Could this be the week that it is all too much for us? We have been overlooking so much that President-elect Trump is doing that it is worth going over the graveyards we are whistling by every day as we continue to break records in this market.
1. Oil going higher on demand is one thing. But oil simply going higher on cutbacks is a sign of pure inflation in a market that is used to not having any inflation. Any increase in oil has been viewed as a sign that the world is getting better. But this is a sign of nothing more than Cartel discipline, which, historically, is not good for the markets. The President-elect doesn't like the cartel, he told me so personally. What happens if he takes issue with it? What happens if we have to start cutting numbers for the big users of oil -- namely, the airlines and the cruise chips? Let's watch those.
2. President-elect Trump can do what he wants to select companies in this country and their stocks will still bounce. But even if we cheer that he is standing up to China, companies with large Chinese businesses are feeling very threatened. The Communist Party is indifferent to where product is sourced and while Trump wants very much to "deal" with China, it is possible for China just to ban, say, the iPhone. If they do that, there will be plenty of pain -- but that doesn't mean Trump will cave.
This is where the rubber hits the road of his new policy -- not a hot war but a cold business war where our President-elect simply decides to sacrifice American business interests, short term, for some sort of pot of gold down the road. I don't know of a soul who thought the confrontation would come via our long-standing agreement that sides with the PRC even as we have pledged to defend Taiwan. Trump seems to be betting that China itself is a Paper Tiger. Some investors who respect China, and know the companies they own crave its markets, have to be more concerned than they let on.
3. The new cabinet, taken in its entirety, begins to worry professional investors. The former head of Exxon-Mobil (XOM) running State? The most pro-capital Secretary of Labor in history. The department has always been meant to represent labor's interest; not capital's. An EPA head who is suing the EPA? It could just be all too much for a big institutional investor to take.
4. The calls to CEOs: It may seem just too out-of-control to be this granular, and is regarded as too erratic. Will he call Boeing (BA) today and say, sorry, you can't have that $16.6 billion order from Iran? Will he tweet that the pharmaceutical companies are still raising prices too quickly? Is this how it is going to be for the next four years? If so, aren't stocks getting too risky? Are we about to expand the "not a Trump" stock list when he meets with tech CEOs later this week in New York?
5. Interest rates keep climbing and the dollar keeps going higher. These are historically issues that have gutted the market and hit stocks of international companies hard. Perhaps we are so sure of the pro-growth agenda that we aren't concerned? Or maybe it will all prove too much -- and a tipping point is in sight, maybe with the Fed meeting this week? Are we ready for four rate hikes in 2017? We may have to be. Now that even the housing stocks are going higher, shouldn't the market be more concerned than it is?
6. Worries about separation of powers. Every other branch of government is so silent in its acceptance of what is going on with President-elect Trump, that investors might be growing uneasy with the potential strength of the Oval office, given that Trump hasn't even taken over yet.
7. I am hearing many talk about how cheap the European banks are versus ours, and I agree. Some of the British banks in particular seem inexpensive, and Deutsche Bank (DB) may be out of the woods with the Justice Department. But Monte Paschi, the third largest bank in Italy, teeters, with $48 billion in debt weighing down the balance sheet. Can we continue to ignore what looks to be a failing restructuring plan? Maybe it can be saved, but not without billions lost by both Italian citizens and the debt holders, myriad banks abroad.
Of course the Trump presidency is setting itself up as being pro-business in nature. That agenda -- repatriation of overseas money, lower corporate taxes and less regulation -- is all good for business and, therefore, stocks.
But we have to understand that a lot of businesses have made their beds with making goods in Mexico courtesy of NAFTA and selling wares in China because of the 'One-China' policy that doesn't allow for recognition of Taiwan. These are businesses with stocks that the market historically likes -- everything from tech to the consumer packaged goods stocks.
If we clash with China, earnings could be sacrificed before there is a resolution -- if there is one at all. The "wrong" stocks, so to speak, the resource-based stocks and some segments of manufacturing, have been the winners besides the banks, and that's not a very broad leadership. If we really do rip up NAFTA, inflation will go higher and numbers will be cut for many companies.
All I am saying is that we have only taken in the positives of this new presidency while these negatives -- normally, really bad for the market -- have been ignored. How long can that really go on?
It feels like this is the week we will find out. We've come very far, very fast. It will make some people uneasy. It may be time to take a pause and see what the Trump presidency may mean in its entirety -- especially in light of the macro news and the prices of bonds, the dollar and energy, that over time have proven to be negative news that sends stocks lower, not positive news that's a reason to keep rallying.
