It is a great honor to feature another podcast with Peter Boockvar for The Financial Repression Authority. Peter is certainly one of the regular commentators that I watch with great interest whenever he is on Bloomberg, Fox Business or CNBC. I think we cover much of the global financial landscape. While it may run long, it is a lot easier than reading a 20,000-word blog post. Pour the scotch and give it a listen.
***There were two stories out of Europe this weekend, which are indicative of the uneasiness of electorates in developed market economies. France had riots in the outlying areas of Paris as demonstrators took to the streets to protest against police brutality. This plays into the narrative of National Front Presidential candidate Marine Le Pen, which increases the uncertainty of France’s upcoming elections.
In Switzerland, voters rejected a referendum promoted by the established elite that would reform corporate taxes in order to bring Swiss taxes on multinational corporations in-line with global tax policies. Switzerland may face international criticism and some penalties for having a tax code that provides ultra-low taxation, which attracts large foreign corporations so to lower their tax costs. Again, global elites are being rebuffed in one election after another. The POLLS in Switzerland predicted the referendum to be close but the NO vote garnered almost 60%. What the Swiss election showed is that uncertainty is the dominant theme for 2017.
***Recent polls have shown the Social Democrat Policy (SPD) increasing its popularity, which suggests that Chancellor Merkel is no longer deemed unbeatable. The CDU is suffering a drop in its support as Merkel’s stance on immigration, and, more importantly, the rising anger over the ECB’s financial repression policy. This weekend, SPD member Frank-Walter Steinmeier was elected to the largely ceremonial post of President, which is another chink in the support of Angela Merkel. Yes, the German elections pose some uncertainty but the most probable outcome will be another coalition government of the CDU/SPD, which will be status quo. It is this outlook that makes me BULLISH German equities as an investment relative to the rest of the world’s stock markets.
Germany has a weak currency in which to continue its export juggernaut, as well as ultra-low interest rates, and room for a massive fiscal stimulus. The rationale is that for everything Trumponomics provides, Germany has even greater ability to promote. Yes, there are problems in Europe but if QE is based on Ben Bernanke’s theory of portfolio balance channel then Germany OUGHT to outperform relative to Europe and the U.S. The ECB is a dangerous actor and creates uncertainty but Draghi and Merkel will do everything to provide support to the EU, which should promote German assets. Rising inflation in Germany makes the demand for real assets the key component for German investments.
***Fed Chair Janet Yellen will delivery her semi-annual testimony to the Senate and House finance committees on Tuesday and Wednesday. The testimony will be important as the FED has been the subject of President Trump’s criticism so we will listen as partisan questions push Yellen to reveal concerns about the president’s fiscal policy couched in terms of the economy running too hot at full employment. The FED has been reticent to discuss fiscal policy. Bernanke weighed in on the fiscal cliff issue in 2012-2013 and was met with criticism from House and Senate Republicans. If Yellen is strident in her views listen for acrimony from the republicans, which will result in increased concerns about FED independence.
Before the election, Chair Yellen maintained that the economy may need to run “hotter” in an effort to remove some of the slack in measured by the Labor Market Conditions Index. In the December 14 FOMC press conference, the Fed chair changed course and said: “Fiscal policy is not obviously needed to provide stimulus to help us get back to full employment.” It is this statement that will raise the temperature of questions from the legislative branch.
A more import speech for traders and investors is the November 30 speech by FOMC Governor Jerome Powell concerning the issue of Fedspeak. “We appear to enjoy talking to print journalists, and some of us like going on television. With the proliferation of media of all kinds, there is need for content, and we have been willing suppliers. In my view, these public appearances are mostly not about gaining leverage in a negotiation. THERE IS A SINGLE FOMC PARTICIPANT WHO HAS MOST OF THE LEVERAGE IN OUR POLICY DISCUSSIONS. OBSERVERS WOULD BE WELL ADVISED TO LISTEN CAREFULLY TO WHAT SHE SAYS.”
Pay attention, for in a political realm filled with acrimony and vitriol chief policymakers are important. And the S&Ps continue to rally.