We have a big month ahead that got more relevant last week when the Fed finally awakened. A rate hike, a Dutch election, the last month of full speed ahead ECB QE (they meet on Thursday), and expected details of what healthcare and tax policy the Administration will be behind HOPEFULLY, will become evident. Of course on the latter point what the Senate will support or won’t is also hugely important.
We all know the stock and bond market backdrop as we enter this period and I’ll breakdown again the ONLY things I find important right now:
- What will tax policy look like and when it gets implemented?
- How much monetary tightening will we see this year in the aggregate when we total what the Fed, ECB, BoE and BoJ will do? Because we have seen peak monetary largesse that is now reversing.
All else is noise (unfortunately very loud and distracting at times, especially on Saturday mornings around 6:30am). I will say again, be optimistic that the right (subjective of course depending on one’s views on trade) tax and regulatory policy can better grease the wheels of business but be very afraid that the reversal (however slow) of 8 years of extraordinary monetary policy will most likely be highly disruptive. I just don’t see how it can’t be and why I’m more worried for markets about the latter than positive on the former considering the extreme valuations everywhere.
European elections have many all worked up but I’m not. If Mark Rutte loses in the Netherlands I don’t see any chance Geert Wilders forms a government. I see very low odds that Marie Le Pen wins and Germany is staying in the euro and wants to be a part of a broader eurozone no matter who wins in October. I’ll say again, Mario Draghi and the epic bond bubble he created is the biggest threat to the region.
China was a key story over the weekend as they lowered their growth rate to 6.5% but we know that is still delusional. I mean picking a growth rate and then backing into it is literally completely backwards. That said, I was encouraged to see that China is stepping up its encouragement of bankruptcy and of wanting to avoid the Zombie State. When facing a massive debt load, one has 4 choices: 1) Pay it back, 2) write it off, 3) extend and pretend and/or 4) inflate your way out. As we know, capitalism (whichever form and degree it takes) without failure is like religion without sin. In response to what was really not new news with the People’s Congress over the weekend, the Shanghai comp rose .5% and the H share index in Hong Kong up by 1/3 of a %. The yuan was higher vs the US dollar. Commodities are mixed with copper in particular lower and at a one month low after the post election impressive run.