2020 Forecast for Markets & Elections

This post 2020 Forecast for Markets & Elections appeared first on Daily Reckoning.

Just because impeachment is almost over and it’s an election year does not mean that Congress won’t be the scene of anti-Trump activity. Congress is set to keep up the pressure on Trump on a daily basis, and the attacks will continue.

Investors should not be shocked if the House impeaches Trump a second time.

There’s no legal limit on the number of times a president can be impeached or the number of articles of impeachment that can move forward. The House impeached Trump in 2019 on bogus claims that aren’t even crimes. If they did it once, they can do it again.

Some of the new charges being floated include whether it was legal for Trump to order the killing of mastermind terrorist Maj. Gen. Qasem Soleimani. The killing was clearly legal since Soleimani had officially been declared a “terrorist” under the Authorization for Use of Military Force Act (AUMF) and Iran had been declared a state sponsor of terrorism.

Both designations allowed the U.S. legally to kill a terrorist on foreign soil who was planning terrorist acts against the U.S. Obama had used the same legal rationale to kill hundreds of terrorists in Pakistan, Afghanistan and Yemen.

Still, Democrats are claiming that this was an “assassination,” which is illegal under U.S. law. You can expect congressional hearings and possible impeachment charges along these lines this spring.

Another potential impeachable offensive consists of violations of the Emoluments Clause of the U.S. Constitution alleging that Trump profits when foreign diplomats stay in his hotels. He doesn’t; Trump returns any revenues to the U.S. Treasury.

The House of Representatives can also be expected to hold hearings on alleged Trump “money laundering” in connection with property development in Russia. There’s no evidence of this, but that won’t stop Democrats from making the allegation.

Trump’s relationship with Deutsche Bank and its financing of his hotels and other properties including the identities of third-party investors will also come under scrutiny.

Other anti-Trump efforts will include hearings to get testimony from Secretary of State Mike Pompeo related to the Soleimani killing and testimony from former National Security Adviser John Bolton related to the Ukrainian military aid that triggered the first impeachment.

New matters related to Ukraine are also emerging in connection with reported Russian hacking of Burisma, the Ukrainian company that paid Hunter Biden (Joe Biden’s son) millions of dollars for a no-show job for which he was unqualified.

Somehow Democrat critics of Trump can’t get enough of the Russian collusion allegations, even though the Mueller investigation showed no connection at all between Russia and Trump.

All of these matters (Soleimani, property finance, Ukraine and War Powers in Iran) may form the basis for new articles of impeachment against Trump.

This could play out over the course of the spring and summer just as the campaign season is heating up. This may be designed to stir up the Democrat base, but it will probably have the opposite effect of increasing turnout of …read more

Are They Going to Impeach Trump Again?

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The Democratic candidates held another debate last night. Michael Bloomberg took a lot of heat from the others, and he did not handle it well. He showed real weakness for the first time.

Joe Biden, meanwhile, put in a strong performance last night. We’ll have to see if he can generate any momentum from it. After Iowa and New Hampshire, his campaign is in serious trouble.

Speaking of Iowa, they still haven’t resolved that mess…

The Iowa caucus was officially over on Feb. 3. But it’s not over yet and may never be over.

The conduct of the caucus was one of the biggest fiascos in modern political history and the repercussions are still being felt. You probably know the story by now.

A caucus is not a primary election. It’s a physical gathering of voters at about 1,600 precinct locations such as school gyms and similar venues around the state.

That’s a limiting factor right away because many voters don’t have the flexibility to show up at an appointed time and place. Voters organize in groups backing a certain candidate.

An initial count of support for each candidate is taken. Candidates’ groups who have less than 15% of the total are then told they can either go home or switch sides (with less than 15% support you get zero delegates).

Voters then reorganize — for example, a Biden supporter can switch to Liz Warren — and a second count is taken.

That second count is then used in a mathematical formula to assign delegates for the Democratic convention.

The number of delegates for each candidate is not proportional to votes in the second count because some precincts are overweighted. Got it?

