Most Recent Audio: 24 March 2017

David Fuller and Eoin Treacy's Free (Abbreviated)
Comment of the Day

The more detailed Subscriber's Comment of the Day becomes available for public access after 4 months.

Click HERE to see the most recent free Subscriber's Comment from 23 December, 2016

March 24 2017

Commentary by David Fuller

Time for Trump to Learn From Reagan

It’s crunch time in America. The financial markets surged on Donald Trump’s election, on the assumption that his economic policies would, on balance, be pro-growth. Yes, Wall Street rightly loathes protectionism and the tech industry in particular is opposed to proposed restrictions on immigration – but business as a whole hopes that the President’s policies on tax, healthcare, spending, banking, regulation, energy, infrastructure and, maybe even in time, monetary policy would be neo-Reaganite.

It’s still too soon to tell how all of this will pan out, but time is running out for the Trump administration on the economic front. It needs to get a lot more done a lot more quickly. There is, of course, healthcare reform. But the first real, tangible piece of good news has come from a very different area: there has now been some genuine movement on energy, with the Keystone pipeline authorisation. That is good news: the US needs to embrace all kinds of domestic energy production, and other countries should follow suit. The shale revolution 
has already transformed the US economy, which would be in a far weaker place without it.

But while Trump has delivered on energy, he will need to turbocharge the rest of his agenda if he wants to keep on side those in business and Wall Street who thought that, despite his many downsides, the new president would end up improving the US economy overall.

Reagan ought to be the Republican role model: a true believer in free market economics, he was a brilliant, lucid and powerful advocate for individual liberty. He cut marginal tax rates and simplified the tax system, while slashing the number of pages in the Federal Register from 70,000 in 1980 to 45,000 in 1986, as a note by Adam Slater from Oxford Economics reminds us.

He did what very few politicians manage: he genuinely took an axe to red tape, deregulated extensively and simplified what rules remained. By contrast, the regulatory burden rocketed under Barack Obama. The Fraser Institute’s index of economic freedom confirms that America became a more free-market and economically liberal economy during the 1980s; in recent years, it has fallen back drastically.

David Fuller's view

Many of Trump’s economic policies are not that different from Reagan’s.  However, Trump should have prioritised economic policies from the first days of his administration, rather than wasting his initiative on political disputes and repealing Obama’s healthcare programme.  This has been politically divisive, while policies for economic stimulus would have had much more cross-party support.  They may be harder to pass in future.     

Ironically, perhaps today’s realisation by Trump and Paul Ryan that they do not currently have sufficient support to repeal the Affordable Care Act cause them to refocus on policies for increasing GDP.

This section continues in the Subscriber's Area. Back to top
March 24 2017

Commentary by David Fuller

AP Analysis: Trump Young Presidency Perilously Adrift

Here is the opening of this assessment by The Associated Press:

WASHINGTON — Just two months in, Donald Trump's presidency is perilously adrift.

His first major foray into legislating imploded Friday when House Republicans abandoned a White House-backed health care bill, resisting days of cajoling and arm-twisting from Trump himself. Aides who had confidently touted Trump as the deal's "closer" were left bemoaning the limits of the presidency.

"At the end of the day, you can't force somebody to do something," White House spokesman Sean Spicer said.

On its own, the health care bill's collapse was a stunning rejection of a new president by his own party. And for Trump, the defeat comes with an especially strong sting. The president who campaigned by promising "so much winning," has so far been beset by a steady parade of the opposite. With each setback and sidetrack, comes more concern about whether Trump, the outsider turned president, is capable of governing.

"You can't just come in and steamroll everybody," said Bruce Miroff, a professor of American politics and the presidency at the State University of New York at Albany. "Most people have a modest understanding of how complicated the presidency is. They think leadership is giving orders and being bold. But the federal government is much more complicated, above all because the Constitution set it up that way."

David Fuller's view

This latest article is very good and expands on some of the points made in response to earlier reports above.

The US economy is well known for performing despite the background of ineffective central governance. Nevertheless, it would be better if this was not put to the test too frequently. US GDP growth would be easier to increase and sustain with an economically savvy White House which also had a chance of uniting the country, as we saw with Ronald Reagan.   

