2017/09/09 WEEKEND: Truculent Trump Tribulations
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WEEKEND: September 9, 2017
Truculent Trump Tribulations
First there was Hurricane Harvey seriously flooding southeast Texas as a tropical storm, soon to be followed by major Hurricane Irma slamming the entire Florida peninsula. Yet along the way there has been another storm brewing that became more aggressive this week as well: Hurricane Donald!! While not physical in nature, US President Donald Trump has not been at all shy about dumping cold water readily on both foes and friends (with sharply shifting sentiment on who is in each category.) And he is known as one of the windier practitioners of aggressively blowing against anyone who he disdains, especially those who differ with his views of the moment on any given person or topic. And for those not already aware, that is exactly what the term ‘truculent’ means (according to the Google lookup): eager or quick to argue or fight; aggressively defiant. Sounds about right to us.
In the case of the US President that is particularly interesting due to his penchant for shifting what seemed previous to be very strong positions. His hair in the opening graphic is not the only thing that can be windblown. It seems consistent with the major positions swirling around in his head that can rapidly shift to and fro. So anyone who is against the President one day might be someone he lauds for the same positions in another phase. And this is just what transpired this week on his quick compromise with Democratic Party leaders, praising their cooperation on the US debt ceiling and budget deals.
We will allow there were some good reasons regarding multiple storm preparation and relief that meant any significant stall in agreement on those two issues was neither acceptable nor realistic. Yet the speed with which the President gave in to accepting the full Democratic position was breathtaking (more below.) While Republican leaders are putting a good face on it, the rumor is that behind closed doors they are seething.
And we can see where the President’s next serial rapid position shift is also having a market impact. After so many shifts that abandoned his staunchest alleged conservative positions along with administration reshuffles, might it be possible that the wider world is viewing the US as ‘rudderless’ under Trump? That seems to have market implications… especially on the further drop in an already weak US dollar.
Authorized Silver and Sterling Subscribers click ‘Read more…’ (below) to access the balance of the opening discussion. Non-subscribers click the top menu Subscription Echelons & Fees tab to review your options. Authorized Gold and Platinum Subscribers click ‘Read more…’ (below) to also access the Extended Trend Assessment as well.
NOTE: REVISED 2017-08-31: Like many others, we were encouraged by the likelihood the US economy would get the structural reform we (along with Mario Draghi and others) had been loudly complaining was not forthcoming since our dual It’s Lack of Reform, Stupid posts in January 2015. Since our December 8, 2015 Extended Perspective Commentary we were concerned about various factors that included continued high taxes and more regulation (i.e. under Clinton) that might have meant a continued weak, or even weaker, US economy. It was hoped Donald Trump’s election would change that. However, much like the estimable Ray Dalio (see our August 24th Commentary: Trump Troika post) and others, we are now very concerned that the US President’s diminished relationship with the Republican Congress will mean his tax reform and infrastructure spending agenda will have trouble getting passed into law. And that will quite possibly be a problem for any US economic acceleration, and high-priced US equities.
[Thanks to www.outsidethebeltway.com for use of graphic in Doug Mataconis’ 2015-06-17 Whether Republicans Are Ready Or Not, Hurricane Trump Is Coming. And this dated view on why it was impossible for Trump to win can be accessed at http://bit.ly/2vVKPRp]
▪ Prior to a summary quick view on the most important recent changes in the markets it is important to briefly explore the damage inflicted on his own reform agenda by Hurricane Donald’s truculent tribulations. And just for clarity that latter term can refer to either the ‘cause’ or ‘state’ of “great trouble or suffering.” And the American President’s penchant for picking on folks he doesn’t like only to reverse when it suits him, being morally vacuous at times and especially shifting between syrupy praise and sharp criticism for his ostensible Republican Party (as he is not really a party acolyte) cohorts along with the major administration personnel changes (often forced by negative events) amounts to nothing less than serial ‘self-inflicted wounds’…
…the sort of trouble that has distracted Congress from having more time available to focus on the legislative reform agenda. That requires the sort of serious consensus building normally required for major healthcare insurance, tax reform and infrastructure stimulus legislation to be crafted and passed into law. And as some efforts stalled, the President quickly shifted positions or pronouncements on key efforts.