Don’t worry; neither does anyone else. That system is nuts. But it gets worse…

A new mobile phone app was created to send in results. The app had never been used in actual voting and it crashed.

Precinct organizers were told to phone in results. The phone lines were jammed and organizers couldn’t get through. That didn’t matter because party officials in the central locations were told to leave their mobile phones outside.

Others could not get online. Some did not know how to use spreadsheets. TV network anchor desks were on the air with nothing to report.

Candidates were robbed of bragging rights, both on caucus night and in the days leading up to the New Hampshire primary on Feb. 11. Iowa results dribbled out over days in a way that seemed intentionally designed to hurt Bernie Sanders.

Finally, the chair of the Iowa Democratic Party resigned in disgrace.

As of now, it is reported that Bernie Sanders won the most votes in the first and second alignments, but Pete Buttigieg got the most delegates because of the quirky math formula.

But even that reported result is not final because a “re-canvass” recount is underway.

The biggest loser was not among the candidates. The biggest loser was the Democratic Party itself.

Commentators were quick to ask how Democrats can run …read more

“Conservative Economics”

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This post “Conservative Economics” appeared first on Daily Reckoning.

We learn of the pending birth of a new organization — American Compass by title.

Its existence will serve one high and noble purpose, claims executive director Oren Cass:

“Helping American conservatism recover from its chronic case of market fundamentalism.”

Just so. Yet we were unaware that American conservatism was down with the disorder.

American conservatism congregates broadly under the Republican Party’s tent.

This same Republican Party gives few symptoms of the virus described…

A Chronic Case of Market Fundamentalism?

It might suffer a slight wheeze, a sniffle, a light cough, perhaps a rare gag — but no chronic or debilitating symptoms.

Its core temperature never exceeds 99.2 degrees of Fahrenheit.

These fellows may argue that a 39% rate represents a dangerous flirtation with socialism, a menace to American liberty and civilization.

But a 36% top marginal tax rate is nearly freedom itself.

Government spending may safely consume 20% of the gross domestic product, they allow. But should it exceed 23%… poor Adam Smith would do 100,000 revolutions in his grave.

We exaggerate for effect, perhaps. But we believe the central case is sound…

Cleaning up the Whorehouse

We believe most conservative anti-government enterprise aspires to “clean up the whorehouse,” while “keeping the business intact”… in libertarian Frank Chodorov’s unimprovable words.

Consider one example exquisitely in point…

The late Butler Shaffer was a retired professor of law at Southwestern University.

Here he recalls the 1964 Republican National Convention — where a modern Patrick Henry, Barry Goldwater, thundered in defense of liberty. But in reality?

I sat in the Cow Palace in San Francisco as part of my state’s delegation to the Republican National Convention (i.e., the Goldwater Convention)… Afterward, I was enjoying a drink at the top of the Mark Hopkins Hotel with one of Goldwater’s advisers. I asked: “Now that Goldwater has the nomination, let us suppose that he gets elected president. What do you think he would do to begin cutting back on federal government power?”

“What do you mean?” my acquaintance answered. I reminded him of Goldwater’s book The Conscience of a Conservative, wherein he proposed eliminating a few government programs (federal involvement in education being one area).

The other man answered: “Don’t be absurd: If Goldwater gets elected president, the most we would hope to accomplish would be to slow down the rate of growth of government.”

That is, to tidy up the cathouse… while “keeping the business intact.”

And that was under the firebrand Goldwater. What could you possibly expect of feebler conservatives?

The business has remained intact ever since. Indeed, it has expanded to dimensions truly pornographic…

Not so Conservative

Market fundamentalism holds a disdainful view of government deficits. Yet…

Did not presidents Ronald Reagan, George Walker Bush, George Herbert Walker Bush, Donald Trump — Republicans all — vastly expand deficits?

And was it not a Republican who shook off deficits entirely?

They do not matter, said he.

Did not the Republican-held Senate vote to uphold the Patient Protection and Affordable Care Act — Obamacare — when presented the opportunity to scotch it?

As we recall, it did.

Many …read more

Too Many Eggs in Too Few Baskets

This post Too Many Eggs in Too Few Baskets appeared first on Daily Reckoning.

