Posts Tagged Economics
Following the Presidential Election, there has been an on-again, off-again rally in the stock market, which might have been partially attributed to Donald Trump’s victory, last November. Generally, the stock market performs best in the first and fourth calendar quarters, most years; however, some investors might have placed too much faith in Trump’s vague promises, raising the seasonal spurt even higher. Also, some CEO’s seem to have swooned over his proposals: the corporate tax-rate being halved; escalating depreciation on plant and equipment; eliminating most all regulations; and the “Border-Adjustment Tax”.
As of Friday, the Dow Jones Industrial Average rose 9.3% since Trump won, and the S & P 500 was up by 8.3%. There was little in the way of economic activity to have justified such a surge; however, some investors may have just followed the herd instinct. They wanted to believe! But like any other asset, when the price rises for no apparent reason, there might come a time where it cannot sustain that psychological momentum. Did the markets seem to sense that yesterday?
Ever since he announced his candidacy, in June of 2015, Donald Trump has been harping on two primary goals—the worthless Wall, and his vow to “…replace ‘Obamacare’: with something much better, and at less cost. Just trust me!” HA! Donald raised the stakes too high, before his American Health Care Act had to be pulled yesterday—for the second time—due to insufficient support from his own Republican Party!
Always the person to find a scapegoat to blame–rather than blame House Speaker Paul Ryan, or the entire GOP–Donald blamed the Opposition Party. For a self-proclaimed “Negotiator”, how ludicrous was it to have over-sold the “certain” success of his AHCA, as he had often boasted, and then blame the Democrats…but, for what? He was trying to tear-down a perfectly good (first-step) of a comprehensive plan that could provide Affordable Health Care for all!
Many Americans, including investors, are beginning to wonder if Trump can actually govern! He boasted, before the election, about how many things he would do, beginning “Day One!” But so far, he has accomplished very little. On the negative side, however, the list of his idiotic moves is a mile long!
Consider the following problems that he has been entangled in: the failed raid in Yemen, which resulted in the death of one Navy DEAL and 24 Yemeni civilians; attacking the American Judiciary for rebuking his two Anti-Muslim Bans; his apparent desire to control the Media; threatening a pre-emptive attack on a nuclear-armed North Korea—in China’s back yard; Trump’s potential collusion with Russia, and so on!
A number of Americans who voted for Trump have been on TV stating that they are having Voter’s Remorse. It’s times like this when I wish that we had a Parliamentary System. That way, just one “No Confidence!” vote would place M. P. Donald Trump, in a back-bench seat, where he belongs. Oh, if only…!
When Trump stated yesterday that the GOP’s AHCA Plan had to be pulled, distancing himself from bad news as always, he proclaimed that the next item of business would be Tax Reform. But there are two problems with that strategy, which he is overlooking: a number of deep-pocketed conservative organizations, including the Koch Brothers, have come out again Trump’s Tax Plan; and the money that he was supposed to take from ACA customers was necessary to fund his large tax cuts for the Wealthiest two-percent!
Meanwhile, many institutional and individual investors are, no doubt, using this weekend to review Trump’s record—both positive and negative—and to decide what their next financial moves might be. Additionally, many overseas investors are also considering whether the recent Trump Rally is real, or just a market bubble! I sure wouldn’t be surprised it there is a pause, at least, in the rally–or perhaps a reversal.
At 8:30 AM EST today, the Department of Labor reported Jobs Growth of 235,000 last month, and an Unemployment Rate of 4.7%, down from 4.8%. During President Obama’s second term, Trump dismissed the favorable employment statistics as being phony. But now that they reflect upon him–and they’re good–he chooses to boast about them. Will he still like them when they are negative? Time will tell!
Jan Hatzius, Chief Economist at Goldman Sachs, told CNBC-TV: “We’ve seen almost 100,000 jobs added in the construction sector in the last two months, and the warm winter, I think, had something to do with that.” I’ve been writing this blog for several years, and one month doesn’t indicate either an economic boom or a bust. Also, as Mr. Hatzius suggested, statistics can arrive earlier, by a month or two, or they can also be delayed.
Today’s employment statistics can, however, make life easier for Fed Chairman Janet Yellen, as the next Federal Open Market Committee’s (the central bank’s monetary policy-making arm) meeting is scheduled for next Tuesday and Wednesday. Ms. Yellen has already signaled an almost definite rate hike. Donald Trump, on the other hand, has been trying to exert his influence, to maintain low interest rates in order to help job growth. But, maintaining low rates in the face of strong employment, can have adverse economic effects.