The most glaring was his relatively recent (in the scheme of his overall reversal and faux pas history) shift on the healthcare insurance issue. After hosting a White House Rose Garden victory celebration featuring Speaker Ryan for the House of Representatives narrow passage of the Obamacare replacement legislation on May 4th, popular opposition to some cutbacks caused him to characterize it as ‘mean’ by mid-June.
NOT Leadership
And his extended communication on the health insurance reform issue then rotated around to the even more fraught efforts of Republican Senate Majority Leader Mitch McConnell, who failed to pass a ‘skinny’ (i.e. ‘repeal only’) bill. Nobody expected that to be the final bill, as straight repeal would be too damaging to too many Americans. Its purpose was to send back a bill over to the House to facilitate a ‘conference committee’, where a consolidated acceptable compromise bill could be crafted that both houses could pass, and send to the President for signing into law.
That likely somewhat more generous bill (more support to lower income individuals) might have indeed been passed and signed into law, even if still roundly criticized by the Democrat opposition. However, once McConnell failed to get the bill passed by just one vote, Trump turned on him. Of note, that final critical ‘no’ vote was cast by Arizona senior Senator John McCain, already at odds with Trump on many issues as well as Trump’s disparagement of the heroic McCain during the presidential debates.
Yet much as with the current tax reform effort, Trump presents all of the future benefits from the healthcare changes and still very nebulous stimulus efforts in only the most general and puerile populist form. Any of the details are fobbed off onto subordinates while Trump continues addressing partisan campaign style rallies where acolytes cheer the broad strokes future promises, with almost no attendant fine points.
Here’s a big heads up Mr. President: This is NOT leadership!! Even acknowledging the US now has one of the most polarized partisan political cultures where Republicans cannot expect even a single Democratic vote on any reform legislation, previous Presidents developed very clear administration proposals that they promoted to the public to gain broad acceptance for passage.
At some point if the administration plans are clear and beneficial enough, the Democrats constituents will demand they support it. Yet there is no such plan promoted by a president who is more comfortable with making broad promises, and then demanding the Congress both fulfill those promises and get it done in record time. Once again: This is NOT leadership!!
Furthermore, in addition to aggressively defending his blatant peccadillos (like his Charlottesville response) that sap time from all of Congress’ agenda, by lacking any specific plans that can then be used to advance his various agenda promises the President is making life tough for Congressional Republicans who hold such narrow majorities in both houses.
The ‘Deal’ With The Dems
And last Wednesday’s ‘deal’ with the Democratic leadership is the poster child for the President’s changeable nature that (along with so many other missteps, misstatements and shifts) might be sapping the rest of the world’s confidence that there actually is any real vision or steady policy emanating from the US at present.
While we will be getting into more of the most important market implications below, it is telling that a US dollar that has already been quite weak since the beginning of this year might have signaled the beginning of another extended selloff last week with no major upside correction looking likely anytime soon.
Eminently Predictable
The Trump capitulation to the Democratic leaders’ demands was something that could have been easily foreseen in his election campaign rhetoric. His lack of commitment to more conservative aspects of the Republican Party platform in addition to disparagement of some other key candidates left the door open to road compromises.
And who warned the Republicans on Mr. Trump’s greater commitment to deal making than the principles the conservatives saw as essential to their party’s long-term success? None other than fellow candidate Texas Senator Ted Cruz shortly after Trump himself had clarified his position as a great negotiator willing to make deals. In late January 2016 Cruz told an MSNBC interviewer, “We’re seeing something fairly remarkable happening on the political terrain. We’re seeing the Washington establishment abandoning Marco Rubio. I think they’ve made the determination that Marco can’t win. And they’re rushing to support Donald Trump. And just yesterday Bob Dole explained why the establishment is supporting Donald Trump. They said he’s someone we can make a deal with. He’s someone we can cut a deal with.”
“And I would note Donald just a couple of days ago drew the difference between me and him. And he said, look, Ted won’t go along to get along. He won’t cut a deal. So if as a voter you think what we need is more Republicans in Washington to cut a deal with Harry Reid and Nancy Pelosi and Chuck Schumer, then I guess Donald Trump’s your guy.”
Sending a Message?
It wasn’t like anyone needed to be a fortune teller to know this was possible. Yet as it has finally occurred on what was more of a complete Trump capitulation than a deal anyone can characterize as a successful negotiation, it leaves one wondering what really occurred here. Was Trump trying to send a message to McConnell and the other Republicans that they needed to work harder to implement the reform agenda? In any event, it has significantly deteriorated his already fraught relationship with the Republican Congress and even some within his administration.