Never before have so many owed so much… to so few.

We refer not to Sir Winston Churchill and the Battle of Britain. We refer instead to the Federal Reserve and stock market.

Set aside the latest coronavirus rattles…

The market has been on a gorgeous spree since Mr. Powell and his mates reopened the liquidity spigots last January.

But only a very few stocks account for its joy. These are the wagon-pullers of this market, the draft horses hauling the laggards along.

We refer to Apple, Microsoft, Alphabet (Google’s parent company), Amazon and Facebook.

The Heavy Lifting

These combined behemoths boast a market cap in excess of $4.1 trillion — over 10% of the stock market’s overall $34 trillion.

When they move, they drag the market along. And moved they have…

Apple has returned some 112% this past year. Microsoft has gained over 75%. Alphabet has added perhaps 20%. Amazon has gained roughly 25%. Facebook has put in a 44% advance.

You hear references to the top 1% of Americans? These represent the top 1% of stocks.

These mighty five account for virtually all of last quarter’s S&P earnings upside. Wash them out — and the S&P’s earnings amounted to naught.

And as SocGen data hound Andrew Lapthorne informs us…

S&P net income actually plunges 7.5% if you minus out the contributions of these five colossi.

We should not be surprised, then, that the vast majority of S&P components have taken in their sails… and reduced their stock buybacks.

The Rich Get Richer

Mr. Lapthorne reveals that buybacks outside the mighty five plunged 32% last quarter.

But these titans?

Their buybacks increased 10.5% over the same space. Buybacks tend to inflate — artificially — the stock price.

Is it then a wonder that these stocks presently outpace the broader market by the largest margin ever… as Lapthorne informs us?

It is no wonder whatsoever.

But what if these wagon-pullers pull up lame?

All the Market’s Eggs in Five Baskets

CNBC:

These mega tech firms have been the front-runners in this record-long bull market as investors bet on superior growth and dominant market share in their respective industries. They were the biggest contributors to the market’s historic gains last year and the trend shows no signs of stopping in 2020. However, multiple Wall Street strategists are sounding alarms on the increasing dominance of Big Tech, warning of a potential pullback in the stocks ahead.

Consider, for example, Apple…

The coronavirus has taken a deep bite of this Apple.

Much of their gadgetry rolls out of Chinese factories. Yet the coronavirus has these factories running far beneath capacity.

And Apple has closed the doors on all 42 of its Chinese stores. None has reopened.

Apple is shaving down first-quarter revenue projections in consequence.

What is more, the woes may continue…

Falling Inventories

A certain Bill Lu directs Asian semiconductor research at UBS. From whom:

The impact starts looking bigger and bigger, and in the coming weeks, the impact will grow. Inventory is low in the smartphone supply chain.

What if the coronavirus extends its siege into …read more

“Mandate of Heaven” in Jeopardy

This post “Mandate of Heaven” in Jeopardy appeared first on Daily Reckoning.

The U.S. markets are closed today for Presidents Day. If you have the day off, I hope you’re enjoying your long weekend.

But one event is taking center stage in the world that affects not only basic survival for millions of people, but the health of the global economy overall.

Of course, I’m talking about the coronavirus outbreak currently playing out before our eyes in China.

China’s economy was slowing substantially before the outbreak of the highly contagious and deadly virus last fall. This slowing was the predictable result of excessive debt levels, Trump’s retaliation in the trade wars, and China’s encounter with what development economists call the “middle-income trap.”

Developing economies can grow at double-digit rates as they move from low-income (about $3,000 annual per capita income) to middle-income (about $10,000 annual per capita income).

The main requirements are limits on corruption, a large pool of available labor, and an attractive legal environment for foreign direct investment. Once investment is used for infrastructure and labor is mobilized, large-scale basic manufacturing can commence.

This powers growth and the accumulation of hard currency reserves from export earnings.

The difficulty begins when an economy tries to move from middle-income to high-income (about $18,000 annual per capita income). That move requires more than cheap labor and infrastructure investment. It requires applied technology to produce high-value added products.

