Angry Anti-Trumpers, Happy Consumers

Posted On Dec 19, 2016 By Dave Gonigam

  • Angry retweets as an act of postmodern dissent
  • Why consumers feel flush going into the holidays…
  • … and how it can translate into an instant “Christmas cash” payment
  • Will Trump and a GOP Congress usher in the dreaded VAT?
  • Elite intrigue: IMF chief Lagarde “guilty” but faces no punishment
  • The people who fear government, and government that fears the people

We will proceed today on the assumption there will be no Electoral College coup that would send markets into a frenzy.

Members of the Electoral College convene in the state capitals today. People who fancy themselves as part of a “resistance” to Trump are holding out hope for a reversal of the outcome in big states where Trump won by a small margin. Electors in Michigan will convene around the time this episode of The 5 hits your inbox. The gatherings in Wisconsin and Pennsylvania are a bit earlier.

We understand each elector in Pennsylvania has been assigned a plainclothes state trooper for protection. Seems like overkill to us; so far, the only direct action anti-Trumpers can muster is retweeting the latest John Oliver video.

And so we move on…

Consumers haven’t felt so good in nearly three years.

We relate a lot of economic data here in The 5, but we usually blow off indicators of consumer sentiment. Usually, it’s too squishy and subjective. Usually, it doesn’t move markets.

But then our income specialist Zach Scheidt drew our attention to this chart…

Description: PostElectionOptimism.png

“The University of Michigan conducts a survey twice a month to test the optimism of shoppers in the U.S. Over the past few months, that survey has pointed to a sharp increase in consumer sentiment.”

The last survey before the election, the number rang in at 87.2. It’s climbed steadily in the three surveys since. In the most recent one 10 days ago, it was 98.

“Consumers specifically cite expectations of new economic policies as the biggest positive,” said a Bloomberg summary.

For reasons we’ve spelled out in previous episodes of The 5, that optimism might be misplaced. But today our focus is more short-term…

“Strong consumer sentiment (especially this time of year) should drive holiday spending higher,” says Zach. “That’s great news for companies that sell directly to shoppers. Many of these companies make the majority of profits during the holiday season alone.”

Plus… while it’s not usually a market-moving indicator, Wall Street and institutional investors nonetheless pay heed to the numbers. “So when they see sentiment shooting higher, they’re more likely to buy retail stocks.”

Retail stocks followed the broad market higher after Election Day — until last week, when they fell out of bed. It might have been the weak retail sales number we mentioned last Wednesday. Yes, the increase during November was less than expected… but that’s just Wall Street tunnel vision. The year-over-year increase was a solid 3.6% — better than the average November figure the last four years.

Tomorrow, Zach will issue a “Christmas cash” recommendation to his premium subscribers. If you want a few hundred extra bucks for the holidays, we’re hard-pressed to think of an easier way to collect it. Click here to see for yourself.

Maybe this is the week we’ll get Dow 20,000. At the moment, the Big Board has clambered up a quarter percent, past the 19,900 mark.

Indeed, all the major U.S. indexes are in the green. Bonds are seeing a bit of a rally too, the yield on a 10-year note at 2.56%. Even gold is staging a bit of a comeback, now $1,138.

No big economic numbers today; the few traders who aren’t knocking off early for the holidays will watch a speech by Federal Reserve Chair Janet Yellen in the hopes she’ll shed more light on the Fed’s intentions next year than she did last week. We’re doubtful she’ll deliver, but we have people keeping an ear to the ground anyway…

Irony of ironies: Trump and a Republican Congress might realize the global elites’ dream of a value-added tax in the United States.

Europeans, among others, have been paying the vampiric VAT for decades — a tax tacked onto every stage of production. In 2012, we surmised the Obama White House included a VAT as part of its plans for a sudden fiscal crisis — i.e., if the federal budget deficit sent interest rates sky-high and the feds needed more revenue to cover their interest expense.

While it’s still early days, we’re on alert for a VAT coming through the back door — by way of Trump’s plans for corporate income tax reform. Trump campaigned in part on a pledge to encourage corporations to repatriate as much as $2.5 trillion they’re holding in offshore tax havens. As an incentive, that money would be taxed not at the standard 35% rate, but at only 10%.

But the VAT devil might lie within the reform details.

Republicans in Congress have their own ideas about corporate tax reform — including House Speaker Paul Ryan. As that ultimate establishment mouthpiece The Economist explains in its new issue, Ryan’s plan “would stop taxing foreign profits. In fact, he wants to ignore foreign activity altogether, including profits made selling American goods abroad. Meanwhile, firms would no longer be able to knock off the cost of imported goods when adding up their profits.”

The wonks in Washington have given this one-two combo of changes the term “border adjustment.” If it sounds to you like a VAT, the Tax Foundation says you’re not far off the mark.

More from The Economist: “When, say, Rolls-Royce exports a jet engine from Britain to France, it pays French VAT on the sale and British corporate tax on its profits. But while America levies the corporate tax on exporters’ profits, it imposes no VAT on imported goods (except for state and local sales taxes). Mr. Ryan’s proposal would more or less reverse this.”