Speaking of “this is NOT leadership”, the bottom line is that the President, self-promoted author of The Art of the Deal and self-proclaimed ‘great negotiator’, (in colloquial terms) ‘folded like a cheap suit’. There have been questions over whether Trump is a better deal maker or just a very talented promoter for many years. While we have not independently reviewed the findings, there is a very good Fortune magazine article on this published during the height of the US presidential campaign last June. We recommend it as a read for Trump supporters as well as nonbelievers.
We will of course, allow as we noted above, that there were some good reasons regarding multiple storm preparation and relief that meant any significant stall in agreement on the US debt ceiling and federal budget was neither acceptable nor realistic. Yet the speed with which the President gave in to accepting the full Democratic position instead of any part of the Republican position based on an afternoon Oval Office meeting was breathtaking.
And while Republican leaders are putting a good face on it for public consumption (“…it allows us to move on to really focus on tax reform as well as provide immediate storm relief…”), it is rumored that behind closed doors they are absolutely seething… and with good cause. They will need more unity when these issues return later this year.
Two Key Issues
Let’s consider the two key issues. The first is that FEMA (the US ‘Federal Emergency Management Agency’) was indeed running out of money. According to Bloomberg its reserve fund was down to roughly $1.0 billion last Tuesday morning. Due to both Tropical Storm Harvey remediation efforts in Texas and Hurricane Irma preparation in and around Florida, it was being spent down at a rate of roughly $200 million per day.
Yes indeed, that pencils out to meaning FEMA was potentially going to run out money by Saturday, just as Hurricane Irma was beginning to seriously impact Florida. The critical need to actually provide FEMA with the additional $8.0 billion the administration has requested was part of the enlightened incentives for the President to convene last Wednesday’s bipartisan meeting. And he should be complimented for that.
The other key issue was the combined US government budget and debt ceiling hike that were due by the end of September. In light of the additional necessary FEMA spending, there was little doubt the budget deadline at the end of September was going to be met by another ‘continuing resolution’ (CR) to keep the US government funded instead of a full budget passing through Congress.
Even prior to the FEMA funding issue, there was just not enough time left (in part due to the previous truculent Trump tribulations) to pass a fully articulated budget for all of those far flung federal agencies and departments. Fair enough.
The Debt Ceiling Issue
Yet that left the still very important issue of how much of an increase in the debt ceiling was going to be approved, which in turn would determine when that particular item would resurface as a critical issue. And in a significant roles reversal, the Democrats were only interested in a modest increase, which with the FEMA funding would only allow roughly 90 days of further spending prior to being needed to be revisited.
Normally the Democrats are keen to increase this limit as much as possible in order to allow fir as much federal spending as possible prior to needing to revisit it. However, with a Republican majority in both houses of Congress, they are now keen to have it come up again on a regular basis to assist with demands for their spending agenda being approved as part of approving the next debt ceiling hike. And each time that occurs the Republicans are vulnerable to being blamed for any failure resulting in a US government shutdown.
It is one of the oddities that any effort by Republicans to use the debt ceiling as the fiscal restraint tool that it was designed to be always results in them getting blamed if there is a government shutdown. Even if the Democrats’ spending requests are unreasonable and should be challenged, the Republicans get the blame.
And the Democrats’ public relations apparatus is expert at promoting the degree to which the shutdown is the fault of the stingy Republicans, and all of the (sometimes not actually real) problems accrue to them.
Knowing this history, it was probably something that the President wanted to rightfully avoid at all costs. Once again, fair enough. Yet the Republicans initial position was that there should be a full 18 month extension of the US government debt ceiling in order to not have the issue come up again until after the 2018 midterm elections.
However, the normally profligate Democrats were now demanding a much lower debt ceiling increase of only roughly 90 days, as they wanted the issue to return gain as early as December. That would give them additional bargaining leverage once again into late this year, right into the holiday season.
Negotiation Calculation Flaw
So it might have been reasonable for the President to at least back the Republican Party position by taking an unnegotiable position that the debt ceiling increase should be for no less than a 9 month ‘split the difference’ compromise. Alternatively it should have been for at least six months to allow for enough time to effectively resume other key legislative efforts like tax reform and infrastructure spending stimulus.