This section continues in the Subscriber's Area. Back to top
March 24 2017

Commentary by David Fuller

Moodys Warns Scotland Exit Could Leave Country Facing Junk Rating

Here is a brief section of this story from Investment Week:

Commenting on the potential for Scotland to become independent, Colin Ellis, chief credit officer for EMEA at Moody's, has warned the country would face "downward pressure" on its finances in the event of independence, according to The Times.

The warning comes as lower oil price, currently sitting at around $55 a barrel, have left Scotland facing a large budget deficit and worse off financially than before the previous referendum in September 2014. 

Back in 2014, when the oil price was above $100, an independent Scotland could have received a rating between A and Baa, placing it within the investment grade bracket.

However, Moody's Ellis said current circumstances could see Scotland's rating drop to Ba, a junk status (also known as sub-investment grade), which would place it on a par with Azerbaijan and Guatemala.

David Fuller's view

Governance is Everything has long been a mantra at this service.  Unfortunately for Scotland, it has the worst governance in the UK, evidenced by everything from its weak economic performance, rising debt and deteriorating educational system, documented in earlier articles posted on this site. 

That will eventually change through the democratic process, although not as quickly as it might with stronger opposition.

This section continues in the Subscriber's Area. Back to top
March 24 2017

Commentary by David Fuller

The Markets Now

Monday’s seminar in The Caledonian Club’s excellent Morrison Room on the ground floor is now fully booked.

David Fuller's view

We have another interesting list of experienced delegates and certainly not just from London. In fact, they are attending from far and wide. 

I am looking forward to another lively and enjoyable evening, which will now include a short presentation from a fourth speaker well known to Iain Little.

Among markets, technology has never been more interesting in our lifetime so Charles Elliott’s latest comments will be most welcome. 

 

Please note: I will be away on Monday with The Markets Now preparations and also on Tuesday for a minor corrective medical procedure. 

This section continues in the Subscriber's Area. Back to top
March 24 2017

Commentary by David Fuller

GOP Health-Care Bill: House Republican Leaders Abruptly Pull Their Rewrite of the Health-Care Law

House Republican leaders abruptly pulled a Republican rewrite of the nation’s health-care system from consideration on Friday, a dramatic acknowledgment that they are so far unable to repeal the Affordable Care Act.

“We just pulled it,” President Trump told the Washington Post in a telephone interview.

The decision came a day after Trump delivered an ultimatum to lawmakers — and represented multiple failures for the new president and House Speaker Paul D. Ryan (R-Wis.).

The decision means the Affordable Care Act remains in place, at least for now, and a major GOP campaign promise goes unfulfilled. It also casts doubt on the GOP’s ability to govern and to advance other high-stakes agenda items, including tax reform and infrastructure spending. Ryan is still without a signature achievement as speaker — and the defeat undermines Trump’s image as a skilled dealmaker willing to strike compromises to push his agenda forward.

“I don’t blame Paul,” Trump said, referring to Ryan.

Rep. Bradley Byrne (R-Ala.), who planned to vote for the legislation, said that Friday would have been the “first big vote in the presidency of Donald Trump. I think it’s a statement, not just about him and the administration, but about the Republican Party and where we’re headed.”

“So much about political power is about perception. And if the perception is that you can’t get your first big initiative done, then that hurts the perceptions down the road about your ability to get other big things done,” Byrne said in an interview before the decision.

The decision came hours after Ryan visited the White House to warn Trump that despite days of intense negotiations and sales pitches to skeptical members, the legislation lacked the votes to pass.

Trump had personally lobbied 120 lawmakers, either in person or on the phone, White House press secretary Sean Spicer reminded reporters on Friday. The president had “left everything on the field,” Spicer said.

David Fuller's view

Trump has a steep learning curve as President.  This is not surprising as he has never held public office before.  He needs to learn how to be a better politician, including trying to reverse his declining ratings with the public. That will not be easy, although it is very important.  He also needs to ensure that his next important bill passes. 

