This could make or break global markets

Wednesday, 12 June 2019
Adelaide, Australia
By Bernd Struben

  • Let slip the dogs of war

How do you send global markets roiling?

Threaten to open a new front in the global trade war…and then backflip.

Oh, and you’ll need to be elected president of the world’s biggest economy first.

From The Sydney Morning Herald:

Australian shares rose to an 11-year high on Tuesday after the United States scrapped its threat to impose tariffs on Mexican imports, which lifted global investor optimism…

The Trump administration reneged on its threat to impose tariffs on Mexico after the two countries reached an agreement that would see Mexico do more to reduce the flow of migrants from central America to the US.

“Global equities breathed a sigh of relief after President Trump showed markets he does not always have to be tariff man,” said OANDA senior market analyst Edward Moya.

Two points here.

First, there’s a lot more at work than Trump not pressing ahead with punishing new tariffs on Mexico.

Last Tuesday’s rate cut by the RBA — with further cuts expected — saw an immediate surge in the Aussie indices. Increasingly dovish noises from the US Fed, Europe’s ECB and other central banks have also buoyed the ASX and global markets.

Second, I hope Trump’s ‘unpredictable’ decision to bin hefty new tariffs on Mexico didn’t come as a surprise to you.

If it did, you may want to review last week’s Port Phillip Insider.

I ran this headline in Thursday’s edition (Wednesday night US time), ‘A Contrarian Bet on Trump’s Predictable Unpredictability’.

Here’s an excerpt:

The big question remains, will Mexico offer enough help to stem the flow of illegal immigration across its borders to satisfy Trump?

Here’s where we need to second-guess Mr Unpredictable…

I believe Mexico is going to promise the world. That doesn’t mean they’ll be able to deliver on those promises. But it does mean Trump may give them a pass…for now.

It’s reminiscent of what happened following Trump and Xi’s dinner party at the G20 meeting in Buenos Aires last December…

If Trump does announce a pause in his new tariff plans it should offer a healthy boost to Mexico’s stock market.

One way to play that expectation is with the iShares MSCI Mexico ETF [NYSEARCA:EWW]

If Trump hits the pause button, as I expect, then EWW could offer up some quick gains to nimble investors.

EWW, if you’re not familiar, is an exchange traded fund that seeks to track the investment results of a broad-based index composed of Mexican equities. And please note this was not an official recommendation. Just something readers could look into further if they shared my views.

You can see the five day price chart for EWW below:



chart image
Source: Google Finance
Click to enlarge

The ETF is up 3.8% since market opening on Thursday (Thursday night our time). A handy little gain for nimble investors.

So did Mexico ‘promise the world’ to get the tariff threat off their backs as I expected?

Nearly.

From Bloomberg:

Under the immigration deal, Mexico will expand deployment of its national guard throughout the country, “giving priority to its southern border,” according to a joint statement from the two countries. Asylum seekers who cross into the U.S. will be quickly returned to Mexico where they’ll wait for their claims to be resolved…

Mexican officials have said that there’s an agreement to evaluate the success of current measures after 45 days and see if they’re working or if more needs to be done.’

Mexico isn’t quite paying for Trump’s coveted border wall yet. But they’re sure chipping in.

Before moving on, a question. Did you invest in EWW or increase your exposure to other stocks with the expectation that Trump would backflip on his Mexico tariff threats?

Send your reply to letters@portphillipinsider.com.au with the subject line ‘Trump’.

If I get some good responses, we’ll publish them here.

Now to the markets…

Markets

Overnight, the Dow Jones Industrial Average closed down 14.17  points, or 0.05%.

The S&P 500 closed down 1.01 points, or 0.04%.

In Europe the Euro Stoxx 50 index finished up 14.65 points, or 0.43%. Meanwhile, the FTSE 100 gained 0.31%, and Germany’s DAX closed up 110.43 points, or 0.92%.

In Asian markets Japan’s Nikkei 225 is down 16.53 points, or 0.08%. China’s CSI 300 is down 0.78%.

In Australia, the S&P/ASX 200 is up 8.61 points, or 0.13%.

On the commodities markets, West Texas Intermediate crude oil is US$52.57 per barrel. Brent crude is US$61.53 per barrel.

