The Dow Jones Index has been very volatile in the last two and half months fluctuating almost 3000 points. The Dow began at 24,719 rose to 26,307 at the end of January and dropped into the 2300s to finish the first quarter with a loss. As of April18, it had risen back up to 24,748. US markets are not based on a firm foundation, which is why almost any event or even rumor of an event sends them radically higher or lower. Treasury Secretary Mnuchin commented at the International Finance Conference in Davos Switzerland, that they weren’t concerned about the US Dollar losing value and the USD lost 5% against all the major currencies. Morgan Stanley is predicting that market growth may soon be coming to an end.
US retail stores continue to struggle as they did throughout 2017, with many malls and retail shops closing across the nation. Bloomberg reported that stores have announced the closing of 77 million square feet of shopping space so far this year. The fall of the Toys R Us chain, with more than 700 U.S. stores, shows how much retail real estate has changed in just the last decade. Morgan Stanley told Bloomberg that “Investors need to prepare for a downside as the end of the economic cycle is near and U.S. markets are priced for best-case scenarios.”
Morgan Stanley Warns Markets the Best Times May Be Near an End (4.17.18) https://www.bloomberg.com/news/articles/2018-04-17/morgan-stanley-warns-markets-the-best-times-may-be-near-an-end
U.S. Stocks End Worst Week in Years (3.24.18) WSJ
https://www.wsj.com/articles/stocks-slide-as-trump-kicks-off-trade-war-1521765378
The Retail Real Estate Glut Is Getting Worse (4.17.18)
Mnuchin Said Trump Tariffs Will Benefit US Despite Retaliation Risk (3.7.18) NewsMax https://www.newsmax.com/finance/economy/mnuchin-trump-tariffs-retaliation/2018/03/07/id/847439/
World Markets
Despite economic sanctions and dire predictions, Russia is continuing their third year of growth. Their economy, stock market and the average Russian citizen’s standard of living are continuing to rise. Nations are ignoring the US sanctions as Russia’s $4B bond sold, and sold quickly. Australia is experiencing its strongest earning season in 15 years and is projected to continue to perform well. China and the US are in a tariff battle, and it is uncertain how these tariffs will affect world markets. China stands to lose more in a trade war with the US, as 80% or more of Chinese GDP is based on foreign trade and only 20% is domestic, while approximately 80% of US GDP is domestic, with only about 20% based on foreign trade.
Where are world are markets headed and what’s going to happen next is very difficult to determine, as circumstances are not playing out in accordance with fundamental indicators. “You aren’t just imagining it: global markets are flashing conflicting signals as they struggle to price trade friction, an easing of global synchronized growth, and the excesses of an aging bull market. Stocks are heading toward weekly gains, while the Treasury curve is the flattest in more than a decade — an indication of subdued long-term growth prospects and, to some, looming recession risks. For those attempting to navigate the path of rate normalization and economic expansion, trading over the past month has only muddied the narrative.” -Bloomberg
The Global Trading Map Looks Really Confusing Right Now (4.13.18)
Russia’s Trade With the West Surges Even as Sanctions Mount (4.12.18) WSJ
https://www.wsj.com/articles/russias-trade-with-the-west-surges-even-as-sanctions-mount-1523534781
Russia’s $4 Billion Bond Sale Defies U.K. Spat as Bids Roll In (3.16.18)
Trump to Ramp Up Trade Restraints on China (3.22.18) WSJ
https://www.wsj.com/articles/trump-to-ramp-up-trade-restraints-on-china-1521593091
China Responds to Tariffs by Targeting These 128 U.S. Products (3.22.18) Daily Wire
https://www.dailywire.com/news/28576/breaking-china-responds-tariffs-targeting-these-ryan-saavedra
G-20 Offensive Against U.S. Trade Policy Fails to Sway Mnuchin (3.20.18)
The Case for Trump’s Tariffs and America First Economics (3.8.18) NYT https://www.nytimes.com/2018/03/08/opinion/trump-tariffs-economics.html
Australian Earnings Season One of the Strongest in Years, Credit Suisse Says (2.19.18)
Central Banking
The new Federal Reserve Chairman Jerome Powell, along with the last Chairman, made it very clear that the Fed intends to raise interest rates, but recent Fed comments are suggesting great caution and sensitivity as to how much and when. Australia looks like they will refrain from raising interest rates for the moment. China’s new Central Bank Chief Yi just initiated a 1 percentage point cut in the reserve requirement for most of its banks. The European Central Bank and Bank of Japan are only thinking about raising interest rates and reducing bond purchases at this point, as most central banks are just sitting back, watching and waiting.
