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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. read more…
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 is looking for trouble” and that we would “solve the problem” with or without Chinese help.
Both sides have backed up these words with firepower. The U.S. response, in the form of an aircraft carrier and three guided-missile destroyers, is heading for North Korea while China has amassed 150,000 troops on its border with North Korea. In addition, Chinese medical and back-up units have been stationed on the Yalu River in support of the People’s Liberation Army. Most military strategists believe that April 15 might be the day when things could heat up. It is the 105th anniversary of Kim Long-un’s grand pappy. It could be an auspicious date too for “the Fat-boy to brandish the puppet state’s military might.
While all this is going on the markets have grown increasingly restive. The threat of war is normally a time when investors seek safety. Safe-haven plays such as gold, U.S. Treasury bonds and the U.S. dollar benefit from these concerns. They have done so this week. About the only good thing that can be said for these tense times is that they don’t last too long.
If tension escalates, stocks usually fall fast over the course of a few days. If, as has happened in the past, geo-political events resolve themselves, markets recoup their losses in an equally short time. Since the new administration appears to be trying to remove two thorns in our side simultaneously, the chances of further tension seem high. My advice is not to panic. Hang in there and remember that this too shall pass.
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 Chinese counterpart, Xi Jinping, had everyone biting their nails. Would there be a trade war? Would China agree to reign in their client state, North Korea? Of course, in predictable fashion, the psycho who runs that country, Kim Jong Un, chose this week to shoot missiles into the sea off the coast of Japan.
And just when Wall Street thought tensions could not get any higher, “The Donald” drops 59 Tomahawk missiles on top of a Syrian airbase in retaliation for the gassing of innocent people by that country’s resident psycho, Bashar al-Assad. This U.S. strike took place in the middle of Trump’s state dinner with Premier Xi. Talk about drama!
Overnight, stock index futures took a drubbing, but regained almost all of their losses by the time the markets opened in the U.S. on Friday morning. But then, the non-farms payroll report was released. Only 98,000 jobs were added in the month of March, while economists’ estimates were in the 175,000 jobs gained vicinity. That took the wind out of the bull’s sails once again.
Yet, here we sit with only minor declines on the day once again. That tells me two things. That the pullback I predicted several weeks ago is still working its way through the markets. That is a good thing. We could still drop another 2-3% from here. All-in, I have been expecting a 5-6% decline. To date, we have only experienced about half of that.
Number two, it bolsters my belief that the market’s shallow decline will be followed by more upside. The markets have had every excuse to “crater” this week, but each time they fell, buyers appeared. There has been no panic, no sell-at-any-cost price orders that might indicate a more serious decline.
Both the bulls and the bears are hoping for more downside right now. The bears want to be vindicated in their belief that the markets are overvalued and overdue for a correction. My sense is that even the bears only want to make a little money, close their shorts, and then “go long” stocks. The bulls simply want to add to their existing positions, preferably at a cheaper price.
“Highway to the danger zone
Gonna take you Right into the danger zone”
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