Trump Error, Day 7 – Waiting On The Fed
Well, now what?
The World was shocked at the US's sweeping Muslim ban with another round of anti-Trump protests at home and abroad and the Global Markets are tumbling and the Volatility Index (VIX) is rising as even Green-Card Holders were banned from returning to the US on a sudden executive order that stranded thousands of legal immigrants overseas this weekend.
I'd love to not talk about politics but politics is driving the markets at the moment so responsible analysts NEED to discuss politics or they are doing you a tremendous disservices. I'm not going to get into the bank and forth of the thing – that's all over the papers but we also declared a trade war with Mexico and China is now saying:
"'A war within the president's term', 'war breaking out tonight' are not just slogans, but the reality."
The commentary was first reported by South China Morning Post on Friday, and comes amid concerns about a trade war between the world's two largest economies. "The Chinese government is quite concerned about the potential for direct confrontation with the Trump administration," said Ian Bremmer of the Eurasia Group. "Chinese officials are preparing for the worst, and they expect to retaliate decisively in response to any U.S. policies they perceive as against their interests."
So happy Monday to you on Day 7 of the Trump Error. Over in Europe, Germany is now worried about too much inflation and is calling for the ECB to start tightening monetary policy but poor Italy is still having bank troubles (and Europe is down 1% this morning with Italy down 2%) and Greece and Puerto Rico are both heading into debt crises (again).
Peurto Rico got an extension but the IMF just said Greece's debt, at 275% of their GDP is "explosive and highly unsustatinable". Explosive and unsustainable is what they say about collapsing stars - not economies inside the solar system! And if the IMF says this about Greece, then why are Japan and China still getting a pass – both of whom have over 250% debt to GDP (assuming you can even believe China's GDP number).
Perhaps Lord Trump is doing China a favor by starting a war to distract their population – giving the Communist Party someone to blame for their coming economic crisis. I don't think he's gotten around to pissing off Japan yet, maybe because they are still taking bids for casino rights over there – just like the 4 muslim countries Trump does business with were not included in his immigration ban (Azerbaijan, Egypt, Turkey and Saudi Arabia).
In fact, Trump was on the phone with Kind Salman of Saudi Arabia this weekend and reportedly spoke to him for an hour, maybe finding out why 11 of the 19 9/11 hijackers came from Saudi Arabia… maybe. Actually the call seemed to be about how we can help fighting Saudi Arabia's enemies,
“The Saudis welcomed Tillerson's appointment,” Teneo’s Holdings' Hawes said. “Tillerson is someone who has tremendous diplomatic experience in the region,” he said. “He is a known quantity. Right now, I think this is going as well as Saudi policymakers could have hoped.”
Anyway, back to China! China is essentially closed this week for the Lunar New Year and that's a good thing as they've been approaching a liquidity crisis all month and a week break will, hopefully, give the PBOC a chance to print up a bunch of money. As you can see from the chart, capital has been fleeing China since 2014 with estimates of $3-5 TRILLION leaving the country and bubbling into foreign stocks, bonds and especially real estate.
More and more of that capital is flowing through China's unregulated "Shadow Banking" system, which now dwarfs the banks that are under state control. That means that, in a crisis, there is no way for the Government to control what happens – scary! With borrowing costs rebounding in 2017, firms will likely run into trouble again as the real-estate cycle winds down – this time with even more debt in play.
In some respects, China is much worse off than Japan with 170% of their GDP in Non-Financial Corporate Debt alone but, of course, those corporations are mostly owned or controlled by the Government so running the presses is a short-term solution to that problem too.
My big concern with China (and the World) is that they are one of the largest drivers of the Global Real Estate Recovery and rising rates my depress home prices and then panicky Chinese property investors may decide to dump their holdings and suddenly we're back in a crisis as home prices begin to drop rapidly, setting off more panic.
Needless to say, we're a bit skeptical of the Real Estate sector in 2017, even though we do see a US-based housing recovery, with rates holding back some of the enthusiasm. Nothing matters this week ahead of Wednesday's 2pm Fed Statement and we don't expect them to do anything so anything else would be a surprise:
Notice no Fed speak to move the markets and just Evans (dove) after the meeting on Friday morning, presumably to salvage the week with some encouraging words. We're still waiting for some encouragement from the earnings reports. So far, there hasn't really been much to justify the 10% "Trump Rally" and nothing Trump has done so far has justified buying stocks for 25 times earnings or higher. We'll see if this week's reports can tip the scales (doubt it):
We're still short (see last week's posts) and this morning, in our Live Member Chat Room, we added shorts back on the Oil Futures (/CL) at $53.25 to go with our Dow (/YM) Futures shorts from our Live Trading Webinar last Wednesday. We've already hit $52.75 for $500 per contract gains on the oil shorts – isn't it a good thing you saved $3 today by not subscribing!
Be careful out there!
Disclosure: Our teaching theme at Phil's Stock World is "Be the House, NOT the Gambler." Please see " more
Fake news. The ban is on certain Nations, not the religion. If it were a Muslim ban then ALL Muslims would have been banned.
Actually Carlos, that is incorrect. The problem #Trump faces is that he banned Muslims from these nations but not other religions. He made it a religious test. Had he said he was going to equally vet or equally ban all people from these nations, he would not be having the problems he is having. Banning Muslims as a religion but not other religions is fusion of church and state and is unconstitutional.
Gary, I believe Carlos is correct that it is ANYONE who comes from those 7 nations are banned, not only Muslims. Of course those 7 countries are all predominately Muslim.
Gary, I respectfully disagree.Have you been following the slaughter of peoples from these "other religions" in these barbaric countries? Its not that we are favoring a religion (as #Obama certainly did with his policies and zeitgeist), but rather saving from genocide hapless victims of religious intolerance. That this should outrage the left is just too rich to swallow. Besides,we have always discriminated who enters and from where they come from.At the turn of the 20 century, we only took in peoples from the northern parts of Europe and turned away Mediterraneans SOLEY on ethnicity. We denied the Chinese,who literally built the west, citizenship and many other rights. The religious test is for public office.Is it such a hard notion to grasp that we need to vet a peoples whose religion promotes and breeds violence? Millions of Muslims are peace loving. Millions of Muslims are bloodthirsty jihadists that given a propitious chance, would at least condone the use of mass murder on the "infidel" if not actively and materially support terror. To state otherwise would be to deny reality. Last time we checked, Christians were not committing acts of random terror, Muslims were. Do you deny that there is a problem with radical Islamic terror?
Nice try Carlos, but Trump used the words, "ban Muslims". You can think what you want but Trump has already said what he thinks. It is picking religions no matter if you put lipstick on the pig or not. Trump is a demagogue. You and Breaking Bad are fearmongers. You remind me of the Bush admin scaring us with Iraq exporting nukes. They didn't even have nukes to export. Quit scaring people. Don't be paranoid like the POTUS.
What I don't get is, #Trump wants to keep out terrorists. But terrorists can just claim they are from any country other than the 7 which were banned. It's the regular people who can't get it.
While sad, desperate times call for desperate measures.
Thanks for sharing
Lol, Phil, they said unsustatinable. That is funny. As far as China is concerned they don't like Basil so if RE crashes they won't be marking to market, most likely. Goebbels secretary died within the first 100 days of Trump in office. I don't know what that means unless it means the worse for America. I hope not.