The Fed has a so-called “Dual-Mandate”—to balance price stability with maximum sustainable employment. In doing so, it strives to balance those two goals. If the Fed were to keep interest rates too low, in order to enhance job growth, inflation could get out of hand. Conversely, raising rates to rein-in excessive inflation; however, would hurt job creation.
But, as Sean Spicer, Donald Trump’s Press Secretary summed up his boss’s interpretation of today’s DOL Jobs Report: ”I talked to the president prior to this [briefing], and he said to quote him for this, ‘[The jobs reports] may have been phony in the past, but it’s very real now.’” But, how will Mr. Wonderful spin the first negative Jobs Report, issued by his Secretary of Labor, and who will Trump blame for it?
Following last Tuesday night’s State-of-the-Union Address, Donald Trump just reiterated most of the usual things—Jobs, “Obamacare”, Dodd-Frank, Immigration, Terrorism, Regulations, Trade and Tariffs, Education, etc—which he has been talking about throughout his very short political career. But, after 40 days in office, he has accomplished absolutely nothing, except to infuriate a majority of Americans.
If any of the promises he has made were based on non-practical ideas, Trump would have had people working on his proposals and, perhaps, even submitted legislation to Congress on a few. For instance, if President Obama’s Affordable Health Care were really so “awful”, we would have seen a draft of TrumpCare by now. And, if Dodd-Frank, which reined-in the banks, after they took the nation to the edge of the Financial Abyss in 2008, was so terribly bad, wouldn’t Donald have presented an alternative plan by now?
But so far, Donald Trump seems to be spending his time: talking and tweeting; holding Command Performance meetings at the White House with people who seemingly would rather be anywhere else; and having his photo-ops boarding and leaving Air Force One, and always with Ivanka and the grandchildren in tow. I wonder if Trump spends more time at Mar-a-Lago now, since taxpayers are paying for it, than he did before he took office?
Market professionals, who had been expecting a Market Boom; because, Donald Trump vowed to: put people back to work; re-build the crumbling infrastructure; cut the tax rates for everyone; de-regulate all industries; and put more discretionary income in consumers’ pockets. But now, those investors are beginning to wonder how much of Donald Trump’s agenda is smoke, and how much is mirrors? They are also wondering if he can even get any of his plans through a Republican-Majority Congress?
When people look at the Trump Regime nowadays, the question most frequently asked is: Who’s in charge? Donald Trump has demonstrated that he is certainly not a detail man, whether that means understanding the most important questions facing the nation today, or in directing his staff in carrying out those most important responsibilities. Trump himself seems to be out more often than he is in, and most of his Cabinet and other key officers seem to be kept out of sight, and few deputies are on-board. With forty days in, and nothing accomplished: that’s despicable!
The financial markets do not function well with uncertainty. In fact, Steve Bannon seems to be the only key advisor in the office, and working. And, that’s like having the fox guarding the chicken coop. Reports from the West Wing suggest a spirit of: disorganization; disruption, incompetence and disbelief. Even Reince Priebus, Trump’s Chief-of-Staff, appears to be lost, both in-space and in-time. Will he be ousted soon?
I believe that this sorry picture of our Nation’s Leadership—without experience, without leadership and without a clue—is why the stock market has paused, and backed-off from the blindly upward track that it had been on for the past couple of months. There has been more, and more, talk of a stock market pull-back; however, now it might take a “correction”, a ten percent drop, in order to adequately pass some of the false Trump euphoria out off the market.
WE SHOULD BEWARE WHEN A FOOL CONTROLS OUR ALREADY OVER-BLOATED DEFENSE BUDGET! YES, DONALD J. TRUMP.
After I finished reading “Three Days in January”, by Brett Baier, I realized that it was a book of contrasts. The Three Days refers to the period between President Dwight D. Eisenhower’s televised Farewell Address to the Nation, on January 17, 1961, and President John F. Kennedy’s Inauguration, three days later. “Ike”, had been the oldest President, at the time of his Inauguration, while JFK was the youngest.
The book is a juxtaposition of an autobiography of “General” Eisenhower, which he prefers to be called, and his efforts to convey some wisdom, to his successor. The General had both planned for the Allied Forces Invasion of Normandy (France) in 1945, as well as commanded them. So Ike was both a strategist as well as an experienced President, by then. But, the young President-Elect felt strongly about his own ways. But, three months into his Term, once the “Bay of Pigs Invasion”, in Cuba, turned into a disaster, JFK sought the older man’s counsel on a number of occasions.
