Pass the stimulus please

Monday, 29 January 2018
Melbourne, Australia
By Bernd Struben

  • Thank you…Trump?
  • What would Reagan say?
  • The $500 million hack

Is it just me or was anyone else let down by Donald Trump’s presentation at the World Economic Forum in Davos?

Here, after all, is a president who shoots from the hip. Often poorly.

You never know what he’s going to say — or tweet — next. From goading ‘little rocket man’ Kim Jong-un, to lecturing Theresa May on her weak Brexit policies.

It’s what makes him so darned entertaining.

In the past he’s come down hard on such stalwart institutions as the UN (United Nations), the EU (European Union), and NATO (North Atlantic Treaty Organization). And he’s said America is being ‘raped’ by bad trade deals, entered into by his predecessors. That’s seen Trump pull out of the Paris Climate Accord, the TPP (Trans-Pacific partnership), and possibly NAFTA (North American Free Trade Agreement).

When it comes to immigration, Trump still has big plans for his much beloved wall along the Mexican border. And then there’s his ban on travellers from six majority Muslim nations.

And women?

Well, he’s certainly given the #metoo movement plenty of fodder with allegations of past sexual harassment. Not to mention his classic, ‘Grab ’em by the pussy’ line.

It’s perhaps with the latter in mind that some of the organisers at Davos were less than thrilled with the news that Trump would be attending.

All seven of the co-chairs at the Forum were women this year.

Co-chair Sharon Burrow, stated that ‘progress for women has stagnated’. (Though apparently not when it comes to co-chairing global events for billionaires.) She bewailed the fact Trump ‘won’t be championing values’.

On that front, at least, he didn’t disappoint.

As for the rest…there’s a reason selected quotes from his speech weren’t screaming from headlines across the globe. There was no ‘fire and fury’. Instead, it was all rather staid.

Touting his historic corporate tax cuts, Trump showed up with his businessman’s cap on. He told delegates, ‘America is the place to do business. So, come to America where you can innovate, create and build.’

Trump even mentioned he’d consider re-entering a modified TPP deal. One that is currently moving ahead with Australia and 10 other nations, without the US.

Both Barnaby Joyce and Julie Bishop have spruiked bringing the US back into the Pacific-wide trade deal.

As The Age reported:

Mr Joyce said yesterday… “The final draft of it, I hope, is determined once the United States is part of it.”

If minor changes were needed to bring the US back on board, he thought that should be done.’

The AAP quoted Julie Bishop as saying that, ‘Australia will encourage US participation.’

Speaking in California, she mentioned that the key to getting Trump to change his mind may be as simple as changing the name of the Trans Pacific Partnership. In a slip of the tongue, she later referred to the trade deal as the ‘Trump Pacific Partnership’.

Well Julie, knowing ‘the Donald’s’ healthy ego, that just might do the trick.

More, after a look at the markets…

Markets

Over the weekend, the Dow Jones Industrial Average closed up 223.92 points, or 0.85%.

The S&P 500 rose 33.62 points, or 1.18%.

In Europe, the Euro Stoxx 50 index finished up 17.26 points, or 0.48%. Meanwhile, the FTSE 100 climbed 0.65%, and Germany’s DAX gained 41.81 points, or 0.31%.

In Asian markets, Japan’s Nikkei 225 is down 5.49 points, or 0.02%. China’s CSI 300 is down 1.16%.

In Australia, the S&P/ASX 200 is up 37.18 points, or 0.61%.

On the commodities markets, West Texas Intermediate crude oil is US$66.14 per barrel. Brent crude is US$70.38 per barrel.

Gold is trading for US$1,350.29 (AU$1,666.00) per troy ounce. Silver is US$17.44 (AU$21.52) per troy ounce.

One bitcoin is worth US$11,690.33.

The Aussie dollar is worth 81.05 US cents.

Thank you…Trump?

Global stock markets have been on a tear.

Oil is up. The Aussie dollar is strong. (Ignore all the teeth gnashing, that’s not a bad thing.) And gold is approaching four-year highs.

As for bitcoin, it’s well off its 16 December highs of nearly US$20,000. But don’t forget it only first broke through US$11,000 on 4 December. Irrational exuberance pushed the price too high too quickly. But as our crypto expert Sam Volkering explained in Thursday’s Port Phillip Insider, this should be just the beginning for bitcoin.

(You can get Sam’s full analysis and recommendations on bitcoin and competing cryptocurrencies right here.)

Cryptos aside, how much credit does Donald Trump deserve for the bullish state of the US economy and global markets?