The World’s Finance Chiefs Are Fretting About Cryptocurrencies (3.20.18)
U.S. Budget Director Warns Interest Rates May Spike on Deficit (2.11.18)
Stocks Drop, Treasuries Tumble on Powell Testimony (2.26.18)
U.S. Yield Closes In on 3% (2.19.18) WSJ https://www.wsj.com/articles/investor-sentiment-proves-robust-as-u-s-yield-closes-in-on-3-1519122601
Debt
Bloomberg reported that, “Global debt rose to a record $237 trillion in the fourth quarter of 2017, more than $70 trillion higher from a decade earlier, according to an analysis by the Institute of International Finance.” The White House has expressed it wants to roll back some of the spending in the recently passed budget, as it increases deficit spending. Some elected officials and the financial analysts are warning against the rising debt. The EU is concerned as its private sector debt is rising to some of the highest levels ever as well.
Global Debt Jumped to Record $237 Trillion Last Year (4.9.18)
White House Aims to Roll Back Newly Passed Spending (4.9.18) WSJ
https://www.wsj.com/articles/white-house-aims-to-roll-back-spending-1523233549
CBO Raises Estimates for Budget Deficits (4.9.18) WSJ
At Last, a Backlash against Federal Spending (4.7.18) WSJ
Dollar Under Siege With U.S. Deficits Back on Wall Street’s Radar (2.14.18) https://www.bloomberg.com/news/articles/2018-02-14/from-earnings-to-inflation-fickle-stocks-can-t-pick-a-poison
Currency & Crypto-Currencies
Bitcoin slumped after the US Securities and Exchange Commission reiterated that many online trading platforms for digital assets should register with the agency as exchanges. Bitcoin is down nearly 50 percent from its high of around $18,000 (December 2017), in part because regulators worldwide have clamped down on trading, mining and initial coin offerings. CNBC reported, Bitcoin dropped below the key $10,000 level after the Securities and Exchange Commission said it will require digital asset exchanges to register with the agency. In March, world finance chiefs met and discussed cryptos and expressed concern about the rapid growth and lack of regulation of these currencies. The reason the finance chiefs were concerned and wouldn’t label cryptos as official currency is because, if it was, they would lose control of over the financial transactions of a growing sector of the world market place and would have no ability to manipulate it like they do sovereign nation currency. Bloomberg articles have also sounded warnings: “cryptos could destabilize the market … and lack the key attributes of sovereign currency.”
$3 Million Bitcoin Heist Reported by India’s Coinsecure (4.13.18) WSJ
Cryptocurrency Trading Upended in Chile as Banks Close Accounts (4.13.18) WSJ
India Bans Bitcoin Wallets, Bank Funding All Cryptocurrency Services (4.5.18)
The World’s Finance Chiefs Are Fretting About Cryptocurrencies (3.20.18)
Ripple Develops Blockchain Payments App With 61 Japanese Banks (3.7.18) https://www.bloomberg.com/news/articles/2018-03-07/ripple-develops-blockchain-payments-app-with-61-japanese-banks?srnd=cryptocurriences
Bitcoin Dives After SEC Says Crypto Platforms Must Be Registered (3.7.18) https://www.bloomberg.com/news/articles/2018-03-07/bitcoin-dives-after-sec-says-crypto-platforms-must-be-registered
Bitcoin just tanked below $10K after SEC says crypto exchanges must register with agency (3.7.18) CNBC | https://www.cnbc.com/2018/03/07/bitcoin-just-tanked-below-10000-after-sec-says-crypto-exchanges-must-register-with-agency.html
Bitcoin drops after SEC demands platforms should be registered 2:56 PM ET Wed, 7 March 2018 | 00:41
Chase, Bank of America, and Citigroup All Ban Cryptocurrency Purchases on Credit Cards (2.4.18) https://gizmodo.com/chase-bank-of-america-and-citigroup-all-ban-cryptocur-1822707798
Political Upheaval
Political upheaval has increased in the first four months of 2018 and will likely continue to increase in the near future. Italy the 10th largest economy in the world held elections and no one won, not one party even got close to a majority and all the parties that did gain seats were either anti-EU or leaning anti EU. Whether they can piece together a collation or call new elections remains to be seen, however, based on current circumstances, Italy will likely hold their own referendum on exiting the EU.