Only Taiwan, South Korea and Singapore have made this transition, (excluding Japan after World War II, and oil-exporting nations).

This explains why China has been so focused on stealing U.S. intellectual property.

Trump has been closing that avenue. China cannot generate the needed technology through its own R&D. China is stuck in the middle-income trap and a slowdown in growth is the inevitable result.

The story gets worse for China.

As of Friday, the total reported number of people infected by the coronavirus was 64,435. And the death toll was up to 1,383, including three people outside of China.

Those figures are official statistics released by China and other countries around the world where the virus has spread.

However, there is substantial medical, anecdotal, and model-based evidence that the actual infection rate and death rate may be ten to twenty times higher than those official statistics.

Over 60 million Chinese in several major cities are under “lock-down” where individuals are confined to their homes and may only leave once every three days to buy groceries.

Streets are empty, stores are closed, trains and planes are not moving, and factories are shut. The Chinese economy is slowly grinding to a halt.

This not only affects China’s economy as a whole, but the contagion filters down into individual companies that are dependent on China both for supply chain inputs and final sales.

And it will have a rippling effect on the U.S. economy also. This story has a long way to run.

Regards,

Jim Rickards
for The Daily Reckoning

The post “Mandate of Heaven” in Jeopardy appeared first on Daily Reckoning.

…read more

Beware the Yield Curve

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This post Beware the Yield Curve appeared first on Daily Reckoning.

If you’re a regular Daily Reckoning reader, you’ve probably heard of the “yield curve,” and an “inverted yield curve.” A yield curve inversion is a classic recession warning signal. This is a very powerful indicator because it has preceded every recession of the last 60 years.

That means an inverted yield curve has preceded recession on seven out of seven occasions for the past 60 years. Only once did it give a false positive, and that was in the mid-1960s.

And when recessions hit, stocks are vulnerable to crashes. An inverted yield curve has provided warning of every major stock market “event” of the past 40 years.

That’s why several different measurements of the yield curve are important to monitor. The most-cited yield curve calculation is the 10-year U.S. Treasury yield minus the 2-year U.S. Treasury yield.

But a market crash is not an immediate reaction to a yield curve inversion. During the last two major bear markets, for example, the worst of the selling didn’t start until a few years after the yield curve hit zero or negative. So when you hear that the yield curve has inverted, it doesn’t mean you have to run out and sell all your stocks. It can be a very long time before it shows up in the stock market.

But you should watch the Fed. During these bear markets, the selling of stocks coincided with a panicked series of rate cuts from the Fed.

If investors become risk averse and fear an imminent recession, Fed rate cuts cannot stop investors from selling stocks and de-risking their portfolios. It’s important to realize that Fed interest rate policy can only exert control over the stock market if investors maintain a strong appetite for risk.

The message from a different measure of the yield curve — like the 10-year Treasury yield minus the 3-month Treasury yield — is similar. Incidentally, the Fed places more importance on this part of the bell curve than the 10-year/2-year part of the curve.

The change in this yield curve, shown in the green line below, has been substantial thus far in 2020:

If these two yield curves remain near zero (or below zero) for an extended period of time, then the machinery of bank credit creation can grind to a halt. That’s why anytime the yield curve gets too depressed, the Fed tends to react by cutting short-term rates. Lower short-term rates in turn “re-steepen” the yield curve. In other words, it’s an attempt to restore the normal shape of the yield curve.

It’s no wonder the fed funds futures market has boosted its probability of a 25 basis point Fed rate cut at the June 2020 meeting from about 15% to 37% in just the past few weeks.

Far ahead of this move in the futures market, my colleague Jim Rickards predicted that the Fed would cut rates 25 basis points at the June meeting in an effort to re-steepen the yield curve. If …read more

U.S. GDP Could Get Hammered

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February is half over, and we’re that much closer to spring.

As far as the markets go, this past week has been driven by a lackluster set of new economic data and heightened concerns about whether the coronavirus is contained or not, whether the Chinese have downplayed the figures or not and what the real economic impact in China and around the world might be.

