Legislative Wins Are Needed Catalyst
On Friday, the market decided to take a four-day weekend as trading was limited to a tight range all session. The NASDAQ was able to reach its 35th record high this year, and the S&P 500 reached its 20th record high as the Dow mostly languished at the starting gate.
Although the bias has shifted to the upside, the market is trying to make a monumental breakout and it needs a catalyst.
Meanwhile, there is more chatter about the need for legislative wins to advance the Trump economic agenda. The latest voice from billionaire hedge fund manager Paul Singer in a note to Business Insider states that “all hell will break loose and plunge the nation into a recession” if we don’t get the tax break, more regulatory cuts, and an increase in spending.
One year ago, Singer was on the ‘Never Trump’ campaign, who said the election of Trump would trigger a recession.
I think all the hype and fear that we must make an immediate change to the tax code to sustain the rally is misguided. I also think removing regulatory hurdles is just as important; a lot has been achieved on that front, and more will happen in due time.
As for tax cuts, I still think they are coming but I haven’t modeled them into any of my economic assumptions.
Instead, I’m seeing businesses getting back to the business of being in business. They have returned to a sense of urgency to grow:
One of Singer’s concerns was trade rhetoric and a possible trade war. President Trump ended his trip abroad saying, “The Germans are bad, very bad.” He was talking about trade and the $65 billion deficit America had with Germany last year.
The story was twisted in the German media. Trump promised Americans he would get tough on trade. Does Trump have a point? America has a trade deficit with Germany, but it got much better during the Great Recession, which underscores the fact that small deficits aren’t an economic elixir.
Without a doubt, it’s complicated. Case in point: drivers in Germany and in America might choose a Mercedes over a Chevy with all things being equal, but there are enormous European Union (EU) tariffs on the U.S. built cars. This issue is more complicated because, in the end, consumers from other countries with bigger tariffs actually pay much higher prices.
Germany has major automotive factories in America. According to industry sources, German automakers build 850,000 units in the United States that create 33,000 jobs for plant workers, along with German suppliers in the United States that employ 77,000 Americans.
Perhaps the more critical issue isn’t going to be trade, but frayed relationships between allies that have largely kept the world safe. I’ve heard for some time that Merkel is going to propose a G7 military unit separate from NATO.
Interestingly, such a move would be a major economic shot in the arm, which might soothe the populist movement that threats Europe’s establishment. The long-term impact of an unraveling US-EU relationship would benefit all the world’s bad actors.
This week, the Trump administration will decide to stay or leave the Paris Agreement. I see no good reason to stay in the agreement as structured. It would cost America billions in dollars, countless job losses, and allow China to hasten its economic growth as we restrict ours. The agreement would also hurt third world nations – paying them off to never join self-sustaining nations.
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