By: Kent Engelke | Capitol Securities
I have commented several times that I think the markets, the economy and the geopolitical environment are on the cusp of a major change. Psychology 101 states people are comfortable in the status quo even if the environment is miserable because it is familiar. Familiarity breeds comfort, but at some juncture, change is demanded as the status quo becomes unbearable. When this juncture is reached, the unquantified future becomes more appealing.
An argument can be made that the first phase of the rejection of the status quo occurred with Brexit, Trump and France’s election.
Speaking of France, like most, I do believe Le Penn will lose Sunday, but Macron’s ascension will only be Pyrrhic victory. According to French polls, an overwhelming majority of French voters see globalization as a threat to France. If the far right and far left voters are totaled — both share the commonality about the EU – a whopping 50% of French voters are desirous of leaving of the EU and an astonishing 65% of French society believe the EU is detrimental to France.
When will the second phase occur, defined as the legislation of the new society and the rejection of the old geopolitical norms? What will be the event that will instantly change the world overnight?
Will it be China toppling North Korea? Will it be an implosion of a Middle Eastern theocracy because of the drop in crude prices? Will it be something more benign such as the repeal of Obamacare or considerably stronger than expected job growth, all of which will increase momentum for tax and regulatory reform?
Historically it is an event that is often viewed as just a “one off,” similar to a seemingly meaningless devaluation of the Thai Bhat that ushered in the Long Term Capital Management crisis.
Perhaps history will regard the overwhelming rejection of the soda tax in far left Santa Fe by 58%, a rejection that occurred with remarkably high voter turnout, propelled by the largely poor and Hispanic districts. The affluent or elitists largely were split in its support.
I was involved in a conversation about the contrasting legislative style between President Trump and President Obama. I will readily acknowledge my thoughts are not mainstream.
Many times I have commented President Trump is the Hope and Change President given surging confidence levels that President Obama never achieved. My next thought is perhaps even more radical. President Trump is more of a unifier and President Obama was more of a divider.
President Trump is engaging Congress, something President Obama never really attempted. Accordingly, President Obama was publicly a unifier, but privately a divider. President Trump is publicly a divider, but privately a unifier.
President Obama is publicly well liked and ardently adhered to academic idealistic polices. President Trump is not well liked, is a realist and revels in his ability to craft a deal.
In my view it is paramount to have a geopolitical macroeconomic thesis in today’s generational change where yesterday’s rules may no longer apply. Many of the industry’s greatest luminaries are warning about the passivity of today’s investors as it relates to the proliferation of ETFs and technology based trading where such thesis have all been discarded.
What will happen today?
As noted earlier, at 8:30, April’s unemployment data is released. Will it be the inverse of March’s negative surprise? Analysts are expecting a 4.60% unemployment rate, a 190k increase in non-farm and private sector payroll, a 0.3% increase in average hourly earnings, a 34.4 hour work week and 63.0% labor participation rate.
Last night the foreign markets were mixed. London was up 0.01%, Paris was up 0.06% and Frankfurt was down 0.27%. China was down 0.78%, Japan was up 0.70% and Hang Sang was down 0.84%.
The Dow should open flat, but this could change radically given the significance of the 8:30 data. The 10-year is off 5/32 to yield 2.34%.