Ray Dalio founder of Bridgewater Associates was in Davos this week. Bridgewater manages about $160 billion of assets under management. He thinks investors should not miss out on the strength of the current market. "With too much money still on the sidelines, investors should dump cash for a diversified stock portfolio", with a little gold on the side.
"Cash is trash" Dalio said. "Get out of cash there is still a lot of money in cash". You have to balance with a certain amount of precious metals in the mix.
Dalio has made the call before. In 2018, he warned that investors would feel pretty stupid if they remained on the sidelines during the market run up. Since then, the Dow and S&P have moved up over 20%, with Nasdaq showing a 40% gain.
U.S. markets hit new highs this month, despite some profit taking during the week. The Dow is set to test the 30,000 level, the S&P and Nasdaq, looking a little over extended.
"Say Goodbye to Old Highs" is the new mantra. The volume of activity suggests markets will push higher as the Senate denies the Democrats an impeachment victory next week. Google joined Apple, Amazon and Microsoft in the $ Trillion dollar club. Next step why not $2 trillion, the question asked. Strange when a PE of 30 is just chump change.
Low interest rates are driving asset prices ever higher. U.S. ten year bond yields slipped 11 basis points this week to close at 1.71. US gilts closed down 6 points to 0.57 per cent. Life on Planet ZIRP is turning into a quarantine of international dimension.
Jamie Dimon, Head of J.P. Morgan Chase warned this week, negative rates are the only thing worrying him in this otherwise "Goldilocks Place". "The only thing I have trepidations about are negative rates and QE. It's one of the great experiments of all time and we still don't know what the ultimate outcome is".
"I would never buy a negative yielding bond" he added "In history, whenever we have seen anything like that, it didn't end well …"
Risk of Great Depression …
Kristalina Georgiva is the new boss of the IMF. Speaking at the Peterson Institute in Washington last week, Georgiva warned the latest IMF research compares the current economy to the "roaring twenties". We know that didn't end well. The Great Crash of '29 led to the Great Depression of the 1930s. The IMF thinks a similar trend is underway!
"If I had to identify a theme at the start of the decade" she added "It would be greater uncertainty". Climate change and increasing trade protectionism would lead to greater social unrest and financial market instability.
The IMF released their forecasts for growth in 2020 which were remarkably upbeat. World growth is expected to increase by 3.3% this year and by 3.4% in 2020. This compares with growth of just 2.9% last year. The U.K. is expected to grow by 2.4%, a higher rate than France and Germany, higher than the EU as a whole.
In Davos, Trump declared the U.S. economy to be the strongest in the world. The IMF forecasts would beg to differ. Growth is expected to slow to just 2% this year and 1.7% next despite the tax cuts and spending plans. The President would like to blame the Federal reserve for raising rates too fast last year. "Without the rate hikes, the U.S. economy would be growing by 4%" Trump said..
Steve Mnuchin, Secretary of State at the Treasury, advised climate activist, Great Thornberg to "go to college and get an economics degree". Mnuchin graduated from Yale in 1985 with an economics degree, as if that helps when working with the Trump administration.
With ballooning internal and external deficits, the U.S. is in danger of becoming a banana republic. The administration is preparing a second round of tax cuts to boost growth. Growth will be self funding and will mitigate the borrowing deficit, Mnuchin explained. The Fed is confused, confronted by fiscal irresponsibility AND financial repression, a heady cocktail for crisis, with the odd trade war on the side.
Trump Tariffs Damaged U.S. growth ...
So what went wrong? Gary Cohn former White House Chief Economic advisor explained on Sunday, how President Trump's tariffs hurt the U.S. economy and undermined the stimulative impact of the massive tax cuts passed in 2017.
Trump's steel and aluminium tariffs "collided" with tax policy. The tariffs increased input costs reducing margins and profits, damaging investment plans and job expansion.
Last week, the Federal Reserve confirmed the U.S. manufacturing sector was in recession. Output fell in 2019, despite the Trump claims to "Make American Manufacturing Great Again".
Cohn, one of the "adults in the room" clashed with the President on the issue of tariffs and protectionism. The former Goldman Sachs President resigned in March 2018.
Trump also faced push back from former State Diplomats over the conflict with China. "President Trump's lack of understanding of China, is to blame for the deteriorating relationship with Beijing" former diplomats explained. Doubts persist about the viability of the Phase One Trade deal with significant tariffs still in place.
With "successful" trade deals concluded with Canada, Mexico, Japan and China, Trump will now turn his attention to Europe and the U.K. The dystopian disaster that is "Trump on Trade" will now inflict further damage on growth in the West.
In the U.K. within days we shall be leaving the EU. The Prime Minister may claim we have crossed the line. Julius Caesar crossed the Rubicon but then became involved in a prolonged civil war.
There is much to be done to understand policies on trade, immigration, investment, infrastructure and fiscal policy. Taking lessons from the Trump playbook on trade negotiations will not help ...
The Chancellor warned this week, there will be no alignment with EU regulations following the exit from the European Union. "There will be no alignment, we will not be a rule taker, we will not be in the single market, we will not be in the customs union".
It was all going so well. The election result, produced a Boris Bounce in confidence among business and the markets.There was even talk of a "Brino" deal, Brexit in name only, trade secured with our biggest trading bloc.
During the referendum campaign it was Boris Johnson who asked the question about EU regulations. In a lorry park in the South East he asked, "Why should Brussels determine the dimensions of our lorries and containers?". It's a fair question but if they are to travel safely across Europe, it is best if UK drivers are able to pass over motorways and under bridges without a problem. Size is everything after all ...
For regulation, read standardization. Manufacturers like common standards on products and components in many markets. Common standards guarantee quality, generate lower unit costs, economies of scale and improve productivity. The Chancellor claimed the Treasury would not lend support to manufacturers favoring EU rules. That just does not make sense.
