- Tariffs grind down factory gears: Weakest manufacturing in 10 years
- Would impeachment really tank the stock market?
- How the Fed might save Trump’s bacon, without even meaning to
- Europe takes the next step toward de-dollarization
- Alarmist nonsense about “changing ID requirements” at the airport.
September was the worst month for U.S. factories in a decade.
It being the first of the month, the Institute for Supply Management issued the ISM manufacturing index. Numbers above 50 indicate a growing factory sector; below 50, a shrinking one.
Before the September number came out this morning, Econoday polled dozens of economists, asking them what they thought the number would be. Their average guess was 50.0. The lowest guess was 49.1.
The actual number turned out to be 47.8. Ouch…
To be sure, the number has dipped below 50 at other times during the weak economic expansion of the last 10 years.
But the last time the number was this low, the economy was still climbing out of the “Great Recession.”
Nearly all the “internals” of the report were weak — new orders, backlog orders, inventories, delivery times. But the big one was export orders; at 41.0, the number has been in contraction territory for three straight months.
Said one respondent to the survey — an executive at a food and beverage manufacturer — “Chinese tariffs going up are hurting our business. Most of the materials are not made in the U.S. and made only in China.” Added a suit at a company that makes electrical equipment, “Economy seems to be softening. The tariffs have caused much confusion in the industry.”
The stock market reaction has been negative, but not extreme.
At last check, the Dow was down a half-percent at 26,783. The S&P 500 and Nasdaq are also in the red, but not as much. Commodities are staging a teensy rally, with gold at $1,481 and crude at $54.29. Treasury yields are falling, the 10-year note back to 1.64%.
The mindset seems to be, “Aw, bummer about that ISM number. But hey, it means the Federal Reserve will cut interest rates one more time before year-end — more easy money!”
We’ll come back to the Fed’s rate cuts anon…
“Impeachment May Lead to Another October Stock Market Crash,” shouts a New York Post headline.
The headline tops a column by John Crudele — who, by and large, we like. In years gone by, we’ve cited his explorations into how the feds manipulate the unemployment numbers.
Crudele is fretting about how impeachment proceedings will affect the stock market.
“The chaos is already bothering Wall Street,” he writes. “When the Democrats yelled louder last week about impeachment because of a phone call Trump had made to the Ukrainian president, stock prices declined sharply. When the contents of that phone call were released — and there didn’t seem to be anything impeachable — stock prices went back up.”
This week, you don’t have to look far to find Big Media outlets dredging up stock market comparisons to the years 1998 and 1974.
“This Is How the Nixon and Clinton Impeachment Dramas Affected Markets,” reads a CNN story posted yesterday.
Hmmm… The Nixon case from 1974 doesn’t seem very instructive to us. There was a high probability the Senate would vote to convict — high enough that Nixon resigned before the House could even vote on impeachment and send the matter to the Senate.
In addition, the stock market had been in the doldrums for years — and stayed there until 1982.
The Clinton case seems much more relevant.
Then as now, the probability of conviction in the Senate was vanishingly small. Then as now, the stock market had been rallying for the better part of a decade.
The House voted to begin impeachment proceedings on Oct. 8, 1998. The House voted “yea” on impeachment and sent the matter to the Senate on Dec. 19.
Here’s the more interesting thing about 1998: Then as now, the Federal Reserve had just embarked on a round of interest rate cuts.
The months before impeachment began were full of market chills. Russia’s government defaulted on its debt — an event that took down the hedge fund Long Term Capital Management.
LTCM’s collapse threatened to take down the rest of the financial system with it; our Jim Rickards was LTCM’s top lawyer and negotiated a rescue with the Federal Reserve and 14 top banks. LTCM was able to cover its losses and prevent a domino effect among the banks’ derivatives trades. (No taxpayers were harmed in this bailout.)
As part of the rescue effort, the Fed under Alan Greenspan embarked on a brief cycle of interest rate cuts — trimming the fed funds rate from 5.5% to 4.75% by January 1999. Then the Fed resumed raising rates while the stock market surged to the dizzying heights of the dot-com bubble.
Much as the current president lashes out at the Fed — he blamed the Fed for the weak ISM number this morning — the Fed actually has his back, even if it doesn’t mean to.
“The Fed may need to keep cutting rates and expand the money supply in order to fight an economic slowdown and avoid a U.S. recession,” the aforementioned Jim Rickards tells us.
“But those same policies will boost stock prices and greatly help Trump’s reelection chances.”
No, the Fed isn’t cutting as aggressively as the president wants — but aggressive cuts toward the zero level would spook the stock market into thinking something was really wrong. And that would tank the stock market rally to which the president has hitched his wagon.
It comes back to how the Fed loves crowing about its “independence” from politics. The reality is the Fed frequently caves to political pressure. Nixon leaned hard on Fed chairman Arthur Burns to enact easy-money policies to lock in his reelection in 1972.
This time, Fed chairman Jerome Powell might not mean to help Trump… but he is anyway. As economists Carmen and Vincent Reinhart put it recently, “Probably to Powell’s deep and never-to-be-expressed frustration, the Fed is setting monetary policy in a way that increases the likelihood that Trump will be reelected next year.”
The drip-drip of de-dollarization keeps on keepin’ on.
More European Union countries are lining up to join INSTEX — an international payments network aimed at bypassing the U.S.-dominated SWIFT network from which Iran is effectively banned.