President Eisenhower often reflected on the writings and speeches of another old general, our First President, George Washington. Both presidents felt strongly that military might should be used primarily as a tool with which to Wage Peace! Following the Revolutionary War, the Continental Army had been disbanded, and a small national army was not subsequently established until 1787. And both men warned about the consequences of building too large of a military, lest it begin to control the nation’s policies.
In fact, General Eisenhower warned about the burgeoning Military Industrial Complex, during his Farewell Address. Defense corporations generate profits by selling weapons systems to he Pentagon. The corporations hire retired generals and admirals to introduce their sales staffs to former colleagues at Defense, and the companies seal the deal by making campaign contributions to members of Congress, while promising jobs in heir districts. Oftentimes, the sales process trumps any rational need for more and more weaponry!
The difference between President Dwight D. Eisenhower and Donald J. Trump would be light years apart. Ike, the simple Kansan, led the multinational Allied Expeditionary Force against Nazi Germany, during World War II. And then, he led the New World Order against the Soviet Union, during the newly developing Cold War. Trump has spent his whole life in privilege, he inherited his father’s family owned business, has he has been a lifelong huckster, The general knows the horror of war, and the huckster thinks of it only in a frivolous manner. and as someone else’s war to fight.
Authoritarian governments: control their national media, through state ownership or tight-fisted censorship; nationalize corporations—especially the military hardware—or bribe them into following government agendas; and they shift significant vital resources to enhance the already over-bloated Military (Industrial) Complex. Does this seem to be Donald Trump’s game plan?
If we already have significantly more fighters, missiles, etc, than China or Russia, why should we deplete vital domestic resources to fund what is no longer necessary? And, how might that larger-than-necessary Military be used, in the wrong hands—Donald Trump’s hands? No one tells the People that the excess is merely superfluous!
NOTE: The International Institute for Strategic Studies (IISS), a British think tank, headquartered in London, founded in 1958, and is focused on International Affairs. It reported that the 2015 Defense Budgets, for the U. S., China and Russia were as follows: $597.5 billion; $145.8B and $65,6B, respectively. Also, 10 of the 12 remaining nations in the Top 15 are all U. S. Allies, leaving only Brazil ($24.3B) and India ($48.0B) out.
HISTORICAL NOTE: When Dwight and Mamie Eisenhower left newly Inaugurated President John F. Kennedy, on that chilly January day in 1961, they left some papers with him. The General had left paperwork for the new President to request Congress to re-call President Dwight D. Eisenhower back to active duty, as a General-of-the-Army (five stars). That Bill was passed unanimously. At the farm in Gettysburg, the red flag of a General immediately went up, and General Eisenhower was buried in his World War II uniform. This is why I generally referred to Ike as General, more so than President.
Wall Street seems to have gotten its fingerprints all over Donald Trump’s plans to Repeal Dodd-Frank, and just eliminate the Department of Labor’s “Fiduciary Rule” outright. “Dodd” was passed to rein-in the Banks following The Great Recession (4Q07 to 1Q09). The Fiduciary Rule, on the other hand, applies specifically to Qualified Retirement Plans (IRAs, 401(k)s, 403(b)s, etc), and it requires financial professionals to place the clients’ interests ahead of the firm’s, and their own. Shouldn’t that rule apply to all securities accounts?
Back in November, I wrote about giving our combined personal investment portfolio its first major overhaul ever, because: I have on-going concerns about what havoc Donald Trump might wreck on our Economy; and I wish to simplify our portfolio, in the event that my wife and daughter might have to take over managing it at some point. And given Trump’s continued irrational behavior, these concerns still seem as relevant as ever.
Yale Economics Professor Joseph Shiller won the Nobel Prize, in 2013, for his empirical analysis of asset prices. Shiller concluded that the market is inefficient, and he has suggested that passive index funds can do just as well as actively-managed ones, but without the higher management fees. Warren Buffett, in his Letter to Berkshire Hathaway Shareholders, concurred, suggesting that an S & P 500 index fund, possibly with other stock exchange-traded funds, plus individual bonds or a bond ETF, would perform better in the absence of the management fees. John Boggle, founder of Vanguard Funds, agrees.