The Chancellor is out of step with industries including car manufacturing, chemicals, food and pharmaceuticals. Javid admitted, that some businesses may not benefit from Brexit.
"The UK economy would ultimately continue to thrive in the long term. Once we have this agreement in place with our European friends, we will continue to be one of the most successful economies on earth".
This week, the new boss of the IMF, Kristalina Georgieva, warned the global economy risks a return of a Great Depression comparable to the thirties. The benchmark for success may just be getting lower ... the Chancellor's trade stance will assist the process ...
Retail sales disappoint ...
One of the most successful economies in the world, had a disappointing end to the year. In the three months to the end of November, growth in the UK economy slowed to just 0.9% year on year. Manufacturing output fell by almost 2%.
Growth of 2.2% in the first quarter, slowed to 1.2% over the following six months. The economy is slowing. Retail sales are falling. In December retail volume growth year on year was just 1%. The value of sales increased by 1.5%.
Online sales increased by almost 6% accounting for 20% of all volume activity. Exclude food and the number rises to 30%. Almost one in three sales have now been lost from traditional retail to online trading.
Boohoo is one of the great beneficiaries. Sales jumped 44% in the four months before Christmas. The share price has risen over 70% in the last year. The business now has a higher market cap than M&S. The online platform has rescued Karen Millen and Coast, now in the stable along with Boohoo, Nasty Girl and Pretty Little Thing. M&S slipped out of the FTSE 100 last year, Moody's is warning off a credit rating adjustment to "junk". No change in retail trends any time soon ...
Price pressure is easing in the economy. Retail prices CPI basis slowed to 1.3% in December from 1.5% prior month. Low oil prices, a stronger currency and a slowing economy led to lower prices in food, clothing and services.
Markets began to price in a rate cut at one stage last week. Michael Saunders, and MPC dove, suggested a rate cut may be necessary citing a slowing economy and subdued inflation. Let's hope not. What on earth could a 25 basis point cut achieve as we await the maiden budget from the "No Alignment Chancellor".
Google Joins the Trillion Dollar Cap Club ...
Google shares moved higher this week, joining the $Trillion dollar club along with Apple, Amazon and Microsoft. Together the four stocks account for almost 20% of the total market cap of the S&P 500.
U.S. markets moved higher as Trump signed the "phase one" trade deal with China. The "currency manipulator" tag was removed from Beijing before the signing. China committed to buy $200 billion of goods from Uncle Sam across four main sectors including manufacturing, energy, agriculture and services. Plans for further tariff increases have been cancelled, some tariffs have been cut. 25% charges on some $250 billion of goods remain in place. Trump is now free to turn his attention to Europe.
Whatever the merits of the trade war, it is clear U.S. manufacturing has not been the beneficiary. Latest data confirmed the manufacturing sector moved into recession last year. U.S. economic growth is slowing, the US deficit is set to hit $1 trillion dollars. The Treasury is issuing a twenty year bond, last seen in 1986, to assist with the huge funding process.
China reported growth of 6.1% in the past year, with a further 6% growth in prospect this year. Growth in the US slowed to 2.3% in 2019 , with growth of just 1.8% expected in the current year. So much for "Make America Great Again."
Next week sees the release of "A Very Stable Genius: Donald J Trump's Testing of America" "Taut and terrifying, it reads like a horror story" according to the New York Times. "It is as if the President, as patient zero, has bitten an aide and slowly bite by bite an entire nation lost its wits and compass."
"You're a bunch of dopes and babies" Trump launched a stunning tirade against his generals during a Pentagon briefing, the book reveals. Impeachment looms. This week the President beefed up his legal team to include two of the biggest celebrity lawyers of the 1990s. Some express surprise, the President just doesn't handle the whole thing himself ...
Markets rallied, Oil and Gold surrendered early gains, the prospects of war in Iran eased significantly, then both sides appeared to de-escalate the crisis. Neither the U.S. nor Iran are marching as to war, for very good reason, as we explain below.
U.K. car sales ended the year down by just 2%, confidence among CFOs bounced back, following the election result. A modicum of clarity over Brexit appeared. The withdrawal bill passed through the house with a majority of 99 votes.
Boris Johnson promised a deal with Europe by the end of the year. No extension will be considered, deal or no deal, the old "dead in a ditch" dictum still rules OK. Ursula von der leyen, the new President of the European Commission has made it clear, such a timetable is impossible. It will be a long and drawn out process before any deal is done.
In the latest news from the SMMT, UK car sales ended the year down by 2.4% at 2.3 million units. Diesel sales were down by over 20% accounting for just 25% of total sales. Petrol sales were up by 2%, the share of sale increasing to 65%. Hybrid sales are charging up. Alternative fuel vehicle sales increased by 50% accounting for 10% of new registrations. Consumer confusion over diesel continues. Hybrids are sent to overtake the poisoned fuel source within three years. Despite the set back in the UK this year, car sales are charging up, here and around the world.
What a difference a deal makes. The latest Deloitte CFO survey, shows an unprecedented rise in business sentiment. Brexit worries dropped to third place in list of concerns. Weak demand at home and geopolitical risks around the world moved ahead of Brexit and protectionism for the moment.
Businesses are more optimistic, less uncertain, more confident about profits but still casting a cautious cloak on costs and cash flow. UK stocks closed down, Sterling slipped against the Dollar to hold at $1.30. Mark Carney caution on the year ahead, spooked markets as the prospects of more QE and rate cuts appeared possible. Oil prices Brent crude basis returned to our $65 dollar benchmark ...
U.S. Wage Growth Disappoints ...
In the U.S. markets rallied as the prospects of World War Three slipped. The Dow and S&P closed up, Nasdaq moved ever higher. Recession indicators moved lower. Markets expect growth of just 1.8% in 2020 compared to 2.3% last year.
The U.S. trade deficit fell in November to $43 billion dollars compared to $47 billion prior month. Exports increased by 0.7% as imports fell by 1%. Whilst some rush to acclaim the Trump trade strategy, a slowing economy will provide the best explanation of the modest improvement for now.