“Apart from the three countries that initiated the creation of the mechanism – France, Germany and Great Britain – eight more EU member states have decided to join. Two more countries are expected to follow in their footsteps,” says Nathalie Tocci, an aide to EU foreign minister Federica Mogherini.
No word yet on which countries, although Belgium and Sweden have previously expressed interest in signing up.
The move comes a few days after Iran and Russia announced they would use each other’s payments networks to conduct business.
Of the Iran-Russia agreement, Jim Rickards says, “This is a modest step, but it is a beginning with far more pointed attacks on dollar hegemony yet to come.”
Wow, it’s been nearly two years since our last 5 business-travel alert about the Real ID Act.
But we’re compelled to return to the subject this morning thanks to an alarmist Washington Post story this week.
Here’s where things stand: As of one year from today, the TSA says you must have an ID compliant with the Real ID Act of 2005 to board an aircraft. Maybe you’ve seen the scary signs at the airport…
But a new survey by the U.S. Travel Association finds nearly 40% of Americans lack a form of ID that’s compliant with the law.
That’s because state governments have dragged their feet bringing driver’s licenses into line with the law’s costly and creepy surveillance-state requirements — making photos compliant with facial-recognition software and allowing the feds to access state driver’s license databases.
If the feds hold to the letter of the law, you might need a passport to board a domestic flight one year from today, assuming you don’t have a compliant driver’s license.
More from the Post story: “The U.S. Travel Association estimates that more than 70,000 people could be prevented from flying on the first day of implementation and up to half a million people the first week, based on the current numbers.”
Says USTA vice president Erik Hansen, “That would mean upward of $40 million per day in economic impact and that could balloon to hundreds of millions of dollars in the first week alone.”
Aw, c’mon. We cited the Cato Institute’s Jim Harper way back in 2015: “If TSA — perhaps the most despised U.S. federal agency in history — refuses people the right to travel because they do not carry a national ID, the uproar will be intense and lasting… DHS officials can do basic political calculations.”
Indeed. And on Oct. 1, 2020 — a month before Election Day? Forget it…
To the mailbag, and a return to the topic of impeachment.
“Not sure even Jim Rickards can safely ask, but I’d love to ask both Speaker Pelosi and Chairman Schiff two questions (or one two=part question):
“You claim that this is a nonpartisan inquisition (sounds better than witch hunt), so the American people want to know two things:
- Ex-VP Biden has bragged on a speech about withholding $1 billion in loan guarantees from Ukraine until the government fired a prosecutor that just happened to be looking into one of his son’s cushy jobs. When is the investigation about the misuse of office beginning? The American people sure haven’t heard about it, although with him bragging about it in a taped speech, I’m not sure there’s much defense available.
- President Trump is in trouble for asking a foreign country to look into its own corruption, supposedly soliciting support for his election from a foreign country. So is it legal to pay a lawyer to pay a British citizen (a foreigner) to pay Russians to make up dirt on your election competition, to use that dirt to get a FISA warrant to listen into your competition’s communications? Again, the American people are interested in your ‘nonpartisan’ investigations.
“Overall, until the American people (known as the voters) hear something to make them believe there’s a nonpartisan investigation, I don’t believe any but the most rabid Democrats will believe it.
“P.S. I could send this to all the papers and such but if it was printed, I still wouldn’t hear anything from the politicians. America’s political class is certainly not ‘of the people.’”
The 5: It’s clear what the agenda is, seeing as Pelosi backed impeachment before the release of both the transcript with the Ukrainian president and the complaint of the “whistleblower.” (Real whistleblowers are those who alert the citizenry to government abuses, like Edward Snowden and Chelsea Manning.)
Anyway, you’re probably right. As Aaron Maté writes this week at The Nation, “We risk another all-consuming affair much like Russiagate, with political and media energy consumed by minutiae that few Americans care about, and a hawkish worldview once again deemed synonymous with being anti-Trump.”
The 5 Min. Forecast
P.S. One more hot take, from our favorite political reporter Michael Tracey: “Once the impeachment genie is out of the bottle, there’s zero reason to think it will be ‘swift, thorough and narrowly focused’ — or anything other than a ‘protracted partisan circus.’
“Imagining some idealized version of a sober, rational impeachment is just fantasy.”
Your editor is having weird ’80s flashbacks today, including the “Japanese miracle” of that decade. Read More
We received an avalanche of responses to Tuesday’s episode of The 5… So we devote today’s issue to our readers’ perspectives. Read More
It’s totally counterintuitive: Gold throws off no income stream, but in a world where central bankers keep their thumb on interest rates, you need gold. Read More
It’s taken prestige media — and public health officials — about a month to come to grips with a glaring contradiction. Read More
“One of the questions I’m getting,” says Zach Scheidt, “is how can the market be so strong when the economy is so weak?’” Read More
Call it harebrained or genius, Americans might be taking a TRIP courtesy of the federal government. Read More
“There’s a lot of frustration in our country,” says bestselling author Graham Summers, “because we’re seeing a severe breakdown in the social contract.” Read More
Warren Buffett’s empire is under siege in 2020… “but that doesn’t mean there aren’t good deals to be had,” says hedge fund veteran James Altucher. Read More
A large swath of corporate America is sitting out social media — with both economic and political implications — for enabling “hate speech” and “misinformation.” Read More
“Entrepreneurship, technological creativity, is surprising,” says futurist George Gilder. “It’s disorder.” Read More