March 1, 2017, 4:00pm EST Invest Alongside Billionaires For $297/Qtr
As we discussed last week, the Presidential address to the joint sessions of Congress last night was a big market event. And as I discussed yesterday, growth and fiscal stimulus needed to be moved to the front burner of the daily narrative. The President delivered last night.
After he began speaking, one of the early headlines on my Reuters feed last night: TRUMP SAYS HE WILL BE ASKING CONGRESS TO APPROVE LEGISLATION THAT PRODUCES $1 TRILLION INVESTING IN INFRASTRUCTURE FINANCED THROUGH BOTH PUBLIC AND PRIVATE CAPITAL.
Bingo! There’s a lot of talk about the inspiration of the speech, but growth is king in this environment, after 10 years of malaise and no improvement in sight. And the focus has shifted to growth. Stocks have had a huge day. Meanwhile, yields have been up but relatively tame. Gold has been down, but relatively tame. And the dollar has been up, but relatively tame.
German 2 year yields, which have been the sour spot, as they’ve slipped toward -1% in the past week, were up bouncing nicely today.
It’s not uncommon to see big global market participants ignore all else in key market moments, and just focus on one spot. That has been the case. And that spot is the stock market. The U.S. stock market is where the impact of a trillion dollar infrastructure spend, a massive tax cut, and broad deregulation can be most directly influenced and, as importantly, stocks are capable to absorbing large, large amounts of capital.
Now, it’s time to revisit some great catch up trades I’ve discussed for a while: German and Japanese stocks. A better U.S. is better for everyone, make no mistake. Hotter growth here, will mean hotter global growth, and it gives Europe and Japan a shot at recovery, especially with their central banks priming the pump with big QE, still.
On that note, let’s take a look at the charts …
So you can see the same period here for U.S., German and Japanese stocks, dating back to 2012, when the European Central Bank stepped in with intervention in the European sovereign bond market (at least promised to do so), that turned global economic sentiment and then then Japan came in months later with promises of a huge stimulus program. All stocks went up.
But you can see, stocks in Europe and Japan have yet to regain highs of 2015, after the oil price crash induced correction.
These stock markets look like a big catch up trade is coming, and it may be quick, following the catalyst of last nights U.S. Presidential address.
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February 28, 2017, 4:30pm EST Invest Alongside Billionaires For $297/Qtr
Markets are quiet as we head into President Trump’s address to Congress tonight. As we’ve discussed over the past week or so, the markets seem to have run the course on the outlook of fiscal stimulus and regulatory reform within an environment of a gradual rise in interest rates.
That “expectation” backdrop seems to be pretty well priced in. Now, it’s a matter of detail and timing, and that puts the new President squarely in focus for tonight.
We’ve already heard from his Treasury Secretary last week that tax reform wouldn’t be coming until August-ish. And he said we shouldn’t expect that big growth bump from Trumponomics until 2018. That’s been the first real downward management of the expectations that have been set over the past three months.
What hasn’t been discussed much is the big infrastructure spend, which is really at the core of the pro-growth policies of the Trump administration. For years, the Fed has been begging Congress for help in stabilizing the economy and stimulating growth in it — from the FISCAL side.
Given the wounds of the debt crisis, it was politically unpalatable for Congress. They ignored the calls. And as a result, just six months ago we (and the rest of the world) were dangerously close to slipping back into crisis. Only this time, the central banks would not have had the ammunition to fight it.
So now we have Congress with the will and position to act. It’s a matter of detailing a plan and getting it moving. Of the many positive things that could come from tonight’s speech by President Trump, details and timeline on fiscal stimulus would be the biggest and most meaningful.
The bickering about deficits and debt will continue, but a big stimulus package will happen — it has to happen. A government spending led growth pop is, at this stage, the only chance we have of returning to a sustainable path of growth and ultimately reducing the debt load down the line, which now is about 100% of GDP. A move back to 80% of GDP would make the U.S. debt load, relative to the rest of the world, a non-issue.
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January 23, 2017, 4:30pm EST
The new President Trump has wasted no time on carrying out his plan on trade. He met with 12 major U.S. company leaders today and told them that they would pay to build outside of the U.S., but (importantly) they would save to build here. And he wrote an executive order to withdraw from the Trans-Pacific Partnership, and one to renegotiate NAFTA.
There are plenty of people that have focused on the risks and the dangers with the Trump trade policies. Meanwhile, those most directly affected aren’t quite as draconian on the outlook — quite the opposite. The executives that have walked out of Trump Tower, and now the White House have largely been optimistic. The same is said for trade partners. Whether they mean it or not, they understand the value of doing business with the U.S. consumer.
As I’ve said, there are clear opportunities for win-wins – especially in a world that must rebalance trade to avoid more cycles of the booms and busts, like the boom-bust we experienced over the past two decades. The administration has the leverage of power (with a Republican Congress), but they also have the leverage of rewards. Despite what the media tells us, behind closed doors the new administration seems to negotiate by carrot rather than stick. Trump comes to meetings bearing gifts, and that creates buy-in.
When you bring American CEOs in and tell them that you’re going to give them a 20 percentage point tax cut, you’re going to slash the regulation burden (by “75%” as he said today), you’re going to give them a 30+ percentage point tax cut on repatriating offshore money, and your going to launch a trillion dollar infrastructure spend, all in an effort to juice the economy to a 4%+ growth rate, they’re going to be very excited — even if you tell them they can no longer access the cheapest production in the world.
In the end, they’d rather have a hot economy to sell into, than a stagnant economy, even if it comes with a higher cost of production. And we may find that, in the end, the after-tax profit margins of these big U.S. corporates may be better given all of these incentives, even if they make things here. Better revenues, and maybe better margins to go with it.
Remember, the optimism of U.S. small business owners made the biggest jump since 1980 on the prospects of growth-friendly Trump policies. GDP equals Consumption + Investment + Government Spending + Net Exports. Ultra easy monetary policies have made borrowing cheap, saving expensive and created the economic stability necessary to get hiring over the past several years. That has all kept consumption going.
The “build it here” policies are a recipe for capital investment to finally ramp up. Add to that, a big government infrastructure spend, and we’re getting the pieces of the puzzle in place to see much better economic growth. A hotter U.S. economy will mean a hotter global economy. With that, I suspect net exports will ultimately pick up as well, with a healthier, more sustainable global economy.
On that note, if we look at the USD/Mexican Peso exchange rate as a gauge of trade partner health, we’ve seen the peso hit hard through the campaigning period under the protectionist fears of a Trump administration. Interestingly, since the inauguration, the peso has been strengthening, even as President Trump signed an executive order today to renegotiate NAFTA. The message behind that usually means: the U.S. does better, Mexico does better.
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