So was that was transpired? Nope. The ‘great negotiator’ (as noted above) folded like a cheap suit. Possibly after all of the promises to make sure flood relief would be immediately and adequately funded by his administration he panicked over the prosect of headlines that would read, “Disaster Relief Funding Held Up in Congress in Spite of Trump Promises.” And that would have been a possibility.
Yet any real negotiator would have also known that there would have been a lot of pressure on the Democrats as well to compromise on that debt ceiling issue. With the Republicans having started with an 18 month debt ceiling increase position, it would have been reasonable to highlight the Democrats as being unreasonable (and holding up all of that disaster relief funding) by not agreeing to a six month debt ceiling increase.
We doubt the Democrats would have wanted, or been able to tolerate, that sort of bad public relations impact for more than a few hours had the Oval Office meeting ended without an on-the-spot agreement. But the President was obviously unready to risk even that. We can only imagine that after what he has aggressively characterized as failures by the Republicans to implement the changes he promised, he also wanted to show he was ready to reach across the Congressional aisle to compromise.
Bullseye: Right in the Foot
Yet the ‘deal’ he crafted is a blatant example of one who just ‘shot himself in the foot’. There is not enough space here to explore all the ways this latest faux pas is negative for his overall agenda. It will just make tax reform and other efforts that much harder.
For the already recalcitrant Democrats it is a clear incentive to remain as obstructionist as possible for any and all aspects of the Trump agenda with which they disagree (which is most of it in most important areas like tax reform, etc.)
And their glee at the President’s capitulation can be easily seen in the ‘cat who swallowed the canary grin’ on the faces of both Senate Minority Leader Chuck Schumer and House Minority Leader Nancy Pelosi at each of their news conferences, where they complimented the President on his move.
And the President reciprocated by speaking of them in glowing terms. The man who Trump had consistently referred to as “Crying Chuck” for many months after Trump fired FBI Director Comey was suddenly a very likeable and credible guy. He had also aggressively disparaged previous House Speaker Pelosi.
In that context, the jobs of both Senate Majority Leader McConnell and House Speaker Ryan just became that much harder, especially within their own party. Even within his administration, important members like Treasury Secretary Mnuchin were clearly against as generous a compromise as the President just provided the Democrats. Mnuchin was clear that he and others need more maneuvering room (and less near term distraction) if they are going to deliver really important legislation like tax reform.
And the significant conservative Republican factions in each house are in total disbelief that the ‘deal’ was not only a capitulation in general, but also empowered the Democrats to revisit the debt ceiling issue at that very quick three month horizon.
They are saying that Donald Trump just made Chuck Schumer (abetted by Pelosi) the most powerful politician in America, due to the degree to which he will possibly be able to use the same tactic in December of making demands in exchange for further massive disaster relief funding that will most assuredly be needed. Is that necessarily true? Maybe, or maybe not.
Lack of Confidence
Yet the vulnerability of the President to that tactic last week does not inspire any confidence among those who supported him on the basis of his promises to “Make America Great Again’ while lowering spending and improving services. Right now he is just another ‘big spending Republican’.
An individual that has recently been assessed as morally challenged (Charlottesville), inconstant in his view of outsiders and those within his own party (myriad cases), shifting as it suits him on policy (such as last week’s DACA program cancellation even if with a six month delay), overreaching on foreign policy prerogatives (bellicose North Korea statements inconsistent with his highly professional team), and other peccadillos and inconsistencies just doesn’t inspire confidence.
This is exactly why we are looking at the future path of the US economy, and considering what happens if US tax reform is harder to accomplish? We also question whether the Trump administration is inspiring international confidence, or real fears that it lacks any steady policy or a commitment to enlightened policy implementation?
And that there might be questions over those aspects of the US future is very possibly why the markets are at least in part acting as they at present. That is after the President’s truculent responses to various situation always seem to result in more tribulation than clear success.
Market Quick Take
This is actually more of an exploration of the most critical changes to the Evolutionary Trend View (ETV) in each market where the shifts have been significant enough to warrant an update prior to the full Market Observations update after Monday’s US Close. While the overall levels and ETV remain much the same as Tuesday afternoon’s Market Observations update in the lower section of last week Thursday’s Commentary: When It Rains…” post, the signals in some markets deserve review based on their activity last week due to trend decisive activity.