But we could already be feeling the effects here at home…

The latest information reveals that consumer spending dropped substantially in January. And core retail sales dropped off.

Clothing sales, for example, dropped 3.1% last month. That’s the largest month-over-month decline since March 2009.

U.S. factory output also slackened. Manufacturing output slipped 0.1% from December, mostly due to Boeing’s ongoing production halt for the 737 Max.

Export demand is also a source of concern, as the coronavirus could affect critical supply chains and hamper demand in the weeks and months ahead.

Meanwhile, weak corporate investment could also put a drag on growth.

All these factors may combine to put a big dent in this quarter’s growth…

A new CNBC survey of 11 economists projects that first-quarter 2020 GDP growth will drop dramatically to 1.2%, far below the 2.1% rate from Q4 2019.

A Bloomberg survey is somewhat better, but not much. These economists project a 1.5% growth rate.

While these numbers are weak, economists surveyed by Bloomberg don’t believe the Fed will be cutting rates soon. But they do believe the drop-off in personal consumption makes the economy vulnerable to “exogenous shocks”:

While the economic outlook remains strong enough for the Fed to keep interest rates on hold, personal consumption moderating from last year’s robust pace makes the economy vulnerable to exogenous shocks, such as the halt in production at Boeing and potential supply chain disruptions stemming from the coronavirus.

Since consumer spending is about 70% of GDP, a downturn in spending could hit the U.S. economy hard.

Federal Reserve Chairman Jerome Powell spoke at his regularly scheduled testimony before Congress this week.

What did he have to say?

The upshot was he reconfirmed the fact that the coronavirus would have an economic impact, but it was too soon to tell the extent of it. So he left it as an excuse, in my opinion, to ease policy if needed down the road.

If the coronavirus threat continues into the second quarter and beyond, he may not have a choice.

What about the ongoing trouble in the “repo” market?

When you add up all the Fed’s support for the “repo” market since September, it comes to over $6.6 trillion.

When pressed by Congress about whether he saw financial risks in the banking system, he pointed to how well the Fed’s bank stress tests have been working.

That’s great, but it seems the liquidity issues are getting worse, not better. The Fed’s latest repo operations were three times oversubscribed, meaning the demand for fresh funding in the repo market far exceeded the supply.

Although the Fed won’t make the information publicly available, …read more

Jerome Powell Confesses

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This post Jerome Powell Confesses appeared first on Daily Reckoning.

Heaven forfend — angels and ministers of grace defend us! — the chairman of the Federal Reserve has confessed the truth.

We write from our back today, floored, still unable to recover from the blow.

For yesterday the chairman ripped the central banker’s mask from his face, and let them have it straight in the eye… and right from the shoulder.

What mighty and stupendous truth did he uncage yesterday?

Patience, dear reader, patience. You must first suffer under today’s market notes…

Can’t Shake the Coronavirus

The stock market traded at record heights today. But the coronavirus struck again this afternoon. CNBC in summary:

Equities fell sharply to start off Thursday’s session after China said it confirmed 15,152 new cases and 254 additional deaths. That brings the country’s total death toll to 1,367 as the number of people infected jumped to nearly 60,000, according to the Chinese government.

The Dow Jones ended up losing 128 points by closing whistle, to 29,423.

The S&P lost five points on the day; the Nasdaq, 14.

Gold, meantime, gained $7.30 today to close at $1,579.20.

But to return to today’s thumping question…

What sublime truth did Jerome Powell let out yesterday?

Powell’s Monetary Policy Report to the Congress

Here is the setting:

The Dirksen Senate Office Building 538, Washington, D.C. The Banking Committee of the United States Senate is in session.

Addressing the committee is the Hon. Jerome H. Powell, chairman of the Board of Governors of the Federal Reserve System.

He is a man heavy with duties to the American republic…

He is delivering the semiannual Monetary Policy Report to the Congress, in fulfillment of his obligations under the Humphrey-Hawkins Full Employment Act of 1978.

It is late morning. Committee members fight valiantly to maintain consciousness, but sleep has vanquished several.