Latest data on jobs and earnings disappointed. U.S. non farm payroll growth came in lower than expected at 145,000. The unemployment remained steady at 3.5%. Wages increased by just 2.9%, the smallest annual gain since July 2018. More women than men were on the payroll for the first time in ten years. The data marks ten years of continued job expansion in which 22.6 million have found work. Last year employers added 2.1 million jobs, slightly down on prior year.
Major job expansion is in the service sector. With education, health and business services featuring. Leisure and hospitality also strong, significant gains were made in construction, distribution and financial services. Any gains in manufacturing, were offset by losses in the mining sector. So much for "Make America Great Again" the blue collar workers are not the beneficiaries of Trump's economics.
With continued expansion in prospect and inflation subdued, the Fed is unlikely to make any move on base rates. Ten year bond yields were up by just one basis point at 1.84%. The economy is moderately set for the election in November ... bring on impeachment ...
Marching as to war ...
Tensions were heightened following the Iranian missile strikes on American bases in Iraq this week. China called for for restraint and the pursuit of a peaceful resolution of conflict. Neither side seeks war, least of all the Iranian government.
The Iranian economy is in poor shape following the imposition of sanctions by the U.S.A. in 2018. Economic growth fell by 10% last year following a contraction of 5% in the prior year.
Inflation is increasing at 30%, unemployment is rising to just under 20%. Oil exports are falling, the trade deficit is increasing, the internal fiscal deficit is also on the rise.
The economy is measured at around $400 billion in the current year. The defense budget at around 3% of GDP is valued at some $12 billion dollars. Compare that to Uncle Sam's coffers and it is clear Iran is in no shape "marching as to war".
The US economy is worth about $22 trillion dollars this year. Defense spending at around 3.6% of GDP is expected to increase to $800 billion dollars. that's twice the size of the economy of Iran and well over fifty times the money spent on defense.
This week, the Baghdad government called for the withdrawal of all U.S. troops in Iraq. The strategic prize is within reach for the leaders of Iran. Russia is the dominant great power in Syria, China is set to become the soft influencer in the East.
It is said President Trump would like to see the return of all troops from the Middle East. For the moment the administration is reserving the right to maintain "whatever force is required to achieve its goals there". If only we knew just what they were ...
That's all for this week, have a great weekend. We will be back with more news and updates next week.
What to expect in 2020 ...
We look at the options ...
No peace prize for the President, no trip to Stockholm any time soon. No flowers from Tehran, no vases from Pjongyang, Trump has set the tone for his tangent with the axis of evil. It doesn't bode well.
How do you like your foreign policy? Sunni side up with a hint of oil on the side. Troops withdrawn from Syria are moving in to Iraq. As the cavalry arrives, US citizens are urged to leave "by plane whilst possible, by any other means when not".
Iran has vowed "severe revenge" for the assassination of Major General Quasem Soleiman. Trump has explained this was action to stop a war. "We did not take action to start a war" the President explained. World leaders called for calm. Dominic Raab, called for de-escalation of tensions in the region. Yep that should do it.
Markets acted with cynical response. Defense stocks, Lockheed, Northrop and Raytheon moved higher. Oil prices moved up but not by much. Brent crude closed at $68 dollars per barrel. WTI closed up a few dollars more at $62.90. The Dow, S&P and Nasdaq surrendered early New Year gains. It had been a great start to the New Year following gains of around 30% in 2019.
In 2019, our major concerns were of Trump and Tariffs, Boris and Brexit. The President has promised to sign a deal with China by the 13th of January. The Prime Minister has promised a deal with the EU by the end of the year.
During the past year, world trade growth slowed to standstill, manufacturing output slumped. Output was damaged in North America, the Far East and Europe. The world needs a trade deal. It does not need a major geopolitical conflict played out in the Straits of Hormuz.
US growth slowed to around 2.3% in 2019. A further slow down is expected in 2020. The Fed has indicated no changes in rates during the year as a whole. No recession in sight. Election looms in the second half of the year. Following gains of 30% over the last twelve months, we expect little or no market action for the year as a whole.
It had looked pretty straight forward as the New Year fireworks exploded. A positive outlook overshadowed by trade tensions with China and Europe. Then down came the drone strike just to add to the uncertainty in the year ahead ...
High Street Losses Set to Double ...
In the New Year, Debenhams announced the closure of nineteen stores. A further thirty Debenhams units are planned to disappear from the high street this year.
Analysts expect some 7,000 shops will be closed in 2020 with the loss of 125,000 jobs. High street losses are set to double, according to the Centre for Retail Research. The rate of closure and job losses last year was 3,300 stores closed and over 62,000 jobs lost.
According to official data from the ONS, some 20% of retail transactions take place on line. Exclude food and the number increases to almost one in three transactions lost to the high street. Add price pressures, a margin squeeze, rising staff costs, rent and rates just compound the crisis. The sector faces a severe structural crisis which does not reflect a wider economic malaise.
Latest update for growth confirms of just 1% growth in the third quarter. For the year as a whole we expect growth of 1.3% in 2019 with similar growth an upside possibility this year. Want to know more? Don't miss our Brabners Quarterly Economics Updates in Manchester and Liverpool later this month.
Investment is unlikely to provide a stimulus to growth as our latest update explains. Output will remain muted, we expect manufacturing output to be just 0.5% in the year. Service sector growth will slow to just 1.2% with some hope for the construction sector, rising by 1.6%.
No change in base rates, as inflation remains below the 2% target. We assume Sterling will trade in the $1.30 - $1.35 band with Brent Crude trading around $65 dollars per barrel. The unemployment rate will hover around current levels. A continued deterioration in the trade deficit is expected.
We await details of government spending plans and targets for the period of parliament. An increase in annual debt to around 3% of GDP is expected if election promises are to be maintained. Dominic Cummings may be recruiting "weirdos and misfits" into Whitehall, let's hope not too many end up in Treasury ...