This section continues in the Subscriber's Area. Back to top
March 24 2017

Commentary by Eoin Treacy

March 24 2017

Commentary by Eoin Treacy

Populism: The Phenomenon

Thanks to a subscriber for this report by Ray Dalio for Bridgewater which expounds on a number of examples of populism over the last century. Here is a section:

Populism is a political and social phenomenon that arises from the common man, typically not well-educated, being fed up with 1) wealth and opportunity gaps, 2) perceived cultural threats from those with different values in the country and from outsiders, 3) the “establishment elites” in positions of power, and 4) government not working effectively for them. These sentiments lead that constituency to put strong leaders in power. Populist leaders are typically confrontational rather than collaborative and exclusive rather than inclusive. As a result, conflicts typically occur between opposing factions (usually the economic and socially left versus the right), both within the country and between countries. These conflicts typically become progressively more forceful in selfreinforcing ways.

Within countries, conflicts often lead to disorder (e.g., strikes and protests) that prompt stronger reactions and the growing pressure to more forcefully regain order by suppressing the other side. Influencing and, in some cases, controlling the media typically becomes an important aspect of engaging in the conflicts. In some cases, these conflicts have led to civil wars. Such conflicts have led a number of democracies to become dictatorships to bring order to the disorder that results from these conflicts. Between countries, conflicts typically occur because populist leaders’ natures are more confrontational than cooperative and because conflicts with other countries help to unify support for the leadership within their countries. 

In other words, populism is a rebellion of the common man against the elites and, to some extent, against the system. The rebellion and the conflict that comes with it occur in varying degrees. Sometimes the system bends with it and sometimes the system breaks. Whether it bends or breaks in response to this rebellion and conflict depends on how flexible and well established the system is. It also seems to depend on how reasonable and respectful of the system the populists who gain power are. 

In monitoring the early-stage development of populist regimes, the most important thing to watch is how conflict is handled—whether the opposing forces can coexist to make progress or whether they increasingly “go to war” to block and hurt each other and cause gridlock.

Classic populist economic policies include protectionism, nationalism, increased infrastructure building, increased military spending, greater budget deficits, and, quite often, capital controls.
In the period between the two great wars (i.e., the 1920s-30s), most major countries were swept away by populism, and it drove world history more than any other force. The previously mentioned sentiments by the common man put into power populist leaders in all major countries except the United States and the UK (though we’d consider Franklin D. Roosevelt to be a quasi-populist, for reasons described below). Disorder and conflict between the left and the right (e.g., strikes that shut down operations, policies meant to undermine the opposition and the press, etc.) prompted democracies in Italy, Germany, Spain, and Japan to choose dictatorships because collective/inclusive decision making was perceived as tolerance for behaviors that undermined order, so autocratic leaders were given dictatorial powers to gain control. In some cases (like Spain), strife between those of conflicting ideologies led to civil war. In the US and UK, prominent populist leaders emerged as national figures (Oswald Mosley, Father Charles Coughlin, Huey Long), though they didn’t take control from mainstream parties. 

 

Eoin Treacy's view

A link to the full report is posted in the Subscriber's Area. Fiscal austerity is a hard pill to swallow. Whether it is for people who lost their homes during the USA’s credit crisis or those who had wages and benefits slashed as a result of the EU’s banking and associated sovereign debt crisis. 

Generally speaking the best outcomes arise when fiscal austerity is associated with a major currency devaluation. That way the boost to competitiveness softens the economic blow while the austerity bred reforms cement the potential for future growth. 

This section continues in the Subscriber's Area. Back to top
March 24 2017

Commentary by Eoin Treacy

Juncker Puts Price on Brexit as Italy Offers Early Trade Talks

This article by Tim Ross for Bloomberg may be of interest to subscribers. Here is a section:

“We have to calculate scientifically what the British commitments were and then the bill has to be paid,” he said.

Asked if the bill will be 50 billion pounds, which is about 58 billion euros, Juncker replied: “It’s around that.”

May plans to launch Britain on a two-year process of negotiations to quit the EU on March 29, by triggering Article 50 of the bloc’s Lisbon Treaty. The size of Britain’s exit bill will be among the first -- and most contentious -- topics for discussion, with British ministers indicating they do not believe the U.K. is liable for such a large sum.