In China XI has become emperor for life and Turkey’s Erdogan changed the Turkish constitution giving himself dictatorial power, neither of the events are positive for the rest of the world. Russia, Turkey and Iran have just entered into a treaty of mutual support which certainly will create more problems and complication in the Middle East.
The Syrian problem has so many players, agendas and nations involved it’s almost impossible to figure out what’s really happening, much less what happens next. In retaliation for Assad allegedly releasing chemical weapons on its citizens, the US, UK and France bombed supposed chemical weapon production facilities and other military targets in Syria. Russia & Syria claim to have shot down around 80% or more of these missiles. Russia warned the US not to bomb Syria and China said they would side with Russia, if things were to escalate. Questioning has arisen in regard to the chemical weapons claims as many are asking: Why would Assad release chemical weapons knowing that it would turn the whole world against him, just after the US announced they were pulling out, which means he wins? The only group that would benefit from such an action would be the rebels. Assad continues to deny the chemical weapons claims, and we’re left with a narrative fraught with unanswered questions.
Sense of Relief in Russia After Syria Strikes (4.16.18)
History Repeating Itself Tucker Carlson Reacts to US Bombing Syria (4.15.18) Fox News https://www.youtube.com/watch?v=Ue_t_aG5tDk
Trump Orders Strikes on Syria Over Suspected Chemical Weapons Attack (4.13.18) NYT
https://www.nytimes.com/2018/04/13/world/middleeast/trump-strikes-syria-attack.html
Europe’s Boom Reawakens the Ghost of Crisis Past Debt (4.9.18) WSJ
https://www.wsj.com/articles/europes-boom-reawakens-the-ghost-of-crisis-past-debt-1523266203
China Installed Military Jamming Equipment on Spratly Islands, U.S. Says (4.9.17) WSJ https://www.wsj.com/articles/china-installed-military-jamming-equipment-on-spratly-islands-u-s-says-1523266320
Saudi Crown Prince Says Israelis Have the Right to Their Own Land (4.3.18) https://www.bloomberg.com/news/articles/2018-04-02/saudi-crown-prince-israelis-have-the-right-to-their-own-land
China Announces Military Alliance With Russia to Show Americans (4.3.18) Blaze
Putin Just Doesn’t Care About Western Anger (3.16.18)
Has the King of the East Now Taken His Throne China’s New Emperor for Life (3.6.18) Newsweek | http://www.prophecynewswatch.com/article.cfm?recent_news_id=2059
Angela Merkel Pays a Steep Price to Stay in Power (2.15.18)
https://www.bloomberg.com/news/articles/2018-02-15/angela-merkel-pays-a-steep-price-to-stay-in-power
Merkel Begins Last-Ditch Effort to Form Coalition Government (1.7.18) WSJ
https://www.wsj.com/articles/merkel-begins-last-ditch-effort-to-form-coalition-government-1515338103
As Turkey Invades, Kurds See Betrayal Once Again (1.23.18) WSJ
https://www.wsj.com/articles/as-turkey-invades-kurds-see-betrayal-once-again-1516709168
Turkey’s President Dismisses U.S. Call for Restraint Along Syria Border (1.22.18)
Behind Turkey’s Actions in Syria a Fear of Waning Influence (2.16.18) WSJ
https://www.wsj.com/articles/behind-turkeys-actions-in-syria-a-fear-of-waning-influence-1518810799
US-Turkey Ties at Crisis Point Over Syria, Top American Diplomat Says (2.16.18) WSJ https://www.wsj.com/articles/turkey-and-u-s-promise-to-work-together-over-tensions-but-offer-little-concrete-1518782228?tesla=y
The EU & the UK
Much to the chagrin of the EU, the UK is doing well. Bloomberg reported:
“Britain’s services sectors, making up the biggest part of the economy, saw growth improve this month, helped by a rebound at restaurants, bars and other consumer industries. Consumer services growth was the strongest in a year, while confidence also picked up. The WSJ wrote, “For a country supposedly crawling out of the ruins of the Brexit vote, the U.K. has been having a strikingly good year so far. The number of people working stands at a record high, and income inequality is approaching a 30-year low, according to the Office for National Statistics. New orders for manufacturers are at their highest level in a generation, and employers in general are struggling to find enough staff to cope with demand. Even the (relatively new) national happiness index stands at a peak.” Ultimately, I believe the UK will end up doing a hard Brexit, but will stretch out negotiations to the March deadline in 2019, because it will give them more time to prepare and cement new trade agreements with other nations.
The UK Is Doing Just Fine, Thanks (3.23.18) WSJ https://www.wsj.com/articles/the-u-k-is-doingjust-fine-thanks-1521819089
U.K. Consumer Services Grow at Fastest Pace in a Year, CBI Says (2.25.18) https://www.bloomberg.com/news/articles/2018-02-26/u-k-consumer-services-grow-at-fastest-pace-in-a-year-cbi-says
Brexit Rift Among Tories Revealed in Leavers WhatsApp Messages (3.10.18)
Globalism v Nationalism & the EU v Itself
There is a war going on all over the globe and Brexit, Trump’s election, EU elections trade tariffs are glaring examples of it. People are pushing back against globalism. The British want to be British, the Italians want to be Italian, the Germans want to be German the Americans want to be American. People don’t mind being a part of the world community, but they want to retain their history, culture and national identity. President Macron of France is trying to combat nationalism, by calling for expanded ties, European integration and a stronger European Union. His pleas are falling on deaf ears as most EU elections are resulting in leaders who want to move in the opposite direction. Even the powerful German Chancellor Angela Merkel took four months to form a very precarious coalition and functioning government. The WSJ reported, “Voters around Europe have also indicated little support for his broader European ambitions. Parties skeptical of the bloc have surged in recent years among voters worried about their economic security and fearful of immigration and rapid cultural changes.” The most recent example of this was the decisive election of Hungarian Prime Minister Viktor Orban (a leading figure of the nationalist right) on an anti-immigration, euroskeptic platform.
Trade wars are another example of nationalism, as nations direct their focus on their own economies, markets, labor forces and sovereignty. Being part of the world community and world commerce is important, but it’s more important to put your nation and its citizen welfare first in order to be a successful nation that provides for its citizens. The NYTs wrote: “Economic nationalism differs from free-trade ideology in having three distinct goals rather than one. The first isn’t discussed very often in a time of relative global peace: maintaining the industries necessary for prevailing in a large-scale war… The second goal of economic nationalism is the need to preserve a middle layer (class) in the nation’s economic order… The third goal of economic nationalism is if the price of national security and a durable, free middle class is a modest reduction in gross domestic product, the economic nationalist is willing to pay it.”
Macron Appeals for EU Unity in Face of Nationalism (4.17.18) WSJ
https://www.wsj.com/articles/macron-appeals-for-eu-unity-in-face-of-nationalism-1523979040
Hungary’s Orban Wins Fourth Term as PM (4.8.18) WSJ
Disillusionment Is Sweeping Eastern Europe (3.22.18)
Surge by Populists Leaves Italy Without Clear Victor (3.4.18) WSJ
The Case for Trump’s Tariffs and America First Economics (3.8.18) NYT https://www.nytimes.com/2018/03/08/opinion/trump-tariffs-economics.html
Has the King of the East Now Taken His Throne China’s New Emperor for Life (3.6.18) Newsweek | http://www.prophecynewswatch.com/article.cfm?recent_news_id=2059
Germany’s Oldest Party Drops Below Right-Wing Upstart in Poll (2.19.18) WSJ
https://www.wsj.com/articles/germanys-oldest-party-drops-below-right-wing-upstart-in-poll-1519064013
In Europe Separatists & Nationalists Are Sprouting Old Colors (1.3.18) WSJ
Conclusion
So what does the future hold? Simon Black shared some of the highlights of Bank of America CEO Jamie Dimon’s annual newsletter to shareholders, stating that the US is facing some serious economic headwinds and that the unwinding of quantitative easing could have unintended consequences. He also acknowledged that markets have a mind of their own, regardless of what fundamentals say and that he sees a real risk “that volatile and declining markets can lead to a market panic.” One must make decisions with great caution and wisdom in these times, as conventional indicators are no longer proving accurate in predicting market behavior.
IMF Spots Trouble Ahead for the Global Economy After 2020 (4.17.18)
The World’s Most Powerful Banker Sees Chance of Market Panic (4.5.18) SMC https://www.sovereignman.com/investing/the-worlds-most-powerful-banker-sees-chance-of-market-panic-23253/?utm_medium=email&utm_source=sm_notes&utm_campaign=notes&utm_content=201845_dimon
Saudi Crown Prince Says Israelis Have the Right to Their Own Land (4.3.18) https://www.bloomberg.com/news/articles/2018-04-02/saudi-crown-prince-israelis-have-the-right-to-their-own-land
South Africa’s New President Shuffles Cabinet, With an Eye to the Past (2.27.18)
Fulton's Perspective on Global Economies, Markets & Political Events 