‘Live’ from Trump Tower, New York…

  • Poor George
  • It’s over
  • The ‘Big One’
  • Big Red

Before we head back home from our trip to Baltimore, we’re stopping for one night in New York.

Late this afternoon, we strolled from our hotel, up Fifth Avenue, to the location of Trump Tower.

Talk about security. It appears you can’t walk into, or even past, the Trump Tower on the same side of Fifth Avenue without going through a bag search procedure. Metal fences are in place, as are tens, if not hundreds, of New York cops.

Despite the risks, your editor decided to take a ‘happy snap’ from across the street:



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By the time we had arrived at Trump Tower, president-elect Donald Trump was long gone. He had flown from La Guardia Airport around 11:00am to go to Washington DC for Friday’s inauguration ceremony.

Depending on the security situation tomorrow, your editor will do his level best to be at the Trump Tower on the dot of noon to soak in the atmosphere…and hopefully to not soak in any Molotov cocktails…

Markets

Overnight, the Dow Jones Industrial Average fell 72.32 points, or 0.37%.

The S&P 500 fell 8.2 points, or 0.36%.

In Europe, the Euro Stoxx 50 index closed down 3.67 points, for a 0.11% drop. Meanwhile, the FTSE 100 fell 0.54%, and Germany’s DAX index lost 0.02%.

In Asian markets, Japan’s Nikkei 225 index is up 15.28 points, or 0.8%. China’s CSI 300 is down 0.36%.

In Australia, the S&P/ASX 200 is down 39.58 points, or 0.7%.

On the commodities markets, West Texas Intermediate crude oil is US$51.53 per barrel. Brent crude is US$54.16 per barrel.

Gold is trading for US$1,203.33 (AU$1,591.10) per troy ounce. Silver is US$16.97 (AU$22.45) per troy ounce.

The Aussie dollar is 75.61 US cents.

Poor George

Sticking with the subject of Trump, one investor at least isn’t bullish when it comes to a Donald Trump presidency. That investor is George Soros.

As Bloomberg reports:

It’s tough to be gloomier than billionaire George Soros right now.

America has elected a would-be dictator as president, the European Union is disintegrating, U.K. Prime Minister Theresa May won’t last long as her nation prepares to secede from the EU, and China is poised to become an even more repressive society, the investor told Bloomberg Television’s Francine Lacqua from the World Economic Forum in Davos…

Soros has particularly harsh words for U.S. President-elect Donald Trump, who will be inaugurated on Friday. Calling Trump a “con man,” Soros said the billionaire will fail because his ideas are contradictory and his White House advisers and cabinet members will fight with each other, an apparent reference to the conflicting views expressed during Senate confirmation hearings. The stock market rally since the November election, spurred by Trump’s promises to slash regulations and boost spending, will come to a halt, Soros said…

Soros’s pessimism has been costly to him. He lost nearly $1 billion as a result of the rally spurred by Trump’s surprise win, the Wall Street Journal reported earlier this month. The octogenarian’s wagers became more bearish immediately after Trump’s victory, but the S&P 500 Index has jumped 5.8 percent since Election Day.

Poor George. Although it might have been good for Bloomberg to disclose that Soros was a major financial backer of the Hillary Clinton election campaign.

So it’s no wonder he’s feeling a little bit blue over Trump’s rise to the top job.

But the idea that a ‘Trump Bump’ may turn into a ‘Trump Slump’ isn’t something only Soros believes.

The same notion came up at the Agora Economics roundtable this week. The market has skyrocketed since November, purely on the hope that Trump will provide huge stimulus to the economy.

Not just a big wall along the Rio Grande either. But big projects…the biggest and the best. Although, quite what those projects will be is unclear.

As much as Trump has talked up the prospect of spending big, so far he’s talked down spending too — especially when it comes to government spending on pharmaceuticals and military contracts.

That last one alone seems to fly in the face of Trump’s claim that he’s going to spend on the military in order to maintain and improve its ‘superpower’ status.

And remember something else, too: One of the reasons the US Federal Reserve raised its forecast for interest rate increases was due to the prospect of increased government spending.

The theory is that, if the government plans to borrow and spend, the Fed no longer needs to keep interest rates close to zero.

So, if Trump and his government don’t, or can’t, borrow and spend…what does that mean for interest rates? It could mean rates head back down again. Perhaps that’s why one of our guests at the Agora Economics roundtable, Dr Jim Walker, from Asianomics Group, is bullish on US bonds.

A prescient trade? It could very well be.

It’s over

A quick aside on Dr Walker. He had this to say during his presentation on Wednesday:

Forget the stories about a major revival in resources. That era is over.

Aussie investors should take note.

The ‘Big One’

More on the Trump front. In this case, his Treasury Secretary nomination, Steven Mnuchin (you pronounce the M as if you’re about to say ‘Monday’, and then follow it with ‘noochin’. So, ‘Mu-noochin’. Got it? Good. We’ll proceed).