Chins rest upon chests, rising gently at longish intervals… as if buoys bobbing in lazy ocean swells.

Faint snores can be heard above Mr. Powell’s hypnotic droning.

One dreaming senator — we had best keep his identity dark — mutters something about “your sexy lips” and a name other than his wife’s.

A swift elbow from an adjacent senator nudges him awake.

But then — of a sudden — the truth came roaring from the chairman’s mouth like fire from the mouth of a cannon…

The Truth!

Out it came, knocking us flat in the process:

“Low rates are not really a choice anymore; they are a fact of reality.”

Low rates are not really a choice anymore; they are a fact of reality.

No more talk of “normalization.” No more whim-wham about “the outlook.” No more “monitoring conditions.”

Instead, low interest rates are no longer a choice. They are a “fact of reality.”

Poor Alan Greenspan would be spinning in his grave today — if only he had a grave to spin in. Old Alan yet lives and breathes.

But does Powell not realize that a central banker’s job is to dodge, to weave, to talk… but not say?

We can only speculate that the fellow was overtaken by a temporary delirium, a transient psychosis.

But Mr. Powell’s uncharacteristic outburst of …read more

The Great War of Stocks and Bonds

This post The Great War of Stocks and Bonds appeared first on Daily Reckoning.

Two options rise before us this day…

Option 1: The stock market is right. Option 2: The bond market is right.

The stock market is cheery and confident. It presently goes at record heights… and bursts with belief in a superior tomorrow.

Moreover, it has a decade of nearly unbroken prosperity in back of it.

The bond market — meantime — is dark, dour, down in the mouth.

Today the 10-year Treasury yields a slender 1.59%.

But not 1.5 years ago, in October 2018, it yielded 3.16%. In general…

The 10-year Treasury yield sinks when markets anticipate economic weather ahead, subdued inflation… and lower animal spirits.

A lean season is ahead then, the bond market struggles to say above the dinning stock market.

Two Irreconcilable Views

Pit the one against the other, stock versus bond. No compromise, no truce, can sink their differences. They are too vast.

As well ask the respective lords of heaven and hell to sign a treaty of peace…

As well ask Hatfield and McCoy to share a kiss…

As well ask the two poles of Earth to join at the equator.

That is, as well request the impossible.

As economist David Rosenberg styles it:

Both bonds and stocks can’t be right at this moment in time. We have to choose which asset class has the story right…

Which asset class has the story right — stock or bond?

We bring a prejudiced opinion to the proceedings, you say. That is, we bring a prejudiced opinion against the stock market.

Yet today we blindfold our eyes, hold the scales of justice even… and grant each side an impartial hearing.

The stock market rises to read its opening statement…

Why Shouldn’t the Stock Market Be Setting Records?

It insists the facts justify its optimism in full.

It reminds the court that unemployment scarcely has existence, that real wages are increasing, that January manufacturing jumped, that productivity is on its legs again.

The stock market is simply a mirror of these fabulous facts, it insists.

We must concede, the evidence produced has anchors in truth…

Unemployment hovers near record depths, at 3.6%. And 2019 witnessed America’s greatest productivity gains since 2009.

What is more, real hourly wages (inflation-adjusted, that is) expanded last year at the greatest rate since 2015.

Meantime, the Institute for Supply Management claims its January index of American factory activity came in at 50.9 — up from December’s 47.8.

Any number above 50 indicates a manufacturing expansion, a blossoming.

But the bond market thunders to its feet, and files a blistering objection…

Don’t be Fooled!

Take unemployment, the bond market argues.

Set aside the fact the United States Bureau of Labor is an agency of torture — that it twists, contorts, batters and gouges the numbers into false confessions.

Accept the 3.6% unemployment rate as truth, the bond market allows in generosity.

Unemployment sagged below 4% in April 2000, it reminds us — at the peak of the dot-com derangement.

The economy was in recession by March 2001… less than one year later.

And prior to April 2000, unemployment last hung below 4% in …read more

A Flood of Good News

This post A Flood of Good News appeared first on Daily Reckoning.