If you ask him, all of it.

If you ask the IMF, well, he still gets a lot of credit.

From The Australian Financial Review (AFR):

The world economy is tipped by the International Monetary Fund to accelerate this year at its fastest pace since 2010, fuelled by an expected temporary stimulus from US President Donald Trump’s $US1.5 trillion tax cuts and broader global momentum.

The US business tax cuts, including a 21 per cent corporate rate and full expensing for capital investment, are estimated by the IMF to contribute about half of the upward revision to its global growth forecast over the next two years.

All this and Trump has yet to unveil the specifics of his US$1 trillion infrastructure spending plan. Rumour has it we should have more details when he delivers his State of the Union address tomorrow (US time).

If you’ve been thinking about shorting US markets, you may wish to hold off a few weeks.

What would Reagan say?

Look, no one doubted that slashing the US corporate tax rate from 35% to 21% would boost corporate profits…and share prices.

But many, ahem, socialist leaning pundits predicted the buck would mostly stop there. The fat cats would get fatter while the remaining 99% would continue with their drudgery, no better off.

Now the fat cats will certainly get fatter. But the much maligned ‘trickle down’ effect championed by Ronald Reagan is already finding its way to the hoi polloi.

Also from the AFR:

JPMorgan has pledged a broad $US20 billion ($25 billion) investment in its business, staff and customers, making it the latest US company to link its expansion plans to President Donald Trump’s $US1.5 trillion tax cuts and war on of red tape.

In an economic, political and public relations coup for the Republican tax cuts, the Wall Street bank joins about 200 American listed companies such as Apple and Wal-Mart to recently announce capital investment and higher pay and one-off bonuses for workers…

JPMorgan’s broadly defined investment over five years includes: raising wages an average of 10 per cent to between $US15 and $US18 an hour for 22,000 employees; expanding its US branch network, and in the process hiring 4000 more people; raising community-based philanthropic investments by 40 per cent to $US1.75 billion; and increasing small business lending by $US4 billion.

Starbucks and Walt Disney have also joined the trickle down bandwagon.

Starbucks has promised to spend US$250 million on new employee benefits for its 150,000 employees, including substantial pay rises.

Meanwhile, Disney is handing out one-off US$1,000 bonuses to its 125,000 US employees. The company also announced a US$50 million fund to assist employees with tuition costs.

It all sounds pretty great. At least in the short term.

Longer term, of course, someone’s going to have to pay for this party. The US should recoup some of its lost corporate tax revenue from higher earnings and better employment figures.

Yet even the more optimistic estimates see the tax cuts leading to deficit blow outs. And that’s before the government’s big cash splash on infrastructure.

But that’s not until tomorrow. And tomorrow’s always a day away…right?

In the meantime, what could possibly go wrong?

Well, hackers…for one. At least if you’ve been trading XEM tokens.

The $500 million hack

From Bloomberg:

At 2:57 a.m. on Friday morning in Tokyo, someone hacked into the digital wallet of Japanese cryptocurrency exchange Coincheck Inc. and pulled off one of the biggest heists in history.

Three days later, the theft of nearly $500 million in digital tokens is still reverberating through cryptocurrency markets and policy circles around the world.’

News of the massive hack saw a brief but sharp sell-off of many other cryptos including bitcoin, as you can see in the chart below:



chart image

Source: Bloomberg
Click to enlarge


Coincheck issued a release stating the company will reimburse customers for their stolen tokens. As CoinDesk reports:

Coincheck has detailed its compensation policy for customers whose XEM was stolen. It will repay them 88.549 Japanese yen (about $0.81 U.S.) per stolen coin, out of its own funds, according to a Google translation of the exchange’s press release. With 523 million XEM taken, according to the latest estimate. that would bring the total company payout to more than $420 million. The timing of the repayment is still “under consideration.”

Honestly, I was surprised to read that Coincheck will make good on the hacked tokens. In the world of cryptocurrencies, if your digital tokens are stolen — or you misplace them or send them to the wrong address — you can generally expect to say goodbye to your funds for good.

That’s one of the reasons it’s so important to know what you’re doing before diving into what Sam Volkering labels ‘the Wild West of investments’.

It’s also why he recommends holding most of your crypto in a cold storage wallet, one that’s not connected to the internet, rather than entrusting it all to an exchange.

You can read all of Sam’s detailed advice here, including which tokens to avoid like the plague.

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You can usually identify a Holocaust denier by their tinfoil hat.

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Cheers,
Bernd