Fed rates set to stay on hold ...
The Fed minutes gave a clear indication base rates are likely to remain on hold during the year. Election purdah will inhibit any action during the second half of the year.
Inflation will remain below target, unemployment will remain at current levels, despite the slow down in the manufacturing sector. No need for Fed action despite pressure from the White House.
Ten year U.S gilts closed down five points at 1.83% this week. Markets are unsure about the shape of the yield curve by the end of the year. We expect little or no movement in real levels by close of period.
It has been a great year for U.S. markets. Nasdaq gains of 36% over the year overshadowed the performance of the Dow (23%) and the S&P (23%). The FTSE was a straggler in comparison, rising by just 12% compared to 25% gains in Germany and France.
Of course all gains were flattered by the setbacks in December 2018. Falls of over 10% presented a great buying opportunity. Evidence of over extension in the Nasdaq will moderate our New World enthusiasm in the medium term, we expect limited upside in the year ahead.
Our "Empires of the Cloud" Fund (see below) posted gains of almost 50% led by Apple, Facebook, Microsoft and Alibaba. Baidu our only setback, the omission of Adobe (up 47%) our only regret. Markets expect further upside as the race for Artificial Intelligence and Streaming intensifies.
That's all for this week, have a great weekend. We will be back with more news and updates next week. Wishing you a Happy and Prosperous New Year,
The FTSE closed at 7,582 this week, that's a 500 point move since the start of month. Sterling fell back to $1.30 having tested the $1.35 level on post election euphoria.
UK markets were in "catch up" mode having been left behind by big moves in the U.S.A. and Europe. No threat of a Corbyn agenda and hopes for a trade truce between the Washington and Beijing boosted sentiment.
The Johnson government pushed the withdrawal bill through the house, with a majority of over 120. We are leaving the EU at the end of January. The new trade deal must be completed by the end of 2020 to "Get Brexit Done", the deadline built into law. It even made the Queen's speech in a clear message to Brussels. Fears of a "no deal Brexit" increased and unsettled currency markets.
Sterling pulled back to find support at the $1.30 level as fears the end of year deadline may be a stretch to far. Hawkish sounds of "No EU Rules and Regulations" pushed the probability of a no deal even higher. The excitement of free trade deals with the rest of the world, is in danger of overwhelming the practicality of embedded transactions with the rest of Europe.
One step forward, one step back. Sterling will trade in the $1.30 - $1.35 band over the near term. The FTSE will require consolidation at the 7,500 level with support at 7,300. A test of 7,750 will require a more conciliatory message from Downing Street, to convince traders and business, a trade deal with Europe can be secured ...
Inflation holds, unemployment falls ...
Strong economic data this week, provided support to market moves. Inflation CPI basis held at 1.5% in November, unchanged from prior month. Goods inflation increased slightly to 0.6% as service sector inflation eased to 2.5%. Markets expect inflation to move towards 2% overall by the end of 2020, with no evident pressure from producer prices for the moment.
The number of people in work increased slightly in October with 32.8 million in work and just under 1.3 million unemployed. The unemployment rate was unchanged at 3.8%. Average earnings eased back to 3.2% in October. We expect the average increase to be around 3.5% in the final quarter of the year, representing a significant real income gain over the period.
Low inflation, a strong jobs market and real income gains boosted consumer sentiment. The GfK consumer confidence index jumped 3% in the latest poll. Households were more confident about the future and were more likely to commit to large purchases. The election result is likely to provide a further boost to sentiment and spending in the near term.
The MPC voted to hold rates this month, Just two members of the committee voted for a rate cut. Low inflation, and a soft economy held sway in the decision making process. The Bank will hold off pending a review of the implications of the Brexit process. Courtesy would suggest the new Governor will have the chance to set the pace for the year ahead.
Andrew Bailey, Bank of England lifer and former Chief Executive of the Financial Conduct Authority was appointed to the role this week. The appointment was considered to be conservative and safe. No excitement for the Old Lady of Threadneedle Street considered best for now.
Latest update for growth confirms of just 1% growth in the third quarter. For the year as a whole we expect growth of 1.3% this year with 1.5% a possibility next year. Want to know more? Don't miss our Brabners Quarterly Economics Updates in Manchester and Liverpool in January.
Of Democrats and Dishwashers ...
Congress voted to impeach the President. Trump had other things on his mind. In a rambling speech in Battle Creek Michigan, the President spent part of a lengthy campaign rally bemoaning the problems of plumbing and the poor performance of dishwashers.
"Women tell me they have to run their dishwashers multiple times" the President explained. "Remember the dishwasher?
You would press it and boom, there would be an explosion. Five minutes later you open it up, the steam pours out. Now you have to press it twelve times".
The President has a thing about water regulations, impairing the performance of showers, bathrooms and toilets. He also has a thing about low energy light bulbs which make him look orange apparently.
The President faces trial in the Senate. The Democrats are in no rush to set the date. In a six page letter to Nancy Pelosi, Trump complained of an unprecedented and unconstitutional abuse of power. The process cheapening the "importance of the very ugly word impeachment". It is to declare open war on American democracy. "More due process was afforded to those involved in the Salem Witch trials" the President complained ...
That's all for this week, have a great weekend. We will be back with more news and updates on the 4th January. We will take a break over the break, here's wishing you all a Great Holiday, Merry Christmas and Happy New Year ...
A simple message stated with intense frequency, secured a "stonking" mandate for Brexit and an eighty seat majority in the House of Commons for Boris Johnson and pals.
"Get Brexit Done" the basic message, with auxiliary support for "health" and "law and order". It was the biggest Tory win since the eighties and the biggest Labour Loss since the thirties.
