US earnings popped in January to 2.9%. The Fed voted to keep rates on hold. The Blue dots forecast suggested at least three rate rises could take place this year. The dollar rallied, bond prices fell.
Treasury yields tested the 2.9% level, US stock markets fell 5% after what has been a prolonged bull rally.
The Dow and S&P were over extended, ready for a fall. We have been advising an "average" out since the start of the year. The time to move back in may not be long in coming. The fundamentals in the US remain strong, for the next two years at least.
The US government avoided a shut down as the spending bill was passed. Growth of 2.7% in the US this year, will be extended into next with near 3% possible in 2019. The era of fiscal austerity is over in the USA. Largesse is the new norm. Tax cuts for corporates, defence spending and infrastructure investment will underpin growth over the next two to three years. The GOP will perform well in the mid terms, a second term for Trump could well follow.
The US government is set to borrow $1 trillion dollars this year. The Treasury Department released data estimating it's borrowing needs would hit $955 billion this year rising to over $ 1 trillion dollars over the next two years. The amounts are considerably higher than last year's $519 billion. The $20 trillion government debt will increase to over 120% of GDP in the next five years.
The price will be paid in higher trade deficits and domestic inflation. The ticket will be reflected in a weaker dollar over the medium term. The appetite of China and India for US bonds will be severely tested. The US ability to enforce real changes in trade deals will be weakened in the process.
President Trump accused Democrats, who did not clap during his State of the Union address, of being un-American and even treasonous. It was slightly tongue in cheek. The President called for a military parade, just like the one in France. Macron has one, Putin has one, Kim Jung-un has one. So why not me! A fair point. Just what will the Chief of Staff wear on parade? A grand uniform with lots of medals and big epaulettes, no doubt. Yes and lots of hair spray to keep those errant strands in place!
It was not to last. Trump had been on script in Davos and remained pitch perfect for the state of the union address. 110 rounds of applause and 70 standing ovations in the speech to Congress were a great boost to confidence in the White House staffers. The Republicans were on their feet, the Democrats remained seated. The President was conciliatory.
"“Tonight I call upon all of us to set aside our differences, to seek out common ground, and to summon the unity we need to deliver for the people. This is really the key. These are the people we were elected to serve.” Oh yes ...
“My duty, and the sacred duty of every elected official in this chamber, is to defend Americans, to protect their safety, their families, their communities, and their right to the American Dream. Because Americans are dreamers, too". Maybe we are all dreamers now ...
No dreamers in the Trump legal team ... The President has agreed to an interview under oath with Special Counsel Robert Mueller. Trump lawyers fear he will lie in the Mueller grilling, according to Toby Harnden in the Sunday Times last week, “He is incapable of telling the truth” “It's not that he knowingly lies but that he occupies an alternate reality”. Ah yes the alternate reality ...
No Rumble with Russia or Krieg with Korea, Trump declared war on the FBI and the Department of Justice. The "Nunes" memo was released to the public. The partisan memo by Republicans alleges FBI and Justice Department officials [involved in the probe into Trump and Russia in 2016] failed to tell a court that a dossier they cited to get a surveillance warrant on Trump adviser was paid for by Democrats. Shocking!
Trump outrage was clear. "I think it's a disgrace," he said. "What's going on in this country, I think it's a disgrace. A lot of people should be ashamed of themselves and much worse than that." The reference to the FBI and the Department of Justice was implicit in the comments. Trump is seeking to undermine the steady steps being taken to the door of the Oval Office.
Hours after the memo was released, FBI Director Christopher Wray issued a statement to the bureau’s workforce, saying, “Talk is cheap; the work you do is what will endure. We speak through our work. One case at a time.”
The revelation was not the blockbuster for which the President had hoped. NBC's "Morning Joe" Scarborough delivered the quote of the day: “It would be easy to compare Nunes’s memo to Geraldo Rivera opening Al Capone’s vault. But this would be extremely unfair to Geraldo, who didn’t know ahead of time that it would be empty.”
Yep the vault is empty. Trump declared war on the FBI and the Justice Department ... firing a dud in the opening salvo ... smart move ...
That's all from the West Wing WTF this week. Much more to follow, let's face it, there is so much material to work on ... Have a great week-end.
West Wing Whisky, Tango, Foxtrot
Dr John Ashcroft PhD BSc(Econ) FRSA CBIM
A weekly update on life in the White House from the author of The Saturday Economist ...
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