In May of 2012, I wrote a post, comparing mutual funds and ETFs. It provided a brief, but general comparison between actively-traded mutual funds and ETFs. Given what is happening now; however, I believe that the Advantage has certainly shifted in favor of ETFs.
Here are some sources for learning more about ETFs:
The CNBC (financial channel) web site provides news, plus market statistics. On the “Markets” drop-down box, the various global markets can be checked in real-time. At the bottom of the drop-down, go to “ETFs” for a list, prices, performance, and trading volume of the most popular ETFs, with the Sector SPDRs just below them.
Then go to the State Street web page for SPY, and that company also distributes the Sector SPDRs. On the SPY page, a Fact Sheet can be viewed, as well as other literature.
On the Sector SPDR page, there are Fact Sheets for each of the sector ETFs, performance and a list of all of the stocks, within each of the sectors of the S & P 500. There also is a Sector Tracker, which provides historical performance, for each sector, across various time-frames.
iShares provides a range of mostly overseas ETF, either globally, by region and for many individual countries. Some of the iShares ETFs that I used, when I wanted to put money into various overseas markets, are as follows: EFA for the EAFE (Europe, Australia and there Far East) Index of industrialized markets, EEM, for Diversified Emerging Markets, or EPP for Asia-Pacific, excluding Japan), among others.
Lastly, check the Stock-Encyclopedia ETF Guide to research any ETF, to include Fast Sheet and other research material,
There are hundreds of ETFs on the market. If your advisor suggests one, be sure to have him/her explain why that (those) particular one(s) would be suitable for your needs. I would suggest shying away from ETFs that invest in commodities and foreign exchange, because those markets are more oriented toward institutional investors. Similarly, be aware that ETFs that double or triple the upside of an index, will similarly increase the risk on the downside.
NOTE: This is an open-letter that Nicholas Kristof wrote, in his regular NY Times column, to awaken all Trump Voters:
Dear Trump Voters,
You’ve been had. President Trump sold you a clunker. Now that he’s in the White House, he’s betraying you — and I’m writing in hopes that you’ll recognize that betrayal and hold him accountable.
Trump spoke to your genuine pain, to the fading of the American dream, and he won your votes. But will he deliver? Please watch his speeches carefully. You’ll notice that he promises outcomes, without explaining how they’ll be achieved. He’s a carnival huckster promising that America will thrive with his snake oil.
“We’re going to win, we’re going to win big, folks,” Trump declared Friday at the CPAC meeting, speaking of his foreign policy.
Great! Problem solved. Next? He then outlined his take on drug trafficking and what will surely be his outcome:
“No good. No good. Going to stop.” Wow! Why didn’t anyone else think of that?
Similarly, all looks rosy for tax outcomes: “We’re going to massively lower taxes on the middle class,” Trump said. But that seems like a classic shell game.
The Tax Policy Center estimated that Trump’s tax plan (to the extent that there is one) would hugely increase the federal debt and give middle-income households an average tax cut of $1,010, or 1.8 percent of after-tax income — while the top 1 percent would save $214,690, or 13.5 percent of after-tax income.
Trump made more than 280 campaign promises as a candidate, and a few — such as infrastructure spending to create jobs — would be sensible if done right. But there still is no infrastructure plan, and The Washington Post Fact Checker is tracking 60 specific campaign promises and found only six cases so far of promises kept.
It’s still early, and Trump has nominated a smart conservative to the Supreme Court and followed his campaign line on issues like barring refugees.
But while you voted for Trump because you put faith in his gauzy pledges, I bet he will do no better with campaign promises than with marriage vows.
Health care will be one of the greatest betrayals. On Friday, he described his plan: “We’re going to make it much better, we’re going to make it less expensive.”
Yet the steps that Republicans seem likely to take on health care will hurt ordinary Americans.
For example, Trump seems poised to weaken the contraception mandate for insurance coverage and curb funding for women’s health clinics. The upshot will likely be more unintended pregnancies, more abortions, more unplanned births — and more women dying of cervical cancer.
The biggest Trump bait-and-switch was visible Friday when he talked about giving Americans “access” to health care. That’s a scam his administration is moving toward, with millions of Americans likely to lose health insurance: Instead of promising insurance coverage, Trump now promises “access” — and if you can’t afford it, tough luck.
This promise of “access” is an echo of Marie Antoinette. In Trump’s worldview, starving French peasants wouldn’t have needed bread because they had “access” to cake.