Masterminding the campaign was Isaac Levido, the 36 year old Australian protege of Lynton Crosby. The Tory slogan was linked to a relentless determination to stay on message. Ruthless execution was displayed. Jacob Rees-Mogg was locked up in a dark place following his Grenfell gaffe. Welsh Secretary Alun Cairns was sacked when a former aide was accused of interference in a rape trial.
Dominic Cummings stepped aside, Budgets didn't run to a suitable wardrobe for the "eminence grise". It was enough for the architect of strategy to step aside for the estate agent of the campaign. As Levido explained, "It's about getting your message across as many times as possible". The message included a "Love Actually" clip with the Prime Minister doorstepping a female voter. A for your eyes only "political billet doux" was offered with sound track, to the exclusion of a man in the house ...
For Labour, the result was a resounding rejection of a left wing manifesto and the a big "No to Jeremy Corbyn". The Tories questioned the spending plans as the campaign just kept on giving. Labour strongholds yielded under the bombardment. Dennis Skinner, MP for Bolsover lost his seat as life long voters moved to the right. "I have voted Labour all my life" said a former miner in the constituency, "but I just didn't like Corbyn or his cronies".
Confusion over Brexit cost votes for Corbyn. Assertion over Brexit cost votes for Jo Swinson. The Lib Dem leader lost her seat and leadership of party. Nicola Sturgeon was triumphant with a clear SNP majority in Scotland. The shadow of toll roads along the M6 looms, as the push for independence returns.
Corbyn will resign as leader. Boris Johnson will reshape his cabinet. We will leave the EU at the end of January, talks will take place to shape the trade relationship of the future.
Let the spending begin. 20,000 more in police service, 50,000 more nurses and 6,000 more doctors. More nurses, more doctors and a "crash team" for the economy. Growth is flat lining in the U.K. It will have to be a "stonking" budget. The election result will boost confidence in the short term. Uncertainty about the trade deal with the EU and calls for a referendum in the North will overshadow any short term exuberance as the New Year unfolds ...
The Democrats move to impeach ...
In the US, the impeachment process moves forward. President Trump will be just the third of forty five presidents to be impeached. Acquittal is surely to follow in the Senate. Mitch McConnell, Senate Majority leader has promised to work closely with the White House to ensure a "fair trial and a first class rebuttal" of all charges.
Donald Trump has already called the process "Impeachment Light" just two counts "abuse of "office" and "obstruction of congress" are on the ticket. The President listed many more claims which could have made the charge sheet, including bribery, corruption and profiteering from office.
Trump's approval ratings are unmoved by process. The Republican heartland is unswayed by the Democrat latest move. The economy continues to do well despite the Trump trade policy. The latest job figures point to continued growth into the final quarter of the year. Unemployment is just 3.5%. With no recession or inflation in sight, the Fed made no change to interest rates this week. No rate changes planned for the foreseeable future, the decision was a further boost to markets. So what was really on the President's mind?
The President took time, to lash out at Greta Thornberg. The young climate activist made the front cover of Time magazine as Time person of the year. A spot reserved for the President in his own mind at least.
"So ridiculous" Trump tweeted, "Greta should work on her anger management problem, then go to a good old fashioned movie with a friend, Chill Greta, Chill!" The sixteen year old responded with a twitter troll adjusting her twitter profile to respond to the leader of the free world's advice.
"What if Trump weren't nuts" the headline in Politico on Thursday. John Harris author of the "Altitude" column points out a disrupter with a smidgeon of self control would be remaking American politics and coasting to reelection. Instead we have a raging narcissist, who picks fights that no other President would pick.
Let us not forget, when asked about dealing with rocket man Kim Jong-Un, Trump explained :
"As far as dealing with a madman is concerned, that's his problem not mine ..."
Trump gets his trade deal ...
Markets rallied in the US and China this week as negotiators announced the outline of a phase one trade deal. The planned tariff hikes on Sunday will be abandoned. Some existing tariffs will be cut by 50%. The Chinese have agreed to restore some $50 billion dollars of agricultural products.
Trump needs a trade deal with China in the run up to the election. The USMCA trade deal with Canada and Mexico moved through congress this week. A "massive" deal with Boris Johnson is already in the pipeline. A softer touch with the EU is on the horizon. Into the New Year and Trump will focus on reelection.
With strong stock markets in support, "It's the economy stupid". The Fed will play it's part in the run up to the election. If only Trump would dial down the obsession with tariffs, the US would be a better place.
The campaign plan is well set. The Trump base secure. Impeachment will consolidate the process of re-election as the Democrats struggle to find a credible leader. A move to the left with Elizabeth Warren or a one term President with Joe Biden, hardly a great option to dislodge the incumbent ...
That's all for this week, have a great weekend. We will be back with more news and updates next week ...
Six days to go, the Tory Poll lead narrows to just eight points. The confident majority of 68 has now slipped to a more queasy 20, according to the latest electoral calculus data.
A few more votes lost and the SNP could be in the swing seats. The Tories would have just 330 on the government benches. Labour are set to lose some 30 seats.
The markets are confident of a Conservative victory. Sterling closed at $1.31 against the Dollar. Resistance at $1.30 was overwhelmed by upside sentiment. A blue win will push the pound to the $1.35 in the short term. Irrational exuberance may see a test of the $1.40 level.
It had been a good week for Johnson. A photo op with the visiting President was avoided. POTUS and FLOTUS waited outside number ten, taking the shots alone, without the host in the line up. Careful spacing ensured the Prime Minister was distanced from the President in the NATO family shot. What could go wrong?
The President made it clear he had no interest in the NHS or in the UK election for that matter. A carefully planned ambush by Jeremy Corbyn came to naught. The President's ambitions for the UK Health service were denied. "Wouldn't touch it if offered, in a kidney dish, on a silver platter" the official response.
Jacob Rees-Mogg remains house bound in Somerset. With just a few days to go, the constituency tag will soon be removed. Alas there is always one who will escape from the script ...
