Stocks Fall as Trump’s Mexico Tariff Threat Rattles Markets

Source: Wall Street Journal

“Stocks and bond yields around the world fell Friday after President Trump threatened to impose escalating tariffs on Mexico, capping a brutal month for markets as rising trade tensions roiled investor confidence. The threat pushed stock markets down as investors feared applying tariffs on Mexican products could hurt corporate earnings, increase prices for U.S. consumers and crimp economic growth. As investors sold stocks, they moved to government bonds, gold and the Japanese yen, all assets typically perceived as safer. ‘This will impact consumer spending. This will impact corporate earnings. This is utilizing a trade policy tool to enforce policy outside of trade, and that sets a concerning precedent and leaves investors wondering how else tariffs could possibly be used,’ said Kristina Hooper, chief global market strategist at Invesco. ‘Markets were already freaking out over existing tariffs. We’ve just thrown gas on the fire.’….Using tariffs to influence immigration policy shows the White House is prepared to use trade to gain leverage outside of the economic sphere, Martin Moeller, co-head of Swiss and global equity at Union Bancaire Privee said. He suggested the next target could be NATO members that refuse to raise military spending in line with U.S. demands.”


Fed candidate slams central bank’s ‘Soviet’ power over markets

Source: Financial Times/

“Judy Shelton, a senior US official who is being vetted for a job on the board of the Federal Reserve, has attacked the central bank for wielding undemocratic, Soviet-style powers over markets and suggested it should not even be in the business of setting interest rates. In an interview with the Financial Times at the Trump International Hotel in Washington this week, Ms. Shelton called on the Fed to ‘think about whether they are doing more harm than good.’ If appointed to the board, she would be ‘asking tough questions’ about its most basic mission, she said. ‘How can slightly less than a dozen people meeting eight times a year, decide what the cost of capital should be versus some kind of organically, market-supply-determined rate? The Fed is not omniscient. They don’t know what the right rate should be. How could anyone?’ Ms. Shelton said. ‘If the success of capitalism depends on someone being smart enough to know what the rate should be on everything … we’re doomed. We might as well resurrect Gosplan,’ she said, referring to the state committee that ran the Soviet Union’s planned economy. Ms. Shelton did post-doctoral research on the Soviet economy at Stanford University’s Hoover Institution….Ms. Shelton has called for the central bank to stop paying banks interest on excess reserves, a policy introduced during the financial crisis, saying it was turning financial institutions into ‘utilities,’ rewarding them for allowing money to ‘sit doing zilch’ rather than being loaned out. She also said that the Fed should continue to reduce its balance sheet below the $3.5 trillion target set by Jay Powell, the chairman. ‘I would rather the Fed be less of an entity. When a central bank buys up government debt, that’s the beginning of compromised finances.’….Ms. Shelton, who has close ties to Larry Kudlow, the director of the National Economic Council, as well as David Malpass, the president of the World Bank, worked for Mr. Trump as an economic adviser during the 2016 presidential campaign.”

Fed Chairman Jerome Powell: The 60 Minutes interview

Source: CBS News

“Chairman Jerome Powell was appointed to the board of governors by President Obama and was elevated last year to chairman by President Trump. When we met with Powell in early March at the Fed’s headquarters in Washington, we asked the chairman about interest rates, whether the president can fire him and what he believes are the greatest threats to prosperity…Scott Pelley: Have you stopped raising rates? Jerome Powell: We don’t feel any hurry to change our interest rate policy. What’s happened in the last 90 or so days is that we’ve seen increasing evidence of the global economy slowing down….Pelley: Where do you see weakness in the U.S. economy? Powell: We’ve seen a bit of a slowing, But I would say the principal risks to our economy now seem to be coming from slower growth in China and Europe and also risk events such as Brexit….Pelley: Can the president fire you? Powell: Well, the law is clear that I have a four-year term. And I fully intend to serve it….Pelley: Are American banks safe today? Powell: The American banking system is much, much stronger and more resilient than it was before the financial crisis…There’s a plan for what to do, which doesn’t involve a taxpayer bailout….Pelley: How concerned are you about either criminals or more importantly hostile nations attacking our banking system through the computer system? Powell: I would say for cyber risk, I’ve never felt a time when I think we’re doing enough. Pelley: I have the sense that I just hit on the thing that keeps you up at night. Powell: I would say of the risks that we face, that certainly is the largest one. Pelley: It’s become your top priority. Powell: Cyber is a relatively new kind of a risk with nation-state actors. And it’s one where – the playbook is still being developed in real time.”