Many of you voted for Trump because he campaigned as a populist. But instead of draining the swamp, he’s wallowing in it and monetizing the presidency. He retains his financial interests, refuses to release his taxes or explain what financial leverage Russia may have over him, and doubled the fee to join Mar-a-Lago to $200,000.
The greatest betrayal of all will come if, as some of his advisers recommend, he “reforms” and tears holes in some of the big safety net programs like Medicaid, Social Security or Medicare. Medicaid is particularly vulnerable.
Trump howls at the news media, not just because it embarrasses him, but because it provides an institutional check on his lies, incompetence and conflicts of interest. But we can take his vitriol: When the time comes, we will write Trump’s obituary, not the other way around.
Let’s not get distracted by his howls or tweets. What’s most important at this moment is not Trump’s theatrics, but the policies he is putting in place in areas like health care and immigration that will devastate the lives of ordinary Americans.
Trump’s career has often been built on scamming people who put their faith in him, as Trump University shows. Now he’s moved the scam to a much bigger stage, and he boasts of targeting Muslims, refugees and unauthorized immigrants.
Please don’t cheer, or acquiesce in these initial targets. The truth is that among the biggest losers from Trump policies will be you Trump voters, especially those of you from the working and middle class. You were hoping you’d elected a savior, and instead Donald Trump is doing to you what he did to just about everyone who ever trusted him: He’s betraying you.
The sooner you recognize that, the sooner you can fight back and push for policies that will protect your health care and Social Security, defend the integrity of our election system and protect your own interests. You have a false savior, and you will have to turn on him to save yourselves and our nation.
Note from Mr. Kristoff: I invite you to sign up for my free, twice-weekly email newsletter. Please also join me on Facebook and Google+, watch my YouTube videos and follow me on Twitter (@NickKristof).
In a recent post, I warned against Donald Trump taking control of the Federal Reserve Board, our central bank, and then directing it toward his own politically biased agenda. The link for that post is: https://thetruthoncommonsense.com/2017/02/09/dont-mess-with-the-fed/?iframe=true&theme_preview=true. Since then, one Fed Governor resigned unexpectedly, thus giving Trump a couple of seats to fill, and then he can nominate his own Chairman, as of February 2018.
The manner in which Donald Trump and his Regime manages the economy, will indeed, have major effects on our Society, in general. Income-inequality, divisiveness and widespread frustration with the government, can have a major effect on Who and What America becomes!
The Role of the Federal Reserve Board, our central bank, is to foster economic conditions that achieve both stable prices and maximum sustainable employment. The optimum is referred to as the Goldilocks Economy, similar to the mid-to-late 1990s: “Not too hot, not too cold, but just right.” The Fed’s goal, in effect, is to manage for Balance.
Republicans in Congress have always wanted to have greater control over the Fed, which would, in effect, politicize it. If the economy were destined to fluctuate between the policies of one party, and then shift to the other party’s goals, the general results would surely be disastrous for the overall Health of the Economy.
Donald Trump has already announced that he will replace Fed Chair Janet Yellen, when her Chairmanship expires. With less than one month in office, Trump has already been trying to browbeat the Fed not to raise rates. There is a reason why democracies insist on their central banks remaining apolitical: wrong moves, especially on purpose, in either direction, or if postponed, may lead to an even more horrendous economic situation.
An interest rate increase, or cut, are usually made after careful economic analysis, based on comprehensive reports, collected from the twelve regional federal reserve banks. Those reports provide the rationale for monetary policy. Arbitrarily cutting the “Funds Rate”, or failing to increase it when appropriate, might result in an overheated economy—and high inflation—on the up-side. Improper moves in the other direction, could result in deflation—price implosion—and a similarly dysfunctional economy.
When the Fed’s monetary policy committee raised rates in December, to a range of 0.50%-to-0.75%, it estimated that a 0.25% rate hike was necessary to keep the economy from accelerating. Balancing the economy assumes that minor adjustments are best, rather than waiting for the economy to either over-inflate on the up-side, or to deflate or the down-side.
Now that Steven Mnuchin has been sworn-in as Secretary of the Treasury, Donald Trump might just turn his attention more toward the Fed nominations. The key question here, is whether Secretary Mnuchin will work smoothly with the Fed, or merely follow Donald Trump’s incongruous agenda. Hopefully, he will cooperate with the Fed, and focus on maintaining a stable economy, for all America!