Markets mark time

Some stock indexes made new highs again this week but overall the averages finished where they started on Monday. Next week could be different. Washington politicians will take center stage as investors await further information on the administration’s idea of tax reform. So far, there has been a lot of hyperbole but not much substance. Supposedly, some meat will be added to Trump’s bare bones ideas on Tuesday or Wednesday. And then there is what some call the “Senate’s last gasp” on health care reform. The legislation, authored by two Republicans, Lindsey Graham of South Carolina and Bill Cassidy of Louisiana, would repeal central elements of the Affordable Care Act (ACA). States would get block grants instead. The nation’s governors are divided in their support. If readers are confused on how and why this latest plan has suddenly been scheduled for a vote before October 1, here’s the reason. A few months ago, Republicans successfully labeled the repeal and replacement of the nation’s health care law as a “fiscal” goal. As such, it could then be part of a process known as budget reconciliation. Why is that important? Budget reconciliation allows certain “fiscal” measures to pass with a simple majority (which the Republicans have in the Senate). And not the usual 60 votes required (which they don’t have).  However, the deadline for this budget reconciliation expires September 30. After that, they have little chance without the Democrats’ support to repeal and replace the ACA. The hope that there might be some progress on the president’s campaign promises has buoyed the market in the face of adversity. Next week’s success...

New NK missile lands with a dud on Wall Street

The North Korean boy who cried wolf is alive and well, but seems to have less and less impact on financial markets. Kim Jong Un’s minions launched another missile over Japan last night and the markets simply yawned. Geo-politics are always a risk for the financial markets. For one thing, they are by definition unpredictable. Rarely do the antagonists worry about the economic and financial ramifications of their moves. As such, markets react quickly, but usually the impact only lasts for a short period of time. It seems that even our tweet-happy president is learning that, in this case, Kim Jong Un, the boy in the wolf’s mask, has a bark that is far worse than his bite. Have you noticed that none of those missiles hit anything? That is not by accident. Unlike the majority of Americans, I do not think Kim is either a madmen or stupid. Far from it. I believe he is a calculating despot whose single-minded purpose is to attain a seat at the table among the world’s nuclear power brokers. His missile tests are intended to do just that. He needs to demonstrate to the world that not only does he have the capability to manufacture nuclear bombs, but also the ability to deliver them in a consistent manner. His scientists and military, aided and abetted by technology from other nations, will continue firing missiles into the sea and testing nuclear devices underground until the world is convinced that he can do it. Only then, with a seat at the table as an equal, will Kim be willing to negotiate. While North Korea...

Markets brace for the weekend

Usually, the weekend is a time when traders try to relax, reduce stress, and prepare for the coming week’s markets. This weekend will be an exception to that rule. Just about everyone is focused on the latest news of Hurricane Irma’s landfall in southern Florida tomorrow and into Sunday. Over in Southeast Asia, analysts are also expecting North Korea to fire off yet another missile. Exactly where and when is up in the air. As if that were not enough, an earthquake and Hurricane Jose both hit Mexico simultaneously last night causing quite a lot of damage. Investors have no idea what economic impact these natural disasters will have on the North American economy. As for Kim Jong Un, there is always the possibility that an “accident” could happen, setting off World War III. So it is not surprising that the stock market has gone nowhere this week. About the best you can say was that the averages were mixed. The only good news seemed to be that the debt limit was passed as part of a bill that provided the first flood relief money to beleaguered Houston. That surprised many, since the deal was forged by President Trump and the Democratic leadership. Facing a protracted battle within his own party, Trump reached across the aisle for the first time in his presidency. The results were surprisingly quick and altogether positive. Of course, the rank and file within the Republican Party were at first surprised, and then angry, since they were gearing up for a protracted struggle within their own party. The various GOP splinter groups were planning on...

Markets scale a wall of worry

Hurricanes, floods, fires, even missiles could not deter financial markets this week. Instead, investors chose to pin their hopes on tax reform, or at least a tax cut. What are the chances of that happening this year? No more than 50/50 for a tax cut; far less, if you are counting on tax reform. Yesterday’s column examined the pros and cons of both, so I won’t dwell on it. If you missed it, you can always find the article on www.afewdollarsmore.com. Nonetheless, all of the President’s men were on stage this week promising not only tax cuts, but tax reform and that it will happen by the end of this year. The market’s resilience was even more impressive given the devastation that is occurring in Texas. All week the national news channels broadcast the heartache and tragedy, as well as the heroism and determination, of those who live in the great state of Texas. Now let’s hope that our legislatures come through with the aid these people so desperately need. The price tag for Harvey keeps climbing, with the latest estimates surpassing $190 billion. That would make it the costliest natural disaster in U.S. history. If that is true, a whole host of issues come to the forefront. What kinds of dents will that put into GDP economic forecasts? Houston, after all, is the fourth largest city in the nation. How does the extra money needed for Texas and Louisiana impact tax cuts or the deficit? Will the Fed put off hiking rates because of it? More trouble from North Korean missile tests in the beginning of the week...

September is chock full of risk

Debt ceilings, government shutdowns, Fed rate hikes—it’s all coming to a head starting next week. Get ready for some volatility. September is usually a tumultuous month for the financial markets and this one should be no different. The Fed may well raise interest rates again. That could be a non-event or it could cause concern. That’s always a crap shoot. In addition, politics will move front and center in investors’ psyche as Congress addresses the need to raise the nation’s debt ceiling once again. If Congress fails to comply, the country will be unable to pay its debt, in effect, defaulting on the interest payments that so many around the world expect and depend upon. Readers may recall the 2011 debacle when the stock market plunged about 11% in two months as partisan politics swamped any rational approach to raising the nation’s borrowing limits. The Republican Tea Party, convinced that government spending was out of control, insisted that they would not go along with an increase in the debt ceiling without spending cuts. It was finally resolved when both sides agreed to pass the Budget Control Act. In exchange for raising the debt ceiling by $400 billion (or a total of $14.7 trillion), $900 billion in both defense and social welfare spending cuts were mandated over the next ten years. It turned out to be a pyrrhic victory for both sides. At the time, The Federal Reserve Bank was single-handedly trying to stave off recession and grow the economy through monetary policy. They had been pleading with Congress to help by increasing fiscal spending. Congress did the opposite. As...

When bad news is bad news

A confluence of events makes the financial markets susceptible to further declines. It won’t be the end of the world, but it might feel like it. The volatility could drag on for several weeks or even months. So suck it up and sit tight. This week the markets did exactly what we predicted: up on Monday, ( in what I call a “dead cat bounce” ), followed by two days of indecision, and then down again Thursday. I expect that kind of pattern to prevail as we enter a period where bad news is bad news. You could say investors are facing a “perfect storm” that will blow us hither and yon throughout the next month or two. Let’s review the forecast. Have you noticed that since the Trump Election, no matter how bad the news, or outrageous the comments from the White House, the markets continued to rise? Essentially, the markets climbed this wall of worry making new highs, after historical new highs. Despite North Korea, the failure of healthcare legislation, the postponement of tax reform (now only a tax cut), delays in infrastructure spending, the slow to no building of the “Great Wall,” and so on and so on, the market’s cup remained half full. That changed this week. Readers are aware that I never believed in the “Trump Rally.” But I did believe in a growing economy, declining unemployment, stronger earnings, and a Fed that remained in a moderate mood. Once again, we witnessed strong earnings growth in the second quarter with the S&P 500 index of companies reporting on average 10.2% gains. Sales growth was...