Sally Ann-Hart made the headlines this week. "People with learning difficulties should be paid less than the minimum wage", the MP for Hastings and Rye explained, "they just don't understand money".
So much for "Caring Conservatives", more details, yet to be revealed, on Tory plans for social care may wait until after the election ...
NATO: One for all and all for what ...
NATO nations trembled as the President touched down in London this week. It was the annual meeting of the 29 member nations. Last year's meeting had not gone well.
In 2018, leaders were berated. "Germany was a captive of Russia". Countries were "delinquent" in terms of payments to the club.
Trump thinks NATO is like Mar-a-Lago. The US runs the facility and members pay their annual subs.
The President believes a failure to spend the target 2% of GDP on defense, means the US is left paying the bill. Why should Uncle Sam pick up the tab to defend countries behind with their payments? Article 5 should only be invoked if installments are up to date, the President's belief.
The leader of the free world, as debt collector, was already making the call on South Korea and Japan. South Korea was facing a hike of hundreds of billions, the President explained in an impromptu conference. "My close friend Abe is about to cough up too" he added.. NATO allies must get the message and they have.
The President made his usual "look at me" call before arriving. The President warned, France could face tariffs of 100% on Champagne and Caviar, if the planned tax on US internationals were meant to proceed. The sessions were set for a showdown, the tensions between Macron and Trump evident.
There was some confusion about the role of NATO. Macron didn't help suggesting the seventy year alliance was "brain dead". The military threat from Russia had receded. No need to send in the tanks when you can just cut off the gas supply. Trump was affronted, "NATO has served great purpose" Macron's remarks were "nasty" and "very insulting".
Maybe NATO should seek new purpose, challenging the growth of China, and spending more on "Armies in Space". Yep and may be a look at Islamic terrorism. A common enemy to all in Europe, including Russia. Check out the Democrats too, an attack on one leader is an attack on all ...
Next year, the US may host at Camp David, Russia and the Taliban may get an invite, "Nasty Macron" and "Two Faced Trudeau" may not make the guest list ...
Trump orders toilet rule review ...
Back home, Trump had other important matters on his mind. Impeachment looms, Congress will press ahead with the process. The White House is in denial and will have nothing to do with the Democrat Hoax, until the removal men arrive.
Trump called for the World Bank to stop lending money to China, "they already have enough". In fact they have more than Uncle Sam. China's foreign reserves are over $3 trillion dollars, despite the trade war with the U.S.
Of more pressing concern for Donald Trump this week was water efficiency in the nation's bathrooms. Hand washing is nearly impossible, people are flushing toilets ten times or even fifteen times as opposed to once.
The President has ordered a federal review of water efficiency standards in bathroom fixtures. Trump explained, it was common sense to review standards. Some showers have water "quietly dripping out", some toilets use more water because of "repeat flushing".
The President said he's considering different standards for states with different levels of rainfall. "We have many states, where they have so much water comes down, it's called rain, they don't know what to do with it ..."
That's all for this week, have a great weekend. We will be back with more news and updates next week ...
The long awaited YouGuv MRP data was released this week. A weekend poll suggested the Tories had an eleven point lead over Labour with 42% of the vote.
The MRP model released on Wednesday, predicted 359 seats for Conservatives and just over 211 for the Corbynistas. If the model predictions are correct, Boris Johnson will have a clear working majority of 68. A great opportunity to get "Brexit Done", put the "Bun in the Oven", release the "Tiger From The Cage" and get the Mogg out of solitary confinement.
For Conservatives it was the best of polls, for Labour, it was the worst of polls. Sentiment was mixed in Conservative headquarters. With mood swings from complacency to crisis, Dominic Cummings, the "eminence grise" in the Tory Shadows, lit up a bat signal from his cave. Brexit could yet be in danger. There is still a possibility of a hung parliament. No time for complacency. "Powerful forces are plotting to block the democratic outcome of the 2016 referendum."
For manifestos, it was the age of wisdom, it was the age of foolishness. The socialist doctrine of yore, returned to the Labour ranks. The Tories avoided any major commitments that might offend. The triple lock on increases in tax, national and insurance cheered the rank and file. The commitment to 50,000 new nurses melted under scrutiny, like an ice carving of a party leader subjected to studio lighting.
For the party faithful, it was the epoch of belief, for the Institute for Fiscal Studies, it was the epoch of incredulity. Taxes are set to rise to historically high levels and beyond. Labour spending plans would push levels beyond anything ever sustained in previous history in the U.K. Tax plans are unrealistic for all parties with higher levels expected than revealed in the Tory manifesto.
It was the season of Light, it was the season of Darkness. Opponents sought to shed light on the Prime Minister's statements made about single mothers over twenty five years ago. Jeremy Corbyn tossed the cloak of darkness on anti semitism in the Labour Party.
It was the Spring of Hope, it was the Winter of Despair. Hope the political uncertainty might soon be over, despair as reality dawns, the uncertainty of a deal with Europe may well run on for years to come. Boris Johnson didn't help matters, suggested a "No deal Brexit" was yet a possibility.
We had everything before us, we had nothing before us. How easily we learn, promises written on the side of a bus, are easily thrown under, once the primary objective has been achieved. It remains to be seen, how promises outlined may yet be delivered.
We were all going direct to heaven, we were all going the other way. Donald Trump arrives next week to stress NATO and have dinner with the Queen. The Prime Minister will avoid a photo shoot with the President and an endorsement from the White House. That may be difficult. If Johnson looks like a winner, the President will be keen to take the credit.
If polling narrows, the future period may look much like the present period, heaven forbid that nothing changes but "What the Dickens" not long to wait now ...
World trade growth is slowing ...
World trade is slowing, the latest data suggests growth slowed to just 0.5% in the third quarter. We now expect growth of just 1% for the year as a whole, compared to over 3% last year.
