"Can you place your market bets on a mercurial leader?" by: John Sample

   We are in the last month of the third quarter to evidence the strength in the equities market.
   Last week was the first week in the quarter to go down for the week’s worth of trading. 
   This comes in the face of an Administration that cannot get out of its own way talking trade wars on almost a daily basis.
   They do seem however to have the North American trade agreement moving forward which is essential to the American economy. 
   I am interested if any real concessions come from Canada in an election year. 
   It is great to have an agreement with Mexico, but the U.S. needs good trading relations with Canada. 
   Should that somehow happen, the move toward Europe could be much easier and create a world front against China.
   I should also point out this is the 10th anniversary of the financial crisis in fall 2008. 
   It’s noteworthy because the Federal Reserve and other nations’ banks printed money at low-interest rates to save the world’s economy. 
   We are fast approaching the time when the bill is coming due. 
   I never believe that any government can provide a plan that results in a smooth landing. You have to recognize that countries, corporations and individuals currently have record levels of debt. 
   That will be a problem should we enter a recession and we will at some point. 
   The problem is that a great tool that world’s banks use to fight recessions is lower interest rates.  
   That will be hard to do. As such, we will probably go through a period of defaulting loans. Hopefully, measures instituted almost a decade ago will allow banks to withstand the write offs. 
   I do believe that the regional banks are sufficiently capitalized for such an occasion, but I doubt that the large banks are prepared. Will we have the resolve to allow the losses at these extremely large institutions? We didn’t the last time.
   That leads to the real problem - the debt the government has issued. 
   While tax collections are at an all-time record, spending is outstripping revenue. 
   The ability to address spending cuts in a seemingly continuous election cycle seems doubtful at best. 
   The corollary would be to increase taxes. That could work, except in a global economy we have already witnessed capital flight to lower-taxing nations. Moreover, why would anyone believe that spending wouldn’t increase even more?
   This is an extremely difficult juxtaposition for politicians. 
   You don’t get elected telling your constituents to tighten their belts and cut back. It is all about bringing home the bacon.
   Speaking of dichotomies, how about investors and analysts punishing Elon Musk for smoking marijuana during an interview last week. 
   Would they have done the same if it was a glass of wine from the Napa valley, I seriously doubt it. 
   Never forget that marijuana is legal for consumption in California. 
   I encountered the same situation in my family when my daughter quit her architecture firm in Oregon and went into the edible marijuana business. 
   I promise you her mother was not pleased. I pointed out that it was legal and state sanctioned. She just recently sold her business to a Canadian company for a handsome amount. 
   So if you are looking for value, Tesla has dropped 30 percent in the last month. The two previous times this happened, it can roaring back.

 

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