: Brazil agriculture, China, Dow 20, ECB, immigration, NATO, Rick Santelli, Russia, Trump, Turkey, U.S. Dollar
December 20, 2016 at 11:25 pm |
Soyabean sales was a one-time event, right?
Gold indeed, wouldn’t the $US tend to feel strength on the possibility of heightened military armament sales?
Corporate Debt – Draghi is Germany’s hedge fund manager?
“Apr 21, 2015 – U.S euro denominated bond. issuance has risen since 2011, totaling $92.49 billion last year, a number also topped only in 2007. The four biggest U.S. corporate Eurobond offerings over the past six months include an €8.5 billion ($9.5 billion) issue from Coca-Cola Co., a €3.8 billion issue from AT&T, a €3 billion offering from Berkshire Hathaway and a €2.8 billion issue from Apple. McDonald’s sold $2.3 billion of euro-denominated bonds.”
December 21, 2016 at 6:04 am |
Chicken—of course you are right that I wrote that about the soyabeans effect on GDP—supply is finite to meet increased demand.But my point was /is that the Chinese will cancel orders from the U.S. just push prices lower if the Latin American crop is as large as expected and the REAL is weaker.The second point—I do not believe the defense stocks are a good buy because the Donald is looking to cut waste in a ridiculously bloated defense budget.I believe Obama’s greatest policy error was to walk away from Bowles /Simpson which was first targeted at defense spending.I am not a defense spending advocate and if I ran OMB my first cuts would be in defense because all budget bloat begins with defense–even liberals are enjoy a defense plant in their district[see Phil Ochs Draft Dodger rag].Third,where is that April 21,2015 quote from—i went back in my archives and didn’t find it on that day.
December 21, 2016 at 9:19 pm
Correct, sorry if it seemed to twist out of context soyabeans, not intentional, but as you said, one-time is likely (I tend to agree) for the previous and newer reasons you point out.
That quote from April was from Bloomberg or somewhere else not here, sorry should include link, wasn’t from notes. Posted that b/c everyone’s talking about corporate debt but leaving out that some of it is in a currency that has (and might still?) depreciated.
Overall, I believe the pres elect is no cold-war monger. No wonder DC insiders resisted him?
December 21, 2016 at 5:35 am |
Yra didn’t know whether you were kidding about buying gold on global violence. Hmmm The year 2001 seemed to be a good time to buy and it surely was. So yes flawed analysis. Indeed it will prove wrong again with all this fiat money printing going on. Such a rigged game.
December 21, 2016 at 5:56 am |
Silverbug—i wasn’t kidding –gold is a monetary phenom—central bank credibility is the key factor and I have argued for quite a long time that gold is actually more bullish in a zero interest rate deflation era because of what I term the ’37 syndrome.The FED is terrfied of a 1937 redo and will go to any extreme to prevent that as Bernanke so famously said to Milton Friedman at M.F.’s 90th birthday..wars are a short term effect and even shorter in today’s algo driven world.also,as long as real yields are negative gold is still a store of value—but as for me i will not get sucked into buying gold just as a response to a geo politcal event.It was not the September 11th atrocity that pushed gold higher but rather the fiscal and monetary response .
December 21, 2016 at 7:56 am |
Yra,
Ur spot on with Ag Exports to China – Just like Carter halting Ag Exports to USSR. Think back to Carter years and the amount of Farm Bankruptcies.
This time there is an alternate source of Soybean/Corn supply in Brazil & Argentina. During the Carter years Latin American production was nothing like it is today.
Trade wars here we come….
December 21, 2016 at 7:22 pm |
Right on Trader 1. Just look at the numbers by going to http://www.stockcharts.com and bring up a Weekly of DBA. Only the beans are showing a little strength. As to the precious metal bring up a long term chart of $INDU:$GOLD In 2000 it took over 50 ounces of gold to buy the Dow and in 2011 it took a little less than 6
It all about confidence and equities have it! Oh, and for us old times in 1980 there was a moment in time in January where you could buy the Dow with 1 ounce of gold.
December 21, 2016 at 9:31 pm |
Makes sense for soyabeans for reasons Yra pointed out and AG in general given not only South America but Ukraine as well. As for the rest of trade war, free trade isn’t fair trade and betting against media has worked for years now.
I recall media harping ~2009 – “Austerity cuts for Military contractors”…. Uh-huh!
December 22, 2016 at 2:44 pm |
Howard Marks’ Memo backing Druckenmiller. Good read about Trump & Co.
https://www.oaktreecapital.com/docs/default-source/memos/go-figure.pdf