Turning to gold, the yellow metal is trading for US$1,326.60 (AU$1,907.13) per troy ounce. Silver is US$14.74 (AU$21.19) per troy ounce. (More on gold below…)

One bitcoin is worth US$7,867.96. That’s seven days now that bitcoin’s been trading within a tight US$600 range. Is the world’s biggest crypto consolidating ahead of another rapid run higher? You can stay atop all the latest crypto investing advice here.

In the world of fiat currencies, the Aussie dollar is worth 69.56 US cents.

Let slip the dogs of war

It’s hard to impeach somebody who hasn’t done anything wrong and who’s created the greatest economy in the history of our country… I’m not concerned, no. I think that the people would revolt if that happened.

Donald Trump, 11 December 2018

Staying with Trump, there are far more serious threats to global markets and your wealth than trade wars.

If trade between the world’s two biggest economies collapses, the chances of a shooting war erupting rises dangerously.

But even more ominous than a hot war between China and the West are increasing signs that the US is fracturing from within.

Indeed, the dogs of war are tugging at their leads in the halls of Congress and the White House alike. They may not be running loose yet. But it won’t take much to set the political powder keg in the US alight.

If that happens, all bets are off.

In the latest escalation, US Democrats have enlisted former Nixon White House counsel and Watergate star witness John Dean in their efforts to take Trump down.

Here’s what Dean told the House Judiciary Committee, as reported by Reuters:

In many ways, the Mueller report is to President Trump what the so-called Watergate road map … was to President Richard Nixon… Stated a little differently, special counsel Mueller has provided this committee with a road map.

For his part, Trump wouldn’t be goaded. He focused instead on bridging the widening partisan divide. Or not…



chart image
Source: Twitter
Click to enlarge

Democrats may not get their do-over on collusion. But the virulently anti-Trump members among them are getting closer to their cherished impeachment proceedings.

With the Senate firmly in Republican hands, those proceedings are unlikely to succeed. Unless, of course, the Democrats manage to unearth something new and truly damaging.

That’s when things could go seriously pear-shaped.

Speaking to reporters at the White House, Trump offered a glimpse of just how dangerous any effort to remove him from office could be:

President Nixon never got there. He left. I don’t leave. There’s a big difference.’

A big difference indeed.

The difference between Nixon’s awkward final wave before boarding the presidential helicopter for the last time…and Trump’s going to the mattresses with his core supporters.

Does that surprise you?

As with Trump’s predictably unpredictable backflip on the Mexico tariffs, regular readers will have seen this coming.

Here’s what I wrote to you in Port Phillip Insider back on 17 December:

Unlike Richard Nixon (who bowed out before being impeached) or Bill Clinton (who would have gone meekly) I just can’t see Donald Trump handing over the keys to the White House without a fight.

You can almost hear his call to arms now. And the torrent of Twitter outrage pouring into his supporters’ feeds.

Don’t forget, if Trump is impeached it will all based on “fake news” derived from a “witch hunt”.

“I think that the people would revolt,” could all too quickly become, “I think that the people should revolt.”

As divided as US politics has become — fuelled by left-wing and right-wing media alike — it’s far too easy to envision “Trump militias” coming to the rescue. Perhaps patrolling the White House grounds to keep the “lefty Feds” from dethroning their chosen leader.

Once the first shots ring out, it could all spiral towards a second US civil war. One that would upend global trade and stock markets in a way that no one living has ever experienced before.

I know this likely sounds hyperbolic, reading this in the peaceful comfort of your own home or local café. It does to me as well.

Fortunately we’re not to this stage yet. We can only hope we never will be.

But the groundwork is certainly being laid.

The far left is playing with fire toying with impeachment. If the situation spirals out of everyone’s control — which it could — it would have a devastating impact on most investors’ portfolios.

Don’t let that be you.

Renowned futurist and US economist Harry S Dent warns about the potential for a second US Civil War in his bestselling book, Zero Hour. And he offers up some brilliant insights in how to protect your wealth from this kind of massive global shock.

This is the same book where Harry forecast a 50% fall in Aussie housing prices…back when most analysts were still forecasting blue skies ahead.

You can get all the details — including how to get your discounted copy of Zero Hour — by clicking here.

Cheers,
Bernd