‘Yet’ happened rather quickly. The title of my note yesterday was “Markets don’t give a damn, yet” defining where the line was when it would care. Picking fights and getting criticized by members of one’s own party don’t help in pursuing one’s agenda. I’ll take two quotes from today’s WSJ article titled “Donald Trump’s Jabs at Lawmakers Fire Up GOP Senators” as while obvious, clearly spells out the problem. One Senate aide said in reference to Congress and DJT, “We’ll continue to see distance as members recognize that he is more likely to hinder than help their agenda, and his constant drumbeat of homemade scandals and unforced errors give them more incentive to speak against him than work with him.” Republican Senator Tim Scott said, “It is always helpful for the president to have coattails… The president’s coattails are shorter.” I’ll leave it at that.
As for the market, that Value Line equal weighted geometric index I keep talking about as it’s a broad index of 1700 stocks and not skewed by a few names, it’s now down on the year. It’s also at a level seen in June 2014. The ‘market’ is how one defines it.
As for gold which now seems to be a daily barometer on Trump and always the US dollar, it’s at $1300 for the first time since early June. Another $3 higher and it will be at the highest level since November 7th, the day before the election. It’s quietly up 12% year to date. I remain bullish.
Switching to the data and a major pressure point that is the Chinese property market, in July all 70 cities surveyed saw price gains of new apartments y/o/y. That is the same level in June but vs last month, 56 of 70 said prices rose which is the least in 5 months. For existing homes, 67 reported price increases vs last year, up 1 from June but 54 saw gains vs last month vs 60 in June. There was also an increase in cities seeing price declines m/o/m for both new and existing. In terms of price gains in the major cities, they continue to moderate but still remain robust. In Beijing, home prices were up by 8.9% y/o/y vs 10.7% in June. This was running at a 28% rate last September. In Shanghai, prices rose 7.3% y/o/y vs 8.6% in June and down from 33% last September. Lastly, prices in Shenzhen were basically flat y/o/y vs 2.7% in June and which got as crazy as a 62% gain in April. Importantly too, prices in 2nd and 3rd tier cities have cooled as well. Bottom line, the initiatives that many cities have taken to cool down the bubblilcious housing market seems to be showing some results. Where this ends nobody knows but is an inevitable process that has needed to take place for a while. The Shanghai property stock index was not bothered by the m/o/m declines as it closed up by .5% while copper is flat, a hair below the highest level since November 2014.
After China has officially announced restrictions on the investment outside its borders in real estate (including hotels), movie studios and theaters, other entertainment and sports teams, the yuan is up a touch. They outright banned investments in gambling, ‘sex industries’, and military technology. What they are encouraging is investing in the One Belt, One Road initiative that is massive and if you are not familiar, make sure you read about it. https://en.wikipedia.org/wiki/Belt_and_Road_Initiative.
The Silk Road Economic Belt and the 21st-century Maritime Silk Road, also known as the Belt and Road Initiative (BRI) and The Belt and Road (B&R), is a development strategy proposed by China’s paramount leader Xi Jinping that focuses on connectivity and cooperation between Eurasian countries, primarily the People’s Republic of China (PRC), the land-based Silk Road Economic Belt (SREB) and the oceangoing Maritime Silk Road (MSR). The strategy underlines China’s push to take a larger role in global affairs, and the desire to coordinate manufacturing capacity with other countries in areas such as steel manufacturing.
The coverage area of the initiative is primarily Asia and Europe, encompassing around 60 countries. Oceania and East Africa are also included. Anticipated cumulative investment over an indefinite timescale is variously put at US $4 trillion or US $8 trillion. The initiative has been contrasted with the two US-centric trading arrangements, the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership.