In my last blog I indicated that I wanted to do a 3-part series focused on confidence and how it applies to Crypotcurrency/Blockchain, the new Trump Tax Plan and the Stock Market, in that order. We covered the first and I was about to write about tax planning when the S&P 500 took a little over 12% tumble. We’ve recovered over half since the bottom on February 9th, so let’s change the order, discuss markets and get back to taxes next week.
Here’s a couple questions to frame our story:
- What happened?
- Is it sign for bad times ahead?
- What REALLY happened???
The ‘word’ on the street is that there was some nervousness in the markets because stocks were getting expensive in the face of rising interest rates. Volatility, which had been absent for all of last year, suddenly spiked, actually quadrupled in two days, which caused quite a shock to the system.
Whenever you have flash crashes like this, the question is always “is this the beginning of something worse?”. That depends on which pair of lenses you’re looking through.
The economy, for a change and for real, is really humming. It started last year with the behind the scenes regulation cutting by President Trump. The mainstream media wasn’t talking about it, because they hate Donald J Trump. But, the CEO’s of the country were certainly paying attention to elimination of government roadblocks and engaging capital the best way they know how.
This win by DJT would certainly carry us quite a way down the road to recovery, (painfully absent from the previous 8 years), but he needed the Tax Plan as a box to check, since he wasn’t able to get movement on the repeal of Obamacare. But, the new tax platform has garnered trillions of dollars destined to our treasury coffers. Again, you won’t hear it reported – sad.
Did you notice the near sycophantic posturing to President Trump by some of our country’s largest corporations over the past month, particularly at and just after the World Economic Forum meeting in Davos? Hiking pay, delivering bonuses and throwing out hiring stats or manufacturing investment plans to Trump like they were auctioning for a prized painting at Sotheby’s.
So, if we take things at face value, we’ll stand guilty of being Pollyannaish. But, let’s start with making sure that there’s pull through in the numbers that are being Trump-eted.
Here’s a list of Trump Tweets over the past month concerning the economy:
Wow, that’s a lot. And we’re left with a choice. Do you know what it is? Let’s take a look at some of the below charts and data:
Purchasing Managers Index.
As ‘reported’ there was a disappointing drop (and miss) in January, the Chicago PMI tumbled further (from 65.7 to 61.9) as US macro data continues to serially disappointed in recent weeks. Against expectations of a small drop to 64.1, Chicago PMI in February dropped to 61.9 - below even the lowest of economist estimates (forecast range 62 - 68.1 from 30 economists surveyed).
None of the subcomponents rose in February.
- Prices paid rose at a slower pace, signaling expansion
- New orders rose at a slower pace, signaling expansion
- Employment rose at a slower pace, signaling expansion
- Inventories rose at a slower pace, signaling expansion
- Supplier deliveries rose at a slower pace, signaling expansion
- Production rose at a slower pace, signaling expansion
- Order backlogs rose at a slower pace, signaling expansion
This is the lowest print since August 2017.
As ‘reported’ the chart above shows, US economic data has been disappointing so far in 2018 and this Chicago print merely piles on the narrative that the short-term exuberance of an apparently global synchronous recovery are fading fast...
We’ve been told that China's credit impulse is lagging away. We’re reminded that China is the largest purchaser of our debt…which we need in order to pay our bills.
This past week the Bureau of Economic Analysis (BEA) revised their Q4 2017 Gross Domestic Product estimate from 2.6% to 2.5%, to 2.530% specifically, and in line with estimates.
Why do I report about the lowering of a number by mere fractions of a basis point? Hold on, let’s cover a little more.
Wages are being reported this way: they’re are rising but only for the top 20% of workers.
And employment in the key demographic is not lining up with the fanfare.
It’s being ‘reported’ that New and Existing-Home-Sales have already disappointed, Pending Home-Sales just collapsed too (to the lowest since Oct 2014) to confirm January was a bloodbath for the real estate market.
Pending Home Sales plunged 4.7% in January (massively below the 0.5% expected rise in sales) - this is the biggest drop since May 2010.
Year-over-year Pending home sales are down 1.7%. Purchases fell 9 percent in the Northeast, 6.6 percent in the Midwest, 3.9 percent in the South and 1.2 percent in the West.
The National Association of Realtors (NAR), not to be confused with the NRA…😊 is desperate to convince home-buyers and sellers that this is nothing but an inventory issue, but it is affordability that is the real driver here.
“There’s little doubt last month’s retreat in contract signings occurred because of woefully low supply levels and the sudden increase in mortgage rates,”Lawrence Yun, NAR’s chief economist, said in a statement.
“With the cost of buying a home getting more expensive and not enough inventory, some prospective buyers are either waiting until listings increase come spring or now having to delay their search entirely to save up for a larger down payment.”
And on it goes…I could fill another half dozen pages of negative, anti-Trump, corresponding data.
I could go through piece by piece and cast doubt about the veracity of each data claim. For instance, the comment about “woefully low supply” of houses for sale. Really? And what particular planet is that guy living own? And who’s to say that the data is actually accurate. The graph looks impressive, colored lines with matching font. But, what if the data is just plain wrong?
Wait, Rob, are you saying that someone could be misreporting data? No, no, I would never say that. I’m sure all the data and reports we see are always accurate, without any bias or skewing…
Let me ask you a question. Have you ever wondered why EVER single report the government puts out is ALWAYS followed by a revised report the next month? Now, the excuse is given that data needs to mature, or it was released incomplete for purposes of expediency. Hmmm, I don’t know about you, but I’ll just wait an extra 30 days and get the accurate reading. Thank you.
The reason I used the BEA revising down their GDP number, wasn’t because the revision was significant. I pointed out that it was a mere fraction. It’s the underlying tone that carried with the report. Did you catch it? The number was under 3.0%. That’s the message.
Remember earlier in this blog I said “we’re left with a choice, do you know what it is?” Do you?
To help answer this, we need to touch on my initial point about ‘what really happened’ with the market suddenly dropping 12% last month.
I believe it was about liquidity. I believe some major money was taken out of the market. I believe the VIX was either manipulated during a 45-minute window (which caused devastation in the most crowded trade of 2017 – a hedge on short volatility), or it was a sign of a massive exodus.
Regardless, the issue here, which is the choice that I’m placing before you, is that there is a battle going on behind the scenes. Not just the Political scenes (Trump’s drain the Swamp), but also the Financial and Economic theater. There is a complete disconnect of reality and our choice is which ‘reality’ do we believe?
Some might say that Trump’s promotion of MAGA is self-serving and should be discounted. Okay, but I’m simply not seeing that at the economic level with companies and how they’re operating. CEO’s and Board of Directors are mandated to serve their stakeholders – the shareholders of the company. (Don’t be cynical about this, they’re paid VERY well for this task). Could it be that the vitriol for Trump that is so evident in the Mainstream Media, has spilled over into the financial world? Who dispenses with all these economic reports? Is it not the Media?
I’m convinced there’s a battle. I’m also convinced that the outcome will be a very positive, exciting one. But, that doesn’t mean there won’t be pain or distraction. We can use the convenient market term: Volatility. But, that may be an understatement.
If I haven’t convinced you of the battle, watch this video, it should help: Trump pre-election speech