Donald Trump has been beating his chest and Republicans have been beating the drum that he and they are personally and collectively responsible for the economy and the performance of stocks on Wall Street every time a mic is thrust in front of their faces. They insist on taking responsibility for the economy’s boom. Let them. They own it. Today they own the plunge in the stock market (down over 500 pts. as I type) due to investor euphoria having suffered a tremor, raising interest rates, and drops in valuations in tech stocks, primarily.
Let’s look at the January 2018 performance — the best since 1997. Good on Trump! However, the first month of the year has been a historical marker for the entire coming year — that’s why it’s called the January Barometer. It has been a pretty good predictor over time.
“The old Street saying is 'as goes January, so goes the year,' which is correct 71.9% of the time (since 1928)," said Howard Silverblatt, senior Index analyst at S&P Dow Jones Indices, in an email. "It adds to the momentum and hopes."
This trend is known as the "January Barometer," a term coined in 1972. Between 1950 and 2017, the barometer has been correct 58 of 67 times, or approximately 87 percent, according to the Stock Trader's Almanac.
It has also been accurate in predicting the market's direction in recent years. Since 1980, the January Barometer has correctly predicted the S&P 500's year-end direction 68 percent of the time. CNBC yesterday
Gee, that must be a terrible blow to Trump’s ego since he couldn’t possibly have been responsible for the success of the stock market during all the years before he was born. And yet. . .facts have never disturbed his opinion of himself and his abilities.
Likewise, fellow liberals, Trump is not responsible for the approximately 2% drop in the market today. Today’s drop can most likely be attributed to rebalancing portfolios within the big investment institutions that hold folks’ retirement accounts and the accounts of index investors. Why? Because this happens every year when the previous year’s stock returns have been stellar. 2017 was a stellar year for returns in equities.
Most portfolios belonging to retirees and long-term investors are formulated on the 60-40 formula. 60% of one’s portfolio is stocks. 40% is bonds. Because so many of these investors have automatic buys, the returns during the year are plowed back into funds and holdings and the portfolios begin to bulge with stocks, especially during a bond bear market that we saw last year.
Now portfolios are out of balance. . .maybe 70% stocks and 30% bonds. Selling takes place.
[Stocks down 600+ pts. and fluctuating as I type.]
January saw a 5% gain. In the last week we’ve now seen a 2-3% drop. Talking heads are scrambling to explain this turn-around. Factors include the tax bill and the associated sugar high from some of those bonuses. Wages have risen this year. The Fed is due to to raise interest rates (In spite of the fact everyone knows it’s long overdue and has ‘built in’ that to their investment strategy, nervousness has made traders jerky.) Plus, the DOW has been overbought, the 10 year yield is at 2.6% — a relative high, and bonds have been vastly oversold, the dollar is declining, the impact of the Tax Bill has hit faster and harder than expected, and, lastly, the so-called Nunes Memo has caused turmoil, a “buyers’ strike,” if you will.
We’re not going to experience a Great Crash or a Tech Bomb, or an October Surprise in February. Nor are we going to see 4% growth in the economy. Sorry, Don and Corporate Tax Reduction Supporters.
What is little noted and long ignored is what is going on in world petroleum statistics. Combined, the USA produces more liquid petroleum that any other country in the world. But for the first time in decades, the US is predicted to overtake Saudi Arabia in oil production and take over the leadership position there, too. Keep in mind, Saudi Arabia has been weaning itself off a total petroleum economy and reducing its production, allowing us to surpass their levels. What does this mean?
First, we must acknowledge that US production signifies an explosion. Second, the decline in Saudi production signifies a lessening of OPEC’s force in determining market prices. Third, Russia is being squeezed into a dangerous position if it loses its co-equal lead that it shares with Saudi Arabia as a linked partner in production. Such a shift will impact the European Union as America’s energy control is employed by Trump as a weapon to bully old allies and punish (what should be) traditional enemies.
What will Trump be “responsible for” in the future?
Trump may be in the position to create real chaos on the world stage beyond mere rhetoric. He and his Administration may feel inflated perceptions of “America firstness” and consider themselves to engage in wars of adventure in North Korea and Iran. Remember that a Deep State meme in GW Bush’s era was that the Iraq War was all about grabbing their oil. Russia is the largest “dark” supplier of petroleum to Korea. If America exercises control over pricing, that spells trouble for them and enrichment for Korea, If. . .and I mean a big only IF. . .the USA doesn’t start a war with Korea.
Like it or not, while we’re seeing prices plummet in the energy sector and can expect further weakening, Trump has acquired a weapon with the potential of wielding more power to bring other countries to his heel than the threat of nuclear weapons provide him.
Much about our economic future and the balance of power affected by control of petroleum prices hinges on the outcome of the Mueller Investigation, the fallout it produces on current Republicans in power, and when it draws to a close. Yes, Robert Mueller is the most powerful person in the free world right at this moment. Not Donald Trump. Mueller, it can be argued, is responsible for what happens in the stock market and our economic growth, not the man in the WH who crows for credit.
[Full disclosure: No, I’m not a trader. Yes, I am an investor.]
Monday, Feb 5, 2018 · 6:25:52 PM +00:00
·
Limelite
Dow down 1000 pts. in two days as of this posting. This is a Trump plunge in equities’ values because of interest rates nervousness now. We’re seeing Wall Street “test” the new head of the Fed. Janet Yellen’s steady hand is no longer at the helm and the corporate crew is being captained by an unknown quantity, Jerome Powell.
While having served on the Board (Obama appointee) for 5½ years, Trump chose to overlook Yellen’s stellar administration and for the first time in decades, a president did not reappoint a Fed President to a second term.
The degree of confidence the economy will reflect in the new head should not waver, however, as Powell was a supporter of Yellen’s policies, and has indicated he will follow her approaches to regulating the economy.