So… Raise more revenue in a way the plebes won’t notice because the tax is embedded in a rising cost of goods. That’s the party that supposedly represents “small government” fer ya.

We shall see if Trump goes along as part of the wheeling and dealing that comes with any large-scale tax reform…

International Monetary Fund chief Christine Lagarde has skirted punishment on negligence charges in France… but she emerges from the episode wounded.

It was a year ago Mme. Lagarde was ordered to stand trial for “negligence by a person in position of public authority.” It’s a wicked-complex case: In 2007 when she was French finance minister, she approved the payment of $438 million to a businessman who’d sued a partly state-owned bank for undervaluing a company he owned and sold.

The resolution to the case, announced this morning, is as convoluted as the case itself, says an email from Jim Rickards: “The ‘conviction’ is final, but she’s not being branded a ‘criminal’ by the court. But she is ‘guilty.’ These are all quirks of French law, not exactly like our system.”

The IMF board meets this afternoon to discuss the matter. “They’ll probably give her a pass for now,” Jim says. “But Trump can change the American representatives on the IMF board, so this may not be over.”

She got past the French courts, but what about Trump’s IMF appointees?
[Wikimedia Commons photo by Flickr user MEDEF]

The timing isn’t good: Jim’s global contacts are warning him about the early stages of a new crisis in which Lagarde would ordinarily be a major player in calming markets. But now?

We don’t want to say too much yet about the nature of this crisis. Jim’s still gathering intelligence before he’s ready to make a big call. But stay tuned as we move into the first three weeks of 2017…

“I have been wondering for some time,” a reader writes after last Friday’s episode, “why on Earth I might be on the hook for someone else’s pension.

“Now I know… where’s my drink?”

“So someone hacked into the DNC and Clinton servers,” a reader writes.

“I say ‘someone’ because no one has any proof or even a breadcrumb trail as to who. So the POTUS and Democrats just decide to play ‘Pin the tail on the donkey.’ They chose to blame the Russians and threatened a measured retaliatory response! How, with no proof? Why? To distract from the real problem, of course. What is that problem?

“Why, it’s none other than ‘truth.’ It must be! Otherwise, why is the release of the ‘truth’ considered interfering with the election, and, more important, a threat to our democracy?

“I think it’s darn scary that our government considers the release of the truth a threat to its existence. Clinton and the DNC colluding to steal the nomination from Sanders is electoral interference and actual manipulation. Revealing the crimes and lies of the Clintons and the DNC is not.”

The 5: Try telling that to Sen. John McCain.

Yesterday on the Sunday talk shows, he conceded the revelation of the emails had little or no impact on the outcome. But “that doesn’t change the fact that the Russians… have been able to interfere with our electoral process.” And “if they are able to harm the electoral process, then they destroy democracy, which is based on free and fair elections.”

Destroy democracy!

“Valuable journalism, including journalism that helps voters decide which candidates to support, is often based on information that was obtained or divulged illegally by people with axes to grind,” writes Jacob Sullum at Reason. “It is hard to see how this case is different in principle.

“Is it the nationality of the informants that matters? If the emails that made Clinton look bad had been swiped by Americans, would she and McCain still be talking about democracy-threatening interference with our electoral process?”

“Just a quick comment to the ‘Soviet’-inclined reader,” reads a reaction to Friday’s mailbag.

“He’s absolutely right in virtually every respect in terms of his comments regarding the duplicity of the elites now on a witch hunt regarding leaked emails, but he is in error when he says that he fears his government. It is his government that should fear him!!

“As a matter of fact, a government should always fear its people. Guy Fawkes said this, the Founding Fathers said this and all people of sound mind and patriotic bent should say this, loudly, publicly and often. It’s the only way to keep the politicians in check!”

The 5: Yes. It applies to Trump as much as anyone else, we hasten to add. On the other hand…

We got a lot of reader reaction after we spent a little time in the summer of 2014 pulling apart “conspiracy theories.” I wrote the following one day: “While your editor is neither ‘truther’ nor a ‘birther,’ I firmly believe that to the extent such folks help discredit whatever regime is in power at the moment, they serve an invaluable civic function. Heh…”

Alas, the Russia stuff falls into a different category. Clearly, Trump’s opponents are playing the Russia card in an attempt to discredit him. (Trump’s own pick for White House chief of staff, Reince Priebus, used the word “delegitimize” yesterday.) But these opponents aren’t fringe figures; they’re embedded in the power structure, and their agenda is to gin up a new Cold War. They’ve been mighty successful at it the last three years or so. If they can’t stop Trump from taking office, they at least can tie his hands as he tries to pursue detente.

The only solace we can take is that the rhetoric isn’t catching on with the public — 57% of those responding to an NBC News-Wall Street Journal poll say “Russian hacking” had no impact on the outcome of the election.

But the elites are playing a long game…

Best regards,

Dave Gonigam
The 5 Min. Forecast

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But “Big Finance” are doing their best to keep these shares a closely guarded secret…

In this presentation, an ex-Wall Streeter blows the whole thing wide open.

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