World growth is slowing. We now expect growth of just 2.6% in the current year, compared to 3.2% last year. World expansion is deflating. No risk of recession as yet. The twin concerns of Boris and Brexit, Trump and Tariffs continue. The damage to output in the world is significant. Uncertainty over impeachment will not help.
In October, profits within China's industrial enterprises, fell by 10% as businesses struggle to cope with the challenge of the trade war with the U.S.A. Hopes of a trade deal continue to ebb and flow. The economy grew by 6% in the third quarter according to official data. Growth for the year as a whole will be maintained at a similar level, in contrast with a U.S.economy expanding by just over 2%.
It is clear, the White House struggles to achieve an adequate attention span to secure a deal with Beijing. There was confusion in the Oval Office about the sex of the dog, awarded the canine medal of honor by Trump this week. So much for the role of transgender in the U.S. military.
The President made a surprise visit to the troops in Afghanistan this week. A quick visit between a pardon for a Turkey and the inevitable pardon for Rudy Giuliani in due course. Trump announced talks with the Taliban were "back on". This came as a surprise to many, including the Taliban.
Trump calls for a cease fire in Kabul and in Washington as impeachment rumbles on in Congress. The President appears to be stronger with his base but ever in need of a good headline, London will provide the next opportunity to shock. The Prime Minister will be anxious to ensure he does not become collateral damage in the process ...
Negative Rates ...
Negative rates can do more damage yet ... the message from the North this week. After half a decade of negative rates, one of the biggest Nordic Pension Funds is beginning to wonder if this is just the beginning.
Euro-zone rates first went negative in 2014, two years after Denmark, which has had negative rates longer than any other country in Europe. The ECB continues to think easy money is the correct response to slowing growth in the single currency trading zone.
World stock of negative sovereign debt is now $12 trillion dollars, down from a peak of $17 trillion earlier in the year. The search for yield is taking institutional money out of government and investment grade bonds and into alternative assets, including real estate, infrastructure and private equity.
Equity markets continue to attract funds. The US indices moved to new highs this week with the S&P up 25% in the year. In France and Germany markets moved to new highs. We expect the FTSE to move once the election uncertainty clears.
Modern Monetary Theory is returning to accommodate the push into infrastructure spending. Talk is back of helicopter money. A cash drop to everyone in the Euro-zone would provide a boost to consumption and growth. Talks of a tariff war with the US will not help.
Trump and Tariffs, Boris and Brexit, the major overhangs for the world economy, now compounded by impeachment in the US and an election in the UK ... negative rates can do more damage yet and probably will ... easy money is not the solution as the search for yield intensifies ...
That's all for this week, have a great weekend. We will be back with more news and updates next week ...
This time last week we were in Moscow planning a pleasant lunch on the river cruise boat. It's a great way to see Moscow, with a few shots of vodka to ease the burden. The day before we had visited the Kremlin, Red Square, the Bolshoi Theatre, St. Basil's Cathedral, the Gum Store and so much more. Yep we even traveled on the Moscow metro.
It was an amazing trip and a great opportunity to speak at the Gazprom conference on managing the challenge of digital disruption. Also speaking at the event was Boris Zarkov, founder and CEO of the White Rabbit Family of restaurants. Two of his restaurants are in the top 100 best restaurants in the world. We made it to the eponymous White Rabbit restaurant in Moscow on Thursday night. A starter not to be missed - "Cabbage and Caviar" ... followed by "Flounder" always a favorite.
It was a great week away to avoid the trauma of the election process. Back in the UK the runners are riders are in position. The first debate between Johnson and Corbyn, left voters equally divided or confused. Boris appeared to squeeze the decision with a narrow win. The four way "Question Time" exchange last night left much to be desired from either side. The decision may yet lead to a hung parliament all over again.
The Tory party are keeping their manifesto a close secret, not so the Labour Party. The release last week of the socialist agenda ran to over 100 pages with an average cost of over £4 billion per page. The tax and spending plan has already been denounced by the IFS and big business. The process of state sequestration, a breathtaking look back, to a time we all thought was long passed.
So far the voters are unimpressed by the promises of the socialists. The Tories has a twelve point lead in the polls. Martin Baxter's Electoral Calculus has Boris Johnson returning to Number Ten with a seventy seat majority and a clear mandate for Brexit. The Conservative manifesto will be released next week. Foxhunting has disappeared from the headlines, along with Jacob Rees-Mogg ... focus is on spending, borrowing is set to rise ...
Borrowing hits monthly high ...
Phillip Hammond was affectionately known as "Spreadsheet Phil". His love of detail ensured the numbers added up, both down and across, always a bonus with Treasury. Sajid Javid on the other hand, is becoming known as the Chino Chancellor, Chancellor In Name Only.
Boris Johnson has a knack of stealing the best lines, this week was no different. The Prime Minister announced prematurely the increase in National Insurance hurdle rates to £12,000. The announcement made on the campaign trail in Teeside sent campaign staff into a panic. The giveaway was supposed to be revealed in the manifesto. Johnson had been put on the spot when asked "are the tax cuts planned for [posh] people like you or people [workers] like us".
The National Insurance announcement ensured the Prime Minister avoided a difficult moment. Other giveaways will be revealed in the manifesto. More money for the NHS, more doctors, nurses, police on the beat, forty new hospitals, the manifesto will ensure the calculators are churning in the IFS and the OBR. The impact on growth and borrowing readily and rapidly assessed.
The spending challenge was not made easier by the release of the latest borrowing figures for October. Borrowing in the month was £11.2 billion, the highest October level for five years. The year to date figure was £46.3 billion roughly 10% higher than the prior year. For the year to date we expect spending to rise to £47 billion, well ahead of the 2% target.
There would appear to be little or no scope for a big giveaway spending plan for an incoming Tory majority. The Prime Minister has already revoked the planned cuts in corporation tax, announced in passing at the CBI conference this week.
Once back in office, with a clear majority, the Tories may well find other spending plans could be put to better use ...
Must spend more ...
