Markets like earnings; Washington, not so much

  It was another week of volatility that saw stock averages bounce up and down within a well-defined range. It is what happens when investors are unsure of the future, but this period of uncertainty may be ending. Buoyed on the downside by good second quarter earnings thus far, but hemmed-in on the upside by political concerns, the markets have been marking time. Investors now believe that the Republicans are so disorganized that none of Trump’s initiatives will pass this year. If that were the case, traders believe the markets are too “rich.” If, on the other hand, Washington did get their act together, traders believe we could see 2,450 on the S&P 500 Index in quick order. I hate to say it, but time will tell. Technically, the S&P 500 Index came within 6 points of re-testing the intraday low it made on March 27th. I wrote last week that this re-test was likely to happen. Purists would say the re-test doesn’t count because the index never actually touched that low at 2,322.  And so we wait. It was Steve Mnuchin, the administration’s Treasury Secretary, who saved the day this week.  With the words “We’re pretty close” to bringing forward tax reform,” stocks soared on Thursday.  It just illustrates how keyed up investors are when it comes to the present debate in the nation’s capital. In a short period of time, investor sentiment has gone from everything that Trump wants will be done in his first 100 days to nothing he promised will ever get done, ever. Readers may agree that nether attitude is realistic. But that doesn’t...

Should college be free?

Recently, New York became the first state to offer a tuition-free college education to middle-class students at two and four year public colleges. Tennessee, Oregon and the city of San Francisco have also given similar benefits to students attending community colleges in their states. It’s about time. The headline of this column was taken from a series of articles I first published six years ago. At the time, I argued that the benefits of a college education today were about equivalent to the worth of a high school degree back in the 1940s and 1950s. Back then, graduating from high school opened the door to a good job, while creating a population of largely, law-abiding citizens (and guaranteed educated cannon fodder for the country’s military in time of war). Back in the day, when Thomas Jefferson first suggested creating a public school system, he and others like him argued that a free and common education would create good citizens, unite society and prevent crime and poverty.   It took decades before that concept became law but, once implemented, it worked as the founders expected. However, as society changed, a high school education was no longer sufficient. The computer age ushered in different educational demands and skill sets that students could only acquire in a higher-education environment.  For all intents and purposes, college (and vocational schools) has replaced high school as the entrance ticket to the “American Dream.” As such, I reasoned that since public high school education is free in the United States, why then should Americans pay for college? Under the New York legislation, tuition will be free for...

Markets wobble as geopolitical concerns escalate

This holiday weekend will be a worrisome one for global investors. Concerns that North Korea may decide to exhibit another show of force in the face of American warships off its coast has markets cautious and with good reason. The sad truth is that Kim Jong-un, the North Korean dictator, is unpredictable. It is one reason why the United States has steered clear of military confrontation with this country—up until now. If he does try something, like a nuclear missile test for example, our new president’s response may also be unpredictable. In fact, my hope is that China can exert pressure on its North Korean neighbor to stand down. In a remarkable shift in Chinese policy, a PRC-controlled media outlet warned North Korea this week that China would respond to any nuclear test severely. It could, for example, stop the flow of oil into North Korea. That would cripple North Korea’s already troublesome economy. It has also staged troops on its border with North Korea. I doubt they would use them but… Behind the scenes, President Trump and his Chinese counterpart, Xi Jinping, have been talking by telephone this week to diffuse the situation. Was there a little deal-making going on as well? It was probably not a coincidence that China voiced public displeasure with its long-term client state in the same week that Trump declined to name China as a currency manipulator ( something he had promised to do while campaigning). Adding to investor’s worries is the continued back-and-forth between the Russians and the Trump Administration over Syria. Evidently U.S. spyware had recorded Syrian officials discussing the planned...

Tense times in Trump land

The geo-political landscape is heating up. U.S. relations with Syria, North Korea, China and Russia are in turmoil as the Trump administration flexes its military muscle. None of it bodes well for the stock market. War cries and wealth are like water and oil. They don’t mix well. For investors, there are far too many unknowns, especially when U.S. warships are steaming toward the Korean Peninsula. In Syria, American troops were spotted alongside Jordanian Special Forces troops along the border, despite our president’s assurances that boots on the ground are out of the question. Actually, that isn’t quite true, since U.S. Special Forces have been operating alongside our Syrian allies for some time. Then there is Secretary of State Rex Tillerson’s visit to Moscow. This diplomatic venture is a follow-up to last week’s U.S. surprise tomahawking of one of Syria’s airbases. Tillerson will be using America’s new-found, willingness to use military might in order to further our diplomatic ends. In this case, to convince Putin to sever ties with Syrian dictator Bashar-al-Assad. In hindsight, all that media speculation about President Trump’s cozy relationship with Vladimir Putin seems somewhat far-fetched, given that Secretary of State Rex Tillerson (who was also thought to be buddies with Vlad) is reported to be pursuing a hardline against Putin’s failure to reign in its client state. On yet another front, it appears President Trump has had enough grief from the “Fat-Boy”– Chubby Kim Jong-un, grandson of the nation’s founder, Kim II-sung, In a duel of tweets, the dictator warned of “catastrophic consequences” from any U.S. military action, while “The Donald” warned that “North Korea...

Uncertainty descends upon the markets

Pick your poison—U.S.-Syrian strife, weak employment numbers, China-U.S. relations—those are just some of the issues investors had to contend with this week. Despite these potential roadblocks, the averages hung in there, losing little ground as the week closed. There was even more bad news, if you include the latest minutes of the Federal Reserve Bank’s FOMC meeting. There was much discussion among the members and a chorus of assent to begin the delicate task of reducing the Fed’s $4.5 trillion balance sheet later this year. Recall that the Fed bought mountains of U.S. Treasury bonds over the last eight years in an effort to keep interest rates low (and stimulate the growth of the economy). Now the bankers feel it may be time to start selling those bonds back into the market. They reason that the economy and the gains in employment are strong enough to weather such a move. Since this effort would be in addition to the two or three rate hikes already planned for later this year, investors are worried that even higher rates could provide an obstacle to further stock market gains. I remind readers that it is the path of interest rates this year, and not the success or failure of the Trump agenda that will worry me most. And speaking of the Trump agenda, Paul Ryan, the Speaker of the House, cautioned investors (just before taking a two week recess) that cutting taxes may take longer than expected. That did not play well on Wall Street either. As the week’s uncertainty continued to build, President Trump’s meeting on Thursday and Friday with his...