THE PRESIDENT PROPOSED SOMETHNG RADICAL YESTERDAY…WHAT ABOUT TODAY

Will the President disappoint? Equities advanced on the premise of tax reform, the details that may be released today. As noted many times, the averages have been buoyed by great expectations of a Trump presidency that lowers regulations, simplifies the tax code, increases infrastructure spending and reduces the size of government.

Commenting on the above, increased infrastructure spending has bipartisan support. What about reducing the size of government?

Yesterday, the President announced his dictum that government agencies reduce their budget, but not in the Washington sense. For most organizations a 10% reduction in spending is a 10% reduction in spending. In Washington a 10% spending cut is historically a 10% reduction in the rate of growth. In other words, it is largely ceremonial.

The President’s spending cut is radical for Washington. He has proposed an actual reduction in spending, not a reduction in the the rate of a spending increase.

How will the bureaucracy respond? Probably disdainfully.

As stated above, many are expecting Trump today to announce his tax reform plans.

I have commented many times that globalism is on death’s bed. Yesterday it received another direct hit as Scotland stated it will vote to leave the United Kingdom. A similar referendum failed in September 2014. I will argue if this plebiscite is passed and if Le Penn is victorious in France, both of which is a distinct possibility, globalism has died a traumatic and swift death. Wow! Talk about the unexpected occurring.

If this does occur, the investing landscape has radically changed where yesterday’s rules no longer apply. Economic nationalism will dictate sovereign’s policies.

This implosion of an economic order coupled with perhaps the ending of a 30-year bull market for sovereign debt has and will continue to create uncertainty. How will such uncertainty be manifested in the markets?

Historically negatively, but again expect the unexpected where growth may exceed forecasts.

There is little to write about on yesterday’s market activity. Equities were flat, treasuries fell, the dollar erased losses as the odds of an interest rate next month rose past 50% and oil advanced to the highest level since July 2015.

Last night the foreign markets were mixed. London was up 0.03%, Paris down 0.05% and Frankfurt down 0.19%. China was up 0.40%, Japan was up 0.06% and Hang Sang was down 0.77%.