Taking Trump Seriously But Not Literally
- Is Trump really responsible for today’s market freakout?
- Silicon Valley confronts “regime uncertainty” (like the rest of America)
- Will the feds swab your mouth every time you return from overseas?
- The market’s two big drivers in 2017… and one of them’s in full force today
- The new numbers that show Americans are going broke (again)
- Schoolhouse Rock! and executive orders… a muffed forecast… the return of nonspecific reader feedback (oh no)… and more!
Dow 20,000 is history for the moment… and to hear the establishment media tell it, it’s all about Trump’s travel ban.
“Jitters over Trump’s travel curbs,” says Reuters. “Worries about Trump’s immigration policies,” says CNBC. Even the “alt” financial media are on board: “Global Stocks, Futures Slide on U.S. Protectionism Worries Following Trump Travel Chaos,” says Zero Hedge.
For all we know, it’s true. But around here, we’ve long been wary of facile explanations about why “the market” goes up or down on a given day. And we’re wary now: Stocks are pricey by historical standards. The “Trump bump” might have gone too far too fast. Perhaps the travel ban is just an excuse for traders to cut their stock exposure.
That said, Corporate America in general — and Silicon Valley in particular — is coming face to face with regime uncertainty.
“Regime uncertainty” is a phrase coined by the economic historian Robert Higgs. It’s the phenomenon of business owners hunkering down… afraid to make long-term plans… refusing to expand or hire… because they have no idea what bat-guano-crazy thing the government will do next. It’s one reason the Great Depression dragged on for so long, and the “Obama recovery” was so sluggish.
Take away skilled immigrants and much of Silicon Valley would power down. For reasons we won’t get into today, there just aren’t enough homegrown software engineers and developers to keep behemoths like Google and Apple and Microsoft humming.
So within hours of Trump signing his executive order on Friday, Google CEO Sundar Pichai issued a companywide memo saying more than 100 Google staff were affected directly. Said Aaron Levie, co-founder of the $2 billion cloud-computing firm Box, “We think it’s a very dangerous policy.” One of Levie’s fellow co-founders is of Iranian descent.
[Obviously, we can’t overlook the political leanings and motives of most Silicon Valley execs. And we don’t recall any of them speaking up in 2011 when Obama banned all refugees from Iraq for six months. Just sayin’…]
Undoubtedly, the haphazard way the order was carried out is adding to the anxiety.
Starting on Friday night, anyone from the seven blacklisted countries was kept out — not just visitors, but also people with a “green card” who’d been legally living and working in the United States, often for years. Then yesterday, green card holders were exempted from the ban.
In the interim, green card holders — people who’d been playing by the rules — were handcuffed at the airport. At least one was told by an immigration bureaucrat that if he didn’t like it, he should go complain to Trump. Two green card holders from Yemen were put on a plane to Ethiopia — only after they were made to sign a form surrendering their cards.
Equally vague, if not related to the immediate controversy, is the following provision in the executive order. If you ever travel overseas, take note…
The little media coverage we’ve seen on this provision takes it as a given that only foreigners visiting the United States would be subject to having their irises scanned, or their mouths swabbed for DNA or whatever a “biometric entry-exit tracking system” would entail.
But the text says “all travelers to the United States.” Does that include citizens returning from overseas travel? Or will this too be subject to ad-hoc interpretation once implemented?
There’s a trope going around lately that says Trump should be taken “seriously, but not literally.” That might be fine for a campaign speech or a tweet. Those don’t carry the threat of fines or imprisonment. But black-letter law, even if it’s illegal or immoral or unconstitutional, ought to be clear.
Of course, there are scads of unclear federal laws and regulations that precede Trump; it’s how most of us commit “three felonies a day,” as the legal journalist Harvey Silverglate titled his book. But that’s our point — “regime uncertainty” in this sense is nothing new, and it’s making America a less prosperous place than it could be. Does the new president really want to take the practice to new heights and throw a wrench into Silicon Valley — one of the few thriving American industries right now?
[Ed. note: As we said off the top, it’s possible the market swoon today has nothing to do with Trump. In which case, you’ll want to take advantage of his “100 days’ revenge on Obama.” A modest investment of $100, placed into the right stocks, could wind up funding your retirement. Here’s the full story.]
After tumbling more than 200 points on the day, the Dow has trimmed those losses to — as we write — 168 points, about eight-tenths of a percent.
If the market is indeed reacting to the travel ban, it’s no surprise the tech-heavy Nasdaq is down more, and the small-cap Russell 2000 down more still. The VIX — a measure of market volatility sometimes called the market’s “fear gauge” — has leaped 17% this morning after touching a 10-year low on Friday. Heh…
Treasuries and gold are rallying modestly, the 10-year note yielding 2.47% and gold up to $1,195.
More volatility will be one of the two big market drivers under Trump this year, says our income specialist Zach Scheidt.
“As new Cabinet members are confirmed, new policies are enacted and new tweets are released, investors will adjust positions. I expect the next year to feature some mad scrambles into and out of certain sectors of the market.
“We could see widespread panic in some instances. And that panic could then be followed by euphoria and fear of missing out (FOMO).”