Nasdaq Enters Correction Territory

Source: CNBC

“The Nasdaq Composite dropped 1.4%, led lower by sharp declines in Alphabet and Facebook on Monday. The tech-heavy index also entered correction territory, trading more than 10% below its record high set in late April….U.S. manufacturing activity in the U.S. fell last month to its slowest pace of growth since October 2016, according data from the Institute for Supply Management….The major indexes fell more than 1% each on Friday to end a torrid month for Wall Street. Stocks logged in their first monthly decline of 2019, snapping a four-month winning streak….’This issue with China continues to be the big elephant in the room,’ said Randy Frederick, vice president of trading and derivatives at Charles Schwab. ‘If the two sides, China and the U.S., break down on these negotiations, we could see a 10% correction. We’re more than halfway there already and talks haven’t broken down yet.’….Alphabet shares slid 6.5% after reports said the Justice Department is preparing to launch an antitrust probe on Google. Facebook shares declined by 4% as the news sparked fears the social media company could also be hit with tougher regulations.”


The Tide of Fear Is Approaching

Source: Bonner/Bonner And Partners

“The further stock prices get away from the economy that supports them, the greater the danger that they will die in the woods, like a lost hiker….For what it is worth, our indicators are flashing red. If this were a car, we’d pull over to the side of the road and open the hood. There, we may find a trade war, frayed politics, stretched-out valuations, and maybe even an upside-down yield curve….The world of money is not a mechanic’s world; it is a poet’s world…And it is ruled by two major emotions: greed and fear. People are either eager to get more… or they are afraid of ending up with less. Typically, when investors are greedy, they buy stocks – especially in innovative new companies, where ‘the sky’s the limit’ on the profits they might earn. And then, when the sky begins to fall, the tide ebbs and they grow fearful. Then, they retreat to bonds… real estate… cash… and ultimately, gold. The same cycle dominates life itself. Boom… then bust. Greed… then fear. A young man is greedy for new things… new experiences… new wealth. He hungers for the first light… for a race… for an app!…An older man, alas, can’t take chances. He is the old dog who doesn’t want to try new tricks; he might hurt himself….But what ho? A recent Gallup poll tells us that even the young are becoming fearful. They no longer trust freewheeling capitalism, a can-do spirit, and an open economy to deliver the goods. Millennials (those aged 22-37) told pollsters that they would be just as happy with socialism as with capitalism. Until now, Americans of all ages favored freedom (or, at least, so they said). Now, it’s protection they want….Since 2009, approximately $50 trillion dollars has flowed into American household wealth – mostly in stocks, bonds, and real estate… and mostly into the households of the rich. What are the odds that the tides have stopped now… and that that $50 trillion stays put?”

Gold in the Age of Eroding Trust

Source: Yahoo Finance

“On Tuesday, Incrementum AG published its annual In Gold We Trust report. The authors did a lot of work – the full version has 339 pages!….The current edition of the report focuses on trust, which is the basic value of any interpersonal relationship and the foundation of social order in general. The problem is that we are observing the erosion of trust in many areas. Think about the politics – only one person in ten still has confidence in the government…Gold is ‘clotted’ trust or, clotted mistrust against all other promises of value. Indeed, the recent acceleration in central banks’ purchases of gold and the repatriation of their bullion indicate growing distrust in the current monetary system based on fiat currencies in general, and the greenback in particular….’Trust looks to the future, forms itself in the present, and feeds itself from the past…Gold is the universal reserve asset to which central banks, investors, and private individuals from every corner of the world and of every religion and every class return again and again.’….The authors are perma-bullish and they believe that gold is already in the early stages of a new bull market which could soon pick up momentum…a gold price of over $1,800 seems within reach in the medium term, the report authors further believe….When the trust in the Fed and the US dollar fades, gold will shine…We also trust in gold, but it’s important to not expect too much and too soon from it. Gold glimmers beautifully, but how is it supposed to shine in a bright room?”