Juncker’s statement is the clearest indication from the commission of the size of the bill, and is in line with an estimate cited by Austrian Chancellor Christian Kern last month.

So far, the EU’s chief Brexit negotiator, Michel Barnier, has argued that the terms of the divorce, including the size of the bill, must be settled first, before any negotiations over the new trading relationship between the U.K. and the EU can begin.

Britain wants talks on the exit and a new free trade deal to run simultaneously -- and its argument received a boost on Friday when the Italian government said the two sets of talks could “overlap” to some extent.

“We will be at the end of the exit negotiation and at the same time we can start the new deals on trade, and we hope also for example on security,” Italian junior minister for European Affairs Sandro Gozi said in a Bloomberg TV interview.

 

Eoin Treacy's view

As far as I can make out the net figure for what the UK contributes to the EU every year is less than £10 billion, at least according to the figures quoted here.   Therefore, the £50 billion the EU is hoping for represents between five and seven years lost income. 

This section continues in the Subscriber's Area. Back to top
March 24 2017

Commentary by Eoin Treacy

Email of the day on lengthy bond market top formations

We may not be done with the bull market in bonds, or at least a very extended period of ranging if this article has merit. It is publicly available so ok to post. Would appreciate your comments 

Eoin Treacy's view

Thank you for this article which may be of interest to subscribers. I too think of the declining velocity of money as a headwind to inflationary pressures getting out of control. However this image of what they consider low interest rates, as below 4.5% is an average level over the last century rather than what might be considered low. 

This section continues in the Subscriber's Area. Back to top
March 24 2017

Commentary by Eoin Treacy

Mubarak, Egypt's toppled Pharaoh, is free after final charges dropped

This article by Lin Noueihed may be of interest to subscribers. Here is a section:

The overthrow of Mubarak, one of a series of military men to rule Egypt since the 1952 abolition of the monarchy, embodied the hopes of the Arab Spring uprisings that shook autocrats from Tunisia to the Gulf and briefly raised hopes of a new era of democracy and social justice.

His release takes that journey full circle, marking what his critics say is the return of the old order to Egypt, where authorities have crushed Mubarak's enemies in the Muslim Brotherhood, killing hundreds and jailing thousands, while his allies regain influence.

Another military man, Abdel Fattah al-Sisi, stepped into Mubarak's shoes in 2013 when he overthrew Mohamed Mursi, the Brotherhood official who won Egypt's first free election after the uprising.

A year later, Sisi won a presidential election in which the Brotherhood, now banned, could not participate. The liberal and leftist opposition, at the forefront of the 2011 protests in Cairo's Tahrir Square, is under pressure and in disarray.

Years of political tumult and worsening security have hit the economy, just as Mubarak always warned. Egyptians complain of empty pockets and rumbling bellies as inflation exceeds 30 percent and the government tightens its belt in return for loans from the International Monetary Fund.

 

Eoin Treacy's view

Egypt might not have oil but it is strategically important and has a large young population. The release of Mubarak and return to a business as usual stance by the Al-Sisi administration is unlikely to do anything to quell the disaffection of protestors and it would appear to be only a matter of time before they regroup. 

This section continues in the Subscriber's Area. Back to top
March 24 2017

Commentary by Eoin Treacy

The Chart Seminar 2017 - Singapore venue confirmed

Eoin Treacy's view

The Chart Seminar 2017 

Our venues for the 48th year of the seminar are:

Singapore April 12th and 13th at the M Hotel
London November 16th and 17th TBA

The CFA Institute has once more agreed to co-host the Singapore event and I will also provide certificates for continuous professional development to anyone who wants one. 

I now also have some copies of the Mandarin edition of Crowd Money so please specify which version you would like to receive at the seminar when booking. 

If you are interested in either of these venues or would like to suggest a venue please contact Sarah at [email protected]  I would be more than happy to plan a US based seminar next year if we have the critical mass to make it viable and I will be stopping off in Japan on the way back from the seminar in Singapore if there is any interest for an event in Tokyo.

The full rate for The Chart Seminar is £1799 + VAT. (Please note US, Australian and Asian delegates, as non EU residents are not liable for VAT). Subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.

This section continues in the Subscriber's Area. Back to top