The other big driver? Low “correlation.”
“Correlation,” Zach explains, “is when stocks of all kinds trade with the same pattern. In other words, if the market moves higher, all (or most) stocks move higher together. The opposite happens when all stocks fall at the same time.
“Think of a herd of cattle moving across the prairie as a single unit. That’s what a highly correlated market looks like.
“We’ve been in that kind of environment for several years now. The Fed’s low interest rate policy has forced capital into U.S. stocks. The old phrase ‘A rising tide lifts all boats’ has been very applicable. But today, we’re seeing an end to this ‘herd mentality.’ Stocks are starting to trade more on the strength (or weakness) of individual companies — rather than on broad market direction.
“In other words, it’s becoming easier to pick that strong bull out of the herd of cattle.”
For Zach’s favorite income-producing bulls, give this a look.
To the extent that Americans splurged for the holidays, it was out of an empty pocket.
As we mentioned earlier this month, retail sales in December were something of a bust unless you include heavily discounted auto sales. This morning brings word from the Commerce Department that consumer spending grew 0.5% in December… while personal incomes grew only 0.3%, less than expected.
On a year-over-year basis, spending growth has been outpacing income growth for nine straight months. As a result, the savings rate is down to 5.4%, the lowest since March 2015.
This report also includes “core PCE” — the Federal Reserve’s preferred measure of inflation. It moved up a skootch to 1.7%. That’s still shy of the Fed’s 2% sweet spot, and noteworthy because the Fed’s Open Market Committee holds one of its every-six-weeks meetings this week. Still, we don’t expect the Fed to dial back its plans to raise interest rates three times this year.
As long as we’ve been reflecting on the uniquely Trumpian version of regime uncertainty… what’s with all the theatricality as he signs his executive orders?
Two decades ago when Clinton aide Paul Begala made his infamous quip about EOs — “Stroke of the pen, law of the land. Kinda cool!” — it was widely considered a gaffe. Yes, the president exercises all sorts of powers unchecked by Congress or the courts, but the Beltway class didn’t like to make a big deal about it. It didn’t square with civics-textbook mythology. They didn’t make a Schoolhouse Rock! segment about EOs, after all.
But now? Trump has daily signing ceremonies for his EOs, surrounded by yes men and women, presenting the document to the cameras like Moses delivering the Ten Commandments. A child of 6 could easily confuse it for a bill signing where, hypothetically, the people had a say through their elected representatives. Maybe that’s the idea…
“Dave, this is a key point. Thanks for highlighting it,” writes a reader after our brief musings about the Mexico border wall last week.
“So Team Trump is blowing smoke about ‘a buffet of options’ to get Mexico to foot the bill, including tariffs and import/export border adjustments (whatever those are). Good luck with that.
“Of course, there’s no chance of Mexican concrete being used to build the thing. Or Mexican contractors and workers providing the labor. Or U.S. citizens paying the tab while being bamboozled — kinda like the privatized-profit-socialized-cost thing the swamp rats do so well.”
“Hey Dave, really love The 5 (no buts coming),” writes a reader who had an unusual complaint few weeks ago and tells us our customer service team made him happy.
But that’s not the main reason he’s writing today: “A comment made by a reader last Friday about Jim Rickards’ Chinese maxi-devaluation and whether it was still valid got me thinking about a call Jim made last year that bombed completely.
“I know nothing is 100% guaranteed to actually happen, but I never did see any kind of explanation about why this call didn’t pan out and thought you might be able to shed some light on this. I’m talking about where we were told the U.S. was going to be stabbed in the back by one of our allies. The Saudis were predicted to devalue their currency, and of course, they didn’t. So will the Chinese? Maybe or maybe not?”
The 5: This is one of those calls that’s not necessarily wrong, but admittedly early. Saudi Arabia is still burning through its foreign exchange reserves like there’s no tomorrow. At present, they total $533 billion, down 28% from their peak in late summer 2014, when the oil price started collapsing.
Jim says an oil price of $50–60 a barrel suits the House of Saud just fine, and the price has held above $50 for two months now. But the regime continues to wage a ruinously expensive (and unspeakably cruel) war in Yemen. Its military budget has nearly doubled in the last five years and is now the world’s third-biggest, exceeded only by China and the United States.
The riyal remains one of the few currencies that hasn’t devalued against the dollar at some time in the last five years. True, Jim sees the dollar weakening in general as 2017 wears on… but how long can the royal family hold out? Stay tuned…
“I am finding a distinct, growing lack of consistent, reasoned thought and perspective in the daily emails,” a reader writes.
“The opinions seem unprincipled, knee-jerk and scattered. In other words, blown with the winds of the daily news cycle, and thus becoming increasingly irrelevant or, worse yet, trivial and boring.
“Uncommitted critics are everywhere, and I don’t need another one on my email. I could simply unsubscribe, which I may soon do, but I believe Agora can do better than what I am presently receiving.”
The 5: Thanks for that highly specific feedback, chockablock with examples of where we’re falling short and suggestions for improvement. We’ll definitely take them to heart!
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