What are we to make of all the good news? Good news?

We learn by the United States Department of Labor that Americans were 1.8% more productive in 2019 than in 2018.

Here we have the greatest annual productivity gain since 2009.

We learn further that Americans’ real hourly wages (inflation-adjusted, that is) expanded 1.9% last year — the highest rate since 2015.

Meantime, Gallup informs us 59% of Americans feel more financially flush this year than last.

That is a record figure… nosing out the previous 58% from January 1999.

And a record 74% of American adults expect next year will find them in easier waters yet.

74% eclipses the previous 71% high from 1998.

Thus the American outlook is bright… and the spirit of gain is on the stretch.

More Good News?

Now what is this? Yet another sunshaft cracks through the overcast…

China has announced — unexpectedly — that it will slash tariffs on $75 billion of United States exports. Some, reportedly, as much as 50%.

And whispers swirl that researchers are nearing an antidote to the coronavirus.

China announced it will begin an experimental trial of the drug remdesivir. The New England Journal of Medicine reports the drug may offer at least limited salvation.

Reports MarketPulse:

It seems the world is nearing a cure for the coronavirus and that could mean markets may only need to price in only one bad quarter of data for China.

Therefore:

… the playbook remains once Wall Street is beyond the virus [and] risky assets will remain supported on central bank stimulus and the global growth rebound story.

We should not be surprised then that the stock market had itself a day at the races yesterday…

The Bulls Are Back in Charge

The Dow Jones ran up nearly 500 points by the closing whistle. The S&P went on a similar spree.

Both indexes extended their gains today.

The Dow Jones added 89 points; the S&P, 11. The Nasdaq took on 63 points of its own.

Gushes analyst Adam Crisafulli:

The bullish narrative that’s been driving stocks since late 2019 is firmly back in control of the tape after taking a brief pause during the final days of January.

Just so.

But let us draw a thick gray cloud across the sky… and patch the widening gap in the overcast.

We begin with United States productivity…

Show Us More

Productivity may have expanded 1.8% last year. Yet one swallow does not a summer make… as the phrase runs.

Productivity still goes far beneath the 2.1% average prevailing since the Second World War.

And the current expansion’s annual productivity gains?

They average a slender 1.3% altogether — thin, thin gruel.

We demand to see far more. But we may not see more…

Business investment remains depressed. And absent a sustained upward pressure, we have little reason to expect additional productivity gains.

Explain the gentlemen and ladies of Oxford Economics:

Productivity growth reached its fastest pace since 2010 last year, but we do not believe such performance will be sustained given lower domestic and global growth prospects.

But what about China’s …read more

Democrats in Disarray

This post Democrats in Disarray appeared first on Daily Reckoning.

President Trump delivered his State of the Union speech last night. He talked a lot about the booming economy and stock market, which are his main strengths heading into this year’s election.

The visuals said it all, as Republicans were on their feet cheering much of the night, while Democrats remained seated in obvious disgust.

House Speaker Nancy Pelosi provided the most dramatic theater of the night, ripping up her copy of the president’s speech in front of the nation.

The president didn’t mention impeachment. But he was acquitted in the Senate on both the abuse of power and the obstruction of Congress charges late this afternoon. The vote on the abuse of power charge was 52-48, with Mitt Romney being the only Republican to vote for conviction. The obstruction charge broke down 53-47.

The outcome was never in doubt, and is just another blow for Democrats. Trump has all the momentum right now.

Meanwhile, chaos in Monday’s Iowa caucus has further compounded the difficulties Democrats face in their efforts to defeat Trump in November. Much of the trouble in Iowa surrounded glitches with an app that was used to report the caucus results.

Many who downloaded the app to their smartphones received error messages or experienced difficulties in following its instructions. The party’s backup phone system  also reportedly failed, adding to the problems.

Widespread reporting issues resulted in mass confusion, leaving the ultimate winner still undecided.

In an early vote count, Bernie Sanders held a slight lead in the popular vote, with Pete Buttigieg leading in state delegates. As of early today, 71% of precincts have reported in. They show Buttigieg with 26.8% of state delegates, followed by Sanders, with 25.2%. Elizabeth Warren has 18.4%, with Joe Biden trailing at 15.4%.