As Bloomberg reports:

U.S. Treasury Secretary nominee Steven Mnuchin said during his Senate confirmation hearing he’s willing to label China as a currency manipulator if warranted, after President-elect Donald Trump backed away from his pledge to do so immediately.

Ah, the currency wars. It’s been a while since that has been on the front page.

But this just goes to show that the currency wars are an ongoing battle. And it’s not about to end anytime soon.

It’s why we’re going all-in with the premium investment advisory that we believe is best placed to help Aussie investors play the ongoing currency wars.

We’ll explain more about it next week. But what I can tell you is that it’s part of our Jim Rickards ‘franchise’ of investment services. The unique aspect of this service is that our analysts will use Jim’s broad macroeconomic insights in order to recommend trades that are actionable for Aussie investors.

Some of the trades may be short-term (say, a week or so), while others may be longer-term (say, three to six months). Aside from that, our analysts will have a broader licence to recommend opportunistic or momentum trades within that theme.

For instance, Jim’s not convinced that far-right presidential contender in France Marine Le Pen will win the French presidential election. Based on that view, our analysts may look at placing a directional trade to benefit from a move in the euro, or in the French CAC 40 stock index.

Or how about gold. Ultimately, Jim believes gold will hit US$10,000 per ounce in the long term. But what about the short term? Our analysts may spot a short-term bearish play, so that, rather than waiting for the gold price to bottom and turn around, traders could play it early by going short and then switching long.

Or, finally, what about the Aussie market? At our meeting with Jim in Berlin last month, he said that an Aussie recession is likely on the cards. If that’s really a prospect, how would, could, or should you play it?

Is it an Aussie-dollar-related play? Is it a stock-index-related play? Is it a specific-commodity play? Or is it a single-stock play?

It could be one or all of those. Our analysts are working out the details right this minute. But I’m told there are multiple trades in play, ready for what we call ‘The Big Australian Short’.

The next few weeks will be key for the Aussie economy, especially if the economy goes into a recession. If it does, the markets could move ‘big league’, as Donald Trump would say.

For that reason, regardless of which way the market goes, we want you to have a chance to be part of the action.

As we say, details are being finalised. We’ll reveal all next week.

Big Red

Meanwhile, as we’re here in the US, it makes sense to cast an eye at some of the key goings-on that should interest us.

The Wall Street Journal cheerily reports:

Bonds backed by certain risky single-family mortgages topped $1 trillion for the first time in November, crossing that threshold amid rising warnings for one corner of the housing market.

These mortgages are insured by the Federal Housing Administration and typically go to borrowers with small down payments and lower credit scores. Banks have pulled back from issuing those loans and from packaging them into bonds sold to investors.

The result: In the first three quarters of 2016, banks accounted for 9% of mortgage dollars originated by the FHA’s top 50 lenders, versus 62% for all of 2010, according to Inside Mortgage Finance. Nonbank lenders accounted for 80% of mortgage bonds backed by single-family FHA loans in July 2016, versus 9% the same month in 2010.

[Cough]

Another from the Wall Street Journal:

Analysts who want top executives at Coach Inc. to attend private events with their investor clients have to show they are “brand ambassadors,” as the luxury handbag retailer dubs it. You can’t be a brand ambassador if you have a sell rating on Coach’s stock.

Coach investor-relations chief Andrea Resnick says it takes that approach because of “the sheer volume of requests” from analysts to have its management meet mutual funds, hedge funds and other clients. Coach can’t say yes to everyone, she adds, so it has to decide who gets access—and who doesn’t.

In 2003, a $1.4 billion settlement between Wall Street securities firms and regulators sought to eradicate conflicts of interest that led analysts to issue overly positive research on companies, a phenomenon designed to help win investment-banking deals. More than a decade later, the impact of the settlement has helped exacerbate another set of potential conflicts.

That’s why we don’t take payments from companies to analyse their stocks. And it’s why we don’t accept gifts, favours or even invitations for site visits, unless the company allows us to pay our own way, in terms of airfares and accommodation.

No conflicts of interest. That’s important to us.

Finally, another revelation from the Wall Street Journal:

Many more students have defaulted on or failed to pay back their college loans than the U.S. government previously believed.

Last Friday, the Education Department released a memo saying that it had overstated student loan repayment rates at most colleges and trade schools and provided updated numbers.

When The Wall Street Journal analyzed the new numbers, the data revealed that the Department previously had inflated the repayment rates for 99.8% of all colleges and trade schools in the country.

Of course, it must be an innocent error. There couldn’t possibly be any connection between the ‘discovery’ now, and the fact that a new president and new education secretary will walk into office within the next few days.

Better to fess up now, rather than be caught and face prosecution, we guess.

All up, these are yet more reasons to pay close attention to that big red flashing light in the corner — that’s our crash alert. And boy, is it flashing!

Cheers,
Kris