A Massive Reset
The world is undergoing a massive reset and investors who understand current and pending changes will be in the best position to protect and enhance client wealth. Below is a summary of the major changes.
United States – President Trump is questioning policies which have been in place since the end of World War II with the result being massive uncertainty among our trading partners. The current administration sees little reason for the U.S.’s paying for the bulk of NATO expenditures when Germany is sustaining a massive trade surplus with the U.S. and has tariffs on U.S.manufactured vehicles greater than those imposed by the U.S. on German vehicles. Likewise, Mr. Trump sees little reason for facilitating the transfer payments to Mexican immigrants while Mexico maintains a massive surplus relative to the U.S. Lastly, the current administration is questioning payments to Iran when it is violating prior treaties and financing hostilities in Syria and Yemen. In the case of North Korea, Mr. Kim is not so sure that Mr. Trump will not follow through on his threats and therefore is forced to try another path to achieve his goals. Lastly, the trade practices of China in connection with the forced transfer of technology are being questioned. The major difference between the current administration and prior administrations is the questioning of prior practices, which as can be expected, are disruptive.
A summary report from Mr. Mueller is also likely to be released after the mid-term elections which is likely to place some pressure on the administration. Additionally, there are likely to be some unsavory news on dealings in the Trump organization. If Democrats regain control of the House, Mr. Trump’s legislative efforts will be curtailed. EJR’s View – The fight between Mr. Trump and the Washington status quo is likely to continue for the foreseeable future. However, Mr. Trump is slowly gaining control of major agencies and the economy is doing fairly well. Our view is that Ms. Pelosi will not opt for impeachment but will pressure the White House. Additionally, Mr. Trump might be blocked from appointing a new DOJ head by Congress. Furthermore, the lesson learned during the Clinton impeachment was the party bringing the action was damaged politically.
Growth and Interest Rates – there is little doubt that domestic growth has increased and with it, domestic interest rates. While the underlying growth drivers often remain a mystery to even the most seasoned economists, our view is that the reduction in taxes and regulations have played roles along with a refocusing on what is best for the country. Of concern is increased trade hostilities, but it might be a case of short-term pain for longer term growth. Regardless, it is clear the U.S. is growing faster than most had expected and barring a calamity, is likely to continue growing over the next couple of years. EJR’s View – Rising interest rates are a sign of health for the economy but likely to dampen stock market gains.
European Dis-Union – the European Union is showing more signs of disunion than union. Italy is claiming it will not contribute to the EU’s budget unless it is granted relief on the migrant