▪ As already noted Thursday prior to Friday’s further fall, the US Dollar Index is below its .9191 2.5 year low after bouncing from a .9162 trading low on Tuesday of the previous week. Yet it failed to post a more impressive weekly UP Closing Price Reversal (CPR) that week from the previous week’s .9252 Close. In fact, that UP CPR was so weak as to be suspect, and did not show any upside follow through last week.
Yet the current US Dollar Index weakness is not on EUR/USD upside leadership alone, as the other developed currencies and emerging currencies are all strengthening against it. While previous the softness could have been substantially attributed to euro strength (in spite of the ECB’s continued dovish stance), it is now more apparent that it is broader secular UD dollar weakness.
And now that it is back below that important .9191 2.5 year low, the ultimate confirmation of another round of extensive US dollar weakness is becoming more apparent on EUR/USD can sustaining activity above 1.2000. The next resistances above that are not until 1.2350 and 1.2500, with next major US Dollar Index support below .9191 in the .9000 to .8900 area.
▪ And the ETV for the other currencies is just as interesting an insight into the overall US dollar weakness. While there is additional information on the weekly and monthly MAs and weekly Oscillators that reinforce the trend tendencies, for the sake of brevity the overt price activity is worth reviewing in its own right.
GBP/USD back above the 1.2800-1.3000 has not yet exceeded the mid 1.3200 area it hit in early August, the next resistance was always the upper 1.34 area, with 1.3850-1.4000 above that. The same goes for USD/AUD that slipped back Friday from above July’s .8065 trading high yet remains out above the overall .8000 congestion. Even if it can sustain that strength, there is additional interim resistance in the .8160-.8200 area. Yet the more prominent historic congestion is not until the .8500-.8600 area.
And the other major developed currency that is showing more sustainable strength than previous is the Japanese yen. USD/JPY back below its 108.17 April low for the first time since last November’s post-US election surge has no substantial recent (2016) or historic support until the 104.00 area with 100.00-99.00 below that.
All of these combined tendencies in the developed currencies amount to the rational for why the US Dollar Index can swing down timely to the .9000 to .8900 area. Yet the broader support is not until the .8500-.8400. In fact, based on te historic activity going back to 2006 and earlier, the US Dollar Index doesn’t tend to spend too much time between .8900 and the .8500 area.
▪ All of this is also reinforced by the continued weakness of the US dollar against the emerging currencies as well. While less pronounced in some cases, others are more critical once again. Most prominent among those is the strength of the Turkish lira as USD/TRY continues to sag below the 3.55-3.45 range for the couple of weeks near the critical 3.40 Tolerance this side of the 3.10-3.00 area.
▪ The GOVVIES remain buoyant in spite of equities resilience, likely in anticipation of extensive shorter-term US economic weakness due to Tropical Storm Harvey now compounded by the anticipated impact of Hurricane Irma on Florida and possibly the broader southeast US. The September T-note future is above its mid-June 127-18 trading high, with the potential to rally to 129-00 and 130-00 above that.
The September Bund future had its typical early expiration Thursday, and in a classical Bund future flip-flop the December Bund future (now the front month) was trading a full three points below September. Yet that was not necessarily intrinsically bearish, as the shift back to the mid-low 162.00 area just left December contract as front month Bund future back into prominent lower contract and continuation support.
The September Bund future is also holding up well, even if not making that much progress above its 128.00-.50 resistance toward the 130.00 as yet.
▪ In the meantime, the US equities remain more rangebound than the other asset classes. As noted previous, they seem to be torn between the short-term negatives related to the North Korean situation and the US storms and the massive US rebuilding program that will span many months to recover from the combined Harvey and Irma damage. And this is the same for the other international equities.
The September S&P 500 future remains out above the key 2,445-50 interim congestion area (including weekly MA-9 & MA-13), and has only backed off somewhat from the more prominent 2,475-80 resistance at which it has stalled since mid-July. And in that regard it seems a bit stagnant and rangebound in spite of the strong trends in the other asset classes for now.
▪ The Extended Trend Assessment with full Market Observations will be updated after Monday’s US Close to fully assess how various markets perform in the wake of any further developments in the wake of key Evolutionary Trend View (ETV) developments noted above. In the meantime, the overall ETV remains consistent with the Market Observations updated last Tuesday evening in the previous Thursday evening’s “Commentary: When It Rains…” post.
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