Must spend more was the message from the incoming President of the European Central Bank. Christine Lagarde, taking over from Mario Draghi, has urged European leaders to increase spending and boost growth.
“Investment is a particularly important part of the response to today’s challenges. It is both today’s demand and tomorrow’s supply,” Ms Lagarde, 63, explained.
Germany and the Netherlands are under particular pressure to do more to boost domestic demand. The central bank, which recently cut rates and restarted quantitative easing, would continue to do its part to support the economy, the incoming President explained.
More QE, the drift to negative rates continues. Modern Monetary Theory, would provide the intellectual justification for an increase in government spending and borrowing hurdles. The Magic Money Tree is now surrounded by a forest of "Group Think". The outcome of the UK election becomes even more pertinent to the debate ...
That's all for this week, have a great weekend. We will be back with more news and updates next week ...
The election race is up and running. Boris Johnson is in the saddle, on the platform, in the hospital, in the school, on the case. Never in the field of human voting, have so many photo opportunities been offered, to so many, by so few.
Jacob Rees-Mogg has been shuttered for the campaign duration. A series of unfortunate remarks on LBC about the Grenfell fire, confined the Victorian exemplar to barracks in Somerset. Andrew Bridgen, MP for North West Leicestershire, was dispatched to defend the Mogg.
"Jacob is a good friend of mine. He is an extremely compassionate, intelligent human being". He just doesn't get to meet many poor people. "I think of either of use were in a fire, we would ignore the advice of the Fire Brigade and leave the burning building".
Nanny would advise to tie silk sheets together with lace handkerchiefs, hang them from a window and ask the gardener to test the escape route before toffs lives were put at risk.
"We want clever people running the country and that is why he is in a position of authority", Bridgen explained. As if that were a reason! By the following morning, Bridgen was forced to recant. "I realize what I said was wrong and caused a great deal of distress and offence". [especially in campaign headquarters]. Jacob is not an extremely compassionate, human being ...
Sajid Javid, had his moment in the limelight. The Chancellor announced an easing of fiscal constraint to accommodate an increased in deficit spending of some £20 billion per annum. The spending would be allowed to rise to around 3% of GDP. A modest expansion compared to Labour largesse running into hundreds of billions.
Moody's fired a warning shot. The UK's credit rating has been cut over concerns about public sector finances and fears Brexit could damage economic growth. "No matter what the outcome is of the general election, the agency sees widespread political pressures for higher expenditures with no clear plan to increase revenues to finance that spending".
The OBR forecasts were withheld during the purdah period. The Treasury were not allowed to comment on Labour spending plans. The Bank of England released the November Monetary Policy Report. The MPC agreed to hold rates. Two of the nine members of the MPC voted for a rate cut.
The Bank expects growth of around 1.3% this year and in 2020 with inflation set to remain below the 2% target. It must have been a difficult forecast to put together.
In the absence of any clear resolution about the structure of parliament, spending plans, borrowing targets and the continued uncertainty about Brexit, Governor Carney may well be pleased this will be his first and last submission of the "Monetary Policy Report".
Keep America Great ...
Let's keep America Great! The U.S. electorate may decide to vote Democrat. The Republicans faced a setback in Kentucky and Virginia this week as the impeachment process rumbles on.
The President may be obsessed about the Whistle blower but the noise is rising to a cacophony as evidence flows in the impeachment inquiry.
This week, Fiona Hill, former special assistant to the President on European and Russian affairs, gave evidence behind closed doors in a ten hour session. Evidence was also provided by Lt Colonel Alexander Vindman. Vindman is the U.S. army lieutenant colonel serving as the Director of European Affairs for the National Security Council.
From both testimonies it is clear, there can be no doubt, Trump sought a quid pro quo with the Ukraine. $400 million of military aid was withheld pending investigations of American politicians. A visit to the White House was also on the table assuming officials in the Ukraine complied.
Gordon Sondland U.S. ambassador to the European Union, has admitted in deposition, military aid was contingent on the investigations Trump desired. Mick Mulvaney, Trump's acting chief of staff was complicit in the arrangements to secure a meeting in the Oval office.
Rudy Giuliana and associates, Igor Fruman and Lev Parnas, were involved in the skulduggery. Igor and Lev were arrested last month attempting to leave the country with a one way ticket. The may face federal charges of funneling foreign money to U.S. politicians, while trying to influence U.S. Ukraine relations.
For John Bolton, national security advisor to Trump until September this year, it was all too much. Bolton had warned Giuliani "is the hand grenade which will blow us all up" Bolton repeatedly told staff and colleagues in the administration that "nobody should be talking with Rudy Giuliani".
Chaos in the White House continues. Later this month will be published "A Warning".
The book’s author says Trump moves from one crisis to the next, “like a twelve-year-old in an air traffic control tower, pushing the buttons of government indiscriminately, indifferent to the planes skidding across the runway and the flights frantically diverting away from the airport”.
Turning to Trump’s early morning Twitter rants, the author writes: “It’s like showing up at the nursing home at daybreak to find your elderly uncle running pantless across the courtyard and cursing loudly about the cafeteria food, as worried attendants tried to catch him.
Just on year to the 2020 election ... a chance to Keep America Great ... which way will the American public vote? Will Trump be on the ticket ...
Moscow 2019 ...
We are off to Moscow next week as a guest of Gazprom. I shall be speaking at the fourth annual leasing conference. This year’s main theme of the Conference is “Leaders’ Strategies, The fight for new markets. I shall be speaking on “How companies adapt their marketing strategies under the influence of digital disruption”.
Want to know more, we shall be updating our work on digital disruption to include the latest “Moscow Chapter” before the end of the month!
That's all for this week, have a great weekend. We will be back with more news and updates on the 23rd November, John
The Saturday Economist
John Ashcroft publishes the Saturday Economist. Join the mailing list for FREE weekly updates on the UK and World Economy.
The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The presentation should not be construed as the giving of investment advice.