The results are a big red flag for Biden, who fell short of the critical 15% threshold in some precincts. It was a clear failure. Now he has to go to New Hampshire with no momentum whatsoever. It’s not over yet, but it’s not looking good for Biden at this point.

Many have suggested the Democratic Party establishment intentionally skewed the results to obfuscate Sanders’ good showing and to avoid embarrassing establishment favorite Joe Biden.

Democrat Party officials naturally deny the charge, arguing that the glitches with the app were just that — glitches, and that there’s nothing else to it. But I’m not convinced.

I believe Bernie Sanders probably won Iowa, then Iowa’s Democratic establishment ginned up a “systems failure” to deny him his big moment and stop his momentum going into New Hampshire. Get used to this. Democrats are out to stop Bernie.

The surge of Bernie Sanders in the Iowa caucus and New Hampshire primary polls have mainstream Democrats in a panic. Bernie is vibrant and authentic, but he’s also a hard core socialist who took his honeymoon in the Soviet Union during the height of the Cold War.

Election outcomes are always uncertain, but Sanders looks like a sure loser to Donald Trump in critical …read more

Trump!!!

This post Trump!!! appeared first on Daily Reckoning.

The president appeared before the American people last evening… and assessed the state of the American Union.

In his telling the union is in a swell and exalted state, marvelous beyond compare.

And he is eager to accept credit…

A grand fellow, by all the gods, the president has fanned a mighty cyclone of American prosperity.

The result is record-low unemployment for Americans of every model and make…

For African-Americans. For Hispanic-Americans. For Asian-Americans. For women. For veterans, the disabled, the undegreed, the young.

And Mr. Trump let us know that America’s record stock market is the world’s envy.

We can only look on in awe, eyes apop and jaw adrop. As we have written before…

We confess a sincere admiration for any man so certain of his stars, so certain of whom the angels are for… and whom they are against.

No modesty hangs about him. No self-doubt gnaws at him. No scruple enchains him.

In Trump we have the popinjay pure and perfect, the supreme chest-thumper, the peacock of peacocks.

The fellow is simply… sui generis.

We concede he may be no deeper than the skin that encases him. But intellectual depth is vastly overrated in a president.

Overrated? It is often a menace…

It is the “deep thinkers” who think the republic into its deepest fixes.

They are drunk on their thoughts… as other men are drunk on alcohol.

The “Sage of Baltimore,” H.L. Mencken, certainly hooked onto something when he wrote:

“We suffer most when the White House bursts with ideas.”

Woodrow Wilson — for example — was the only doctor of philosophy to ever seize the White House.

He presided over Princeton University before he presided over the United States.

And the nation is still afflicted with his lovely ideas…

Who signed the Federal Reserve Act into law?

The answer is Mr. Wilson.

Who signed the federal income tax into law?

The answer is Mr. Wilson.

The same Mr. Wilson ordered the doughboys “over there.” 116,000 of them will remain forever over there.

And the Versailles Treaty that closed the “war to end all wars” spawned the “peace to end all peace.”

WWI was “the Great War” until an even greater war imposed a Roman numeration upon it.

In contrast to the intellectual president, we find Wilson’s successor once removed — Calvin Coolidge.

In Mencken’s telling, Coolidge…

Slept more than any other president, whether by day or by night… There were no thrills while he reigned, but neither were there any headaches. He had no ideas, and he was not a nuisance.

Take due note of the phrasing — it was not “He had no ideas, but he was not a nuisance.” It was rather:

“He had no ideas, and he was not a nuisance.”

Loftier praise for any president is scarcely imaginable: He had no ideas and he was not a nuisance.

Being a nuisance, alas, is how presidents nudge their way onto the history pages.

Whom do historians slobber and swoon over — a Calvin Coolidge or a Franklin Roosevelt?

A Grover Cleveland — or a Theodore Roosevelt?

Both Roosevelts were colossal nuisances.

Our central criticism of Trump is …read more