The government is threatening big tech – and the market just took notice

Source: CNBC

“Politicians and technology executives have spent well over a year debating the proper role for regulators in the tech industry, which has assumed outsized influence over the U.S. economy. Monday was the day that the chatter turned to early stages of action, and the market punished big tech. Investors were most concerned about Facebook and Google parent Alphabet on Monday, sending shares of each down more than 6%. Amazon dropped more than 4.6% and Apple slid 1%. In total, they lost about $130 billion in market value and led a 1.6% slump in the Nasdaq Composite, sending the tech-heavy index into correction territory – down more than 10% off its record high set in April. Following reports late Friday that the Justice Department is preparing an antitrust probe of Google, Reuters reported on Monday that the same department has been given jurisdiction over Apple’s practices as part of a broader review into the behavior of tech companies….In assuming greater oversight over four of the world’s five most valuable companies (Microsoft has the biggest market cap), regulators are suggesting that the days of unfettered growth for the tech industry may be numbered.”


Worried You’re Going to Retire in a Bear Market? Here’s What to Do.

Source: Barrons

“Most of us spend our working lives saving for retirement. But retirement isn’t just grandkids and golf clubs – it’s also the moment a financial plan is most at risk. And the next wave of retirees may be particularly vulnerable. We are a decade into a robust bull market…but there’s virtually no market strategist, economist, or investor who expects the next 10 years to look like the past 10. Investors – and new retirees in particular – need to prepare for much lower returns, and protect themselves from a downturn. A market downturn early in retirement is much more damaging than one a decade or so in…The math is simple: If your portfolio drops 20%, you need a 25% gain just to get back to where you were. And if you’ve withdrawn money to live on, your balance is even lower and requires an even greater upswing to recover….If market turmoil increases as you’re nearing retirement, consider working a little longer, if you’re able. Another year of living off your salary rather than your savings can benefit you for decades, as discussed earlier; you might be able to save a bit more, and your Social Security benefit will increase.”


The GOP’s Duty: Explain the Cost of ‘Free’

Source: Jindal/Wall Street Journal

“Progressives are changing the Democratic Party’s focus from building stronger safety nets for the disadvantaged to subsidizing everything for everybody…Democrats now promise free college, free health care and more – for everyone. Republicans can’t outspend Democrats, but they can make the case for freedom and against the idea that everything is ‘free’ without sounding like Scrooge…The American Dream is to get a good job and live better than one’s parents; becoming dependent on government is the American nightmare. Even Howard Schultz, the man who brought America $5 coffee, realizes promises like Medicare for All are unrealistic and too expensive. Yet Republicans have to do more than mock the Green New Deal’s bans on air travel, targeting of flatulent cows and subsidies for those unwilling to work if they want to persuade young voters of the case for limited government and personal freedom. In reality, ‘free’ means more government control at the expense of consumer autonomy….Progressive health, education and energy policies would result in government interference in larger parts of the economy…Consumers have a hundred choices of coffee but won’t be able to choose their health plans. Government paying for college would result in even more political interference with academic freedom….’Free’ means less efficiency, more expense and lower quality….Republicans have lost credibility on fiscal responsibility. Spending vastly increased on their watch. Even so, Medicare for All’s $32 trillion price tag makes even today’s appropriators look miserly. Republicans can’t outbid Santa Claus. Americans are willing to work hard and sacrifice for a better life but need to know how pro-growth policies benefit them…They will embrace effective market-based solutions that promote freedom if Republicans offer them, but voters will only wait so long.”

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