With earnings season in progress, my reading this week was confined largely to quarterly earnings presentations and conference call transcripts, but there were some pretty interesting stories that crossed my desk as well.
Here is a curated list of important stories outside the main headlines that caught our attention this week.
Trump’s trade warrior prowls the West Wing (Politico). Peter Navarro is a former economics professor who has been guiding Trump’s trade policy. The crux of his policy is economic nationalism, and his voice makes it through into quite a few of President Trump speeches if this article is to be believed. I understand the urge behind economic nationalism. When I first moved to Japan, I was shocked that there were virtually no foreign cars on Japanese streets. I haven’t been back for years, but when I lived there, except for a few movie stars in Ferraris and Hummers, I rarely saw an American or even a Korean car. Who living in the States doesn’t know someone who owns a Toyota, Lexus, or Honda? The present trade situation in the US is complex historically and long-lived; entire industrial ecosystems have thrived for decades under the assumption that a free trade of goods will always be possible. From my perspective, trying to set the clock back would create a great deal of pain with very little if any benefit. Here is Navarro’s biography on Wikipedia.
Jamie Dimon tells financial journalists to stop writing about finance (Financial Times). Is it just me, or does it sound like Dimon is getting ready to run for office? Better than Kid Rock, that’s for sure.
How the Senate Health Care Bill Failed: G.O.P. Divisions and a Fed-Up President (NY Times). In the long research report on Trump-era investing published in November, we dedicated the final third of the analysis on the question of Trump’s likely efficacy as Chief Executive. Here are the actions we listed that a president would have to be able to carry out to be successful.
- Clearly articulate a vision for the country
- Craft a strategy for implementing proposals consistent with that vision (strategic planning)
- Create consensus within his own party regarding his vision and strategies (tactical execution)
- Create consensus among politicians from opposing parties that supporting his vision will create more good for them than it will create damage (tactical execution)
- Engineer support for his policies within the populace at large, at least to the extent not to lose seats in the mid-term elections (charisma)
Compare the recent proposals for Trumpcare to that list. In my opinion, President Trump didn’t have a vision of healthcare so couldn’t articulate one [N.B. getting 51 votes is not a vision] and clearly failed to craft an overall strategy. The Republican party is tearing itself apart and neither President Trump nor Mitch McConnell showed, as far as I could tell, any interest in bipartisan support for the bill, viewing bipartisanship as a worst-case outcome. The public – many of whom had voted for Republican legislators and for candidate Trump – realized how badly the proposed legislation would affect them and hated it.
Now that the healthcare bill has been kicked to the side of the road, attention turns to trade (NAFTA and bilateral Chinese negotiations) and to tax reform. Both are important topics. Neither will go well if President Trump continues as he has.
This is a vitally important topic for investors. While the market has been buoyant since the election, most of the value in a company or a collection of companies comes from medium-term and long-term growth. A blank of four years is not irrecoverable for a country as wealthy in natural resources and talent as the US, but it is also not nothing. We remain cautious and believe that market risk is much higher than reflected in the VIX.
Bill Gross July Investment Outlook: Curveball (JanusHenderson Investors). Bill Gross is reported to be pretty tightly wound and tough to work with. Hard to imagine that reading his uplifting, optimistic commentary about the bond market [/sarcasm]. If you’re finally ready to take the big step and live in a Ted Kaczynski cabin hoarding tuna fish cans and shotgun shells, just read this article once a day for a few weeks. It is guaranteed to push anyone over the edge.
A consistent undercurrent in the markets is that because the yield curve (a plot of the interest rates of increasing maturities of US Treasury securities) has not flattened (i.e., short-term rates are the same as long-term ones) or gone negative, there is no need to worry about a recession. Gross’ point in this article is that because the world’s central banks have bought so much of their own countries’ debt in various Quantitative Easing schemes, perhaps the yield curve will not get any flatter before the next recession. While I poke fun at Gross’ dreariness, this fellow is smart – damn smart. Read what he has to write each month – you can sign up for the JanusHenderson mailing list here.
Saudi King’s Son Plotted Effort to Oust His Rival (NY Times). Don’t bother with that silly Game of Thrones nonsense. This is a story of true palace intrigue – assassination attempts, drug addiction, spy networks, and proxy wars. We have followed the story of the ascension of Mohammed bin Salman, the favorite son of the last Sudeiri Seven Kings of Saudi Arabia, but the details that are starting to emerge are truly startling. Makes for a great read about an important and increasingly uncertain corner of the world.
Mexico breathes sigh of relief over US Nafta objectives (Financial Times). In this case, it looks as though Mr. Navarro lost out to President Trump’s more conventional advisers (e.g., Cohn, Mnuchin). It could be because Navarro’s main source of ire is not our neighbors to our South, but rather to our neighbors in the Middle Kingdom. The first sentence of this article speaks volumes:
Mexicans can breathe easy as the US Trade Representative’s objectives for the North American Free Trade Agreement renegotiation signal a willingness to continue tariff-free trade across North America.
This does not mean that the negotiation will be easy, and I think there is some non-zero chance that President Trump will involve himself in an unhelpful way sometime between now and when the final deal is struck.
Obscure Coal CEO Rains Money on Trump While Outflanking Rivals (Bloomberg). This is not, at its heart, a political article, even though the President’s name is in the headline. Instead, it is the story about a wise CEO who was able to steer a firm in a dying industry to success when other, larger firms failed. Joseph Craft has not only built a coal company that has generated 17 years of continuous profits, but has done this owning the least attractive coal deposits in the US. In the end, the moral of this story is one that Framework Investing members should appreciate: invest wisely and focus on what you know.
