Why such noisy markets?
IN the wake of stock market volatility, Donald Trump announces that his biggest threat is the Federal Reserve. I think you’ll find anyone with a secondary school IQ coupled with the ability to communicate is equally as threatening as Donald!
In this column we announced at the beginning of his term that his actions would be inflationary. The counteract to inflation is, of course, rising interest rates, and with that is a rising dollar as your currency is purchased by investors who might believe your story of making America great again.
It’s been a while since markets were straightforward and followed economics. If they did, we would have understood them and been out of them some time ago.
On the week the markets nose-dived, each of the global specialist columnists had been running their ‘view of the markets’ seminars and columns, body swerving, or unaware of what lay ahead the following week.
The next week they are happily explaining what is wrong (it was obvious the week before) and to stay in the market.
My own view at the time (and still is) that we are not at that point in the market yet where it retreats to such an extent and stays there for a while. Much exists to show we are not at the bottom yet.
The Fed believe equity valuations were toppy, and so are unlikely to move in at any time soon to support. It will take quite a bigger bash to acquire their involvement.
There is too much euphoria around Trump and he is actually believed. Moreover, his supporters say it out loud. People believe he looks after the ‘poor people’, when in fact he does not.
But who cares about it all if we are in an ultra capitalist market? Markets don’t, and with a large section of society breast-fed on reality TV shows and Facebook memes through false news, markets could eventually evolve to become what the people believe and economics fall by the wayside.
We are in one of the most difficult times in history to invest money which is why a steady hand on the tiller is required. Remember, markets tend not to look more than six months ahead. What’s in the ugly melting pot that markets are not focusing on? Out of control spiralling record global debt.
Trump and his biggest sponsors focus on Iran. His biggest sponsor into power, who incidentally benefitted in Trump’s tax cuts, in one of his companies alone, by over $700m this year, has just given him another $30m to assist in the mid-terms.
That same sponsor was behind Trump scrapping the Iran peace deal and who also talked of nuking Iran and now we have sanctions against Iran.
Off the back of that, we now have soaring oil prices, which will lead its way into inflation and right into the running costs of companies. A strong victory in the mid-terms won’t be good, as Trump’s funders will have a much easier run with Iran.
Look closer at Pat Robertson, Trump fanatic and evangelical founder of the Christian broadcasting network. Out loud, he states the US shouldn’t get hung up over the alleged murder of a Saudi journalist two weeks ago, as Saudi Arabia are allies and Iran is a bigger problem. Yes he said that out loud, and without much recourse. Unchallenged, that, coupled with their other allies’ support, cannot end well.
Meanwhile the Fed is closer to its “quantitative tightening” which will undoubtedly squeeze markets further especially after it has artificially kept markets afloat over the last ten years.
Slam in the middle of this are trade wars, and as Trump threatens China, he forgets how much of his treasuries they own. They won’t add to the purchases they have, and may sell, and both policies create a slower economy and equity market, through higher bond yields.
And in the midst of it all we have the mid-terms - more on that next week.
:: Peter McGahan is chief executive of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you require financial advice call 01872 222422, email email@example.com or visit www.wwfp.net