…..there are some troubling signs that Mnuchin is unlikely to “drain the swamp” connecting Wall Street to the beltway. For example, during interviews following the official announcement, he was quick to praise Janet Yellen as having done a “good job,” after Trump spent much of his campaign criticizing the sitting Fed Chairman. He also entertained the idea of following the lead of other countries in possibly issuing 50–100 year bonds governmentbonds. As Dr. Joseph Salerno wrote recently on the subject of Austria’s 70-year bond: The creation of [long-term bonds] enables the political elite to covertly and repeatedly plunder and impoverish productive savers, capitalists, entrepreneurs and workers, while avoiding the need to incur the wrath of the productive class by raising taxes.
And right on cue, wage gains in November “tumbled”, coming in very disappointing across-the-board. For all employees, average weekly earnings were essentially flat year-over-year, up just 0.4% in November. The growth was even flatter for production employees, only 0.3% higher than November 2015. What you never see in the media is that these extremes are typical month to month; as you can clearly see below, wage gains are highly variable, so highlighting only one month when wages are high is misleading.
The political class is in a panic, and not just in this country. From the hollowed out cities of the Rust Belt to the vineyards of France and Italy, a new nationalism is on the rise, threatening not only the perks and privileges of the managerial elites but also challenging the parameters of the post-World War II international order. Trump’s revolution in the US is but the latest and most dramatic example of an international trend that we saw manifested in the victory of the Brexit campaign, and now in the stunning transformation of the political landscape in France and Italy.
The Pentagon paid a UK PR firm half a billion dollars to create fake terrorist videos in Iraq in a secret propaganda campaign exposed by the Bureau of Investigative Journalism. PR firm Bell Pottinger, known for its array of controversial clients including the Saudi government and Chilean dictator Augusto Pinochet’s foundation, worked with the US military to create the propaganda in a secretive operation. The firm reported to the CIA, the National Security Council and the Pentagon on the project with a mandate to portray Al-Qaeda in a negative light and track suspected sympathizers.
We continue to view the equity market as tracing out an extended two-year top formation, at what is presently the third most extreme level of market overvaluation in history. Enthusiasm about a runaway market “breakout” to the upside is clearly evident in fresh sentiment extremes, with advisory bullishness rising to 55.9% and bearishness down to 21.6% (Investors Intelligence), but the fact is that the S&P 500 Index closed Friday less than 4% above its May 2015 high, and just 1% above its August 2016 high. The broader NYSE Composite Index remains below the level it set in July 2014, though with a slightly positive return including dividends. The stock market has reestablished an extreme overvalued, overbought, overbullish syndrome of conditions that – unlike much of half-cycle advance from 2009 to mid-2014 – lacks internal uniformity, particularly among interest-sensitive and globally-sensitive sectors. For that reason, the recent marginal highs are more consistent with a “blowoff” than a “breakout.”
The outgoing CIA director, John Brennan, calls Trump’s plan to junk the Iran deal ‘the height of folly.’ Brennan warns that doing so would further destabilize the Mideast and embolden hard-liners on all sides. He could have added that if Iran resumes nuclear enrichment, Israel’s far-right government will likely go to war with Iran in order to preserve its Mideast nuclear monopoly.
Now, Americans should be on guard against “fake news” and foreign meddling in U.S. elections. Yet it is often our own allies, like the Brits, and our own leaders who mislead and lie us into unnecessary wars. And is not meddling in the internal affairs, including the elections, of regimes we do not like, pretty much the job description of the CIA and the National Endowment for Democracy? History suggests it is our own War Party that bears watching.
Instead of promoting expensive infrastructure investment plans that are unlikely to produce their claimed benefits, Congress and President Trump should work to reduce the large misallocation of infrastructure resources and improve the efficiency of existing infrastructure networks. This would involve prioritizing maintenance over expansions, restoring the users-pay/users-benefit principle, removing regulatory barriers to construction, and adopting road pricing. Unfortunately, the Great Infrastructure Myth is unlikely to die as long as politicians place ribbon-cutting ceremonies before the truth.
The Bloomberg Barclays Global Aggregate Total Return Index lost 4 percent in November, the deepest slump since the gauge’s inception in 1990. Treasuries extended declines Thursday along with European bonds on speculation that the European Central Bank will consider sending a signal that stimulus will eventually end. The reflation trade has been driving markets since Donald Trump’s election victory due to his promises of tax cuts and $1 trillion in infrastructure spending.
The bad news? An additional 446,000 people are no longer in the labor force. To give you a sense of proportion, that is like the entire population of Fresno, California switching to Not In Labor Force. There are now 95.1 million folks NOT in the labor force.