Congress’s comedy of errors

Volatility was back in the markets this week as traders watched the House of Representatives wrestle to repeal and replace the Affordable Care Act. As failure after failure marked the progress of the new bill, some wondered if this might be a hint of what the future might be under the Trump Administration. Given that this is really the first piece of legislation the new Republican Congress and White House has introduced, it might not be fair to judge the next four years by this week’s performance by our new legislators. Much that could go wrong did go wrong, but there is still a chance that something may be passed before the weekend. What confounds me is that Republicans have had seven years to come up with an alternative to Obamacare. For seven years, they have been demanding the end to the Democrats’ first attempt at providing insurance to millions of Americans and Donald Trump campaigned on his promise to repeal Obamacare. One might have assumed that Speaker of the House Paul Ryan’s alternative plan would therefore be the blueprint for change that all Republicans could get behind. That was the smoke and mirrors that was sold to the public. This week’s antics revealed that the majority of Republicans were nowhere near ready to back his plan.  Some want to simply ditch the whole effort. Others want to moderate the most draconian parts of the proposal, while still others simply want a new plan altogether. On Thursday night, after the House failed to vote on the plan (because the votes weren’t there for passage), President Trump lost his patience...

Don’t worry, be happy

It is official: the happiest country in the world is Norway, with Denmark the runner-up, according to the World Happiness Report. What lessons can we learn from this survey and what, if anything, should we do as a nation to join their ranks? Where, you might ask, do we here in the U.S. rank? The answer would be number 14, down from number 3 in 2007. The least happy inhabitants on earth appear to be in Africa while the average Chinese person is no happier than he was 25 years ago, despite the country’s much-lauded economic miracle. How do a pair of tiny countries stay so happy for so long? It sure isn’t the weather, where it is so cold that summers require overcoats and the days can last so long that they keep tourists complaining about lack of sleep. Or is it? Clearly, the people there have a lot of money. Norway, for example, is the sixth wealthiest country in the world. They can thank the North Sea’s oil discoveries 40 years ago for that. Denmark also has a high GDP per capita, but so do we, and yet we placed far lower. One answer is what these people actually do with their money. These countries make it a priority to give their citizens economic security. Take health care, for example. While our government is in the throes of reducing the number of Americans who will be insured through health-care, in Norwegian society citizens pay a maximum of $300/years for doctors, hospitals, and other medical services. After that, the government pays for everything for that year. In addition,...

Fed rate hike sets the stage for more

This week the Federal Reserve hiked interest rates again. That’s two times in as many quarters. Back in the day, the markets would have swooned. This week they did the opposite. What gives? The short answer is investors believe both the economy and inflation are beginning to accelerate, so the Fed has every right to reduce the gas and ease its foot off the monetary pedal. There is, after all, no need to keep interest rates at historically low levels at this point. That’s good news, after buoying both the economy and the financial markets through several years of anemic growth and worries over deflation. It is one explanation for why the stock market has climbed to record highs. Another would be that with Donald Trump in the White House and Republicans a majority in Congress, most investors believe only good things are ahead of us on the economic front. So tell me something I didn’t know. Well, for starters these interest rate rises (with more to come) signal a new economic era in this country and possibly the world. After a race to the bottom in bond yields worldwide, our central bank has now reversed course. It is only a matter of time, I believe, before the rest of the world’s central bankers follow suit. Historically, rising interest rates have provided headwinds for the stock markets. Looking back, about the best that can be said was that stocks do okay for the first two years in a rising rate environment, as long as interest rates rise gradually and each rise is moderate. Call it the “goldilocks” version of...

Trump’s budget

It was late, “skinny,” and guaranteed to send Washington lawmakers up a wall. President Trump’s first crack at a budget, released on Thursday, makes drastic cuts to many sacrosanct departments and programs while boosting spending in others. If you haven’t strapped in quite yet, now is the time to do so. The president’s 53-page budget (less than half of his predecessor’s lean, 134 pages) makes dramatic cuts to departments such as the Environmental Protection Agency (-31%) and the State Department (-28%), while increasing defense spending by $54 billion. Areas that would also be hit hard were foreign aid, grants to multilateral development agencies such as the World Bank and United Nation’s climate change initiatives. Clearly, “America First” was front and center in making these decisions. Here at home, renewable energy research and carbon dioxide emissions reductions would also be jettisoned, if the President gets his way. The Agricultural Department, a bastion of American protectionism, was cut by 21%. It would see loans and grants for wastewater slashed, headcount reduced, and a program that gives U.S. farmers tax credits by donating crops for overseas food aid would disappear. Nineteen organizations that count on federal funds for support such as public broadcasting and the arts would cease completely. Home heating subsidies,  clean-water projects and some job training would also go by the wayside. The Housing Department’s community development grants, along with 20 Education Department programs, including some funding programs for before and after school programs, felt the axe. Anti-poverty programs were targeted as well. In contrast, defense spending will be boosted by $54 billion, money for Vets would increase six percent...

Mushy markets in March

Investors took a break this week from the on-going Trump rally, even as the pace of change in Washington seems to be accelerating. Both the financial downside and political upside should be positive for your investment portfolio overtime. The minor consolidation I have been expecting in the stock market began this week. The averages have pulled back a little, but the S&P 500 Index, for example, has loss less than one percent from its all-time highs. That’s not exactly the end of the world… I see a meandering two steps back, one step forward, kind of market with the downside risk somewhere between 2,300 and 2,330 on the S&P 500 Index. That would equate to about a 4% move. As pullbacks go, that would be minor and necessary given the stupendous gains we’ve seen since November. Some readers, mostly Trump-haters, (and there are a lot of them in this neck of the woods) have asked why I am so positive on the markets right now. It’s simple: hope is a powerful motivator for stock market investors. So far, that hope has been justified. The repeal of Obamacare was one of the new president’s major campaign pledges. This week, Congress began work on repealing and replacing the Affordable Care Act (see yesterday’s column “America’s road toward universal healthcare.” Not bad, for a president who has only been in office for 49 days. His trillion dollar infrastructure project campaign pledge was this week’s focus in the Oval Office. Work is also progressing on federal cost-cutting, while regulation after regulation is coming under scrutiny from cabinet members/businessmen who, by their very nature,...