We saw that the major equity markets around the world suffered steep losses during the week which just ended.
There are always multiple reasons why the equity investors fret at times and start a major selling operation of their holdings. Mostly it is sentiment, sometimes emotions, but almost always there is a reason or many reasons why the market sell-off happens.
In the current scenario, the negative sentiment is driven by multiple factors afflicting the U.S. economy, aggravated by bad government policies which appear to keep shifting all the time under the wise administration of President Trump. To start with, there has been a series of exits of experienced people from the administration – the latest being General McMaster who was the National Seecurity Advisor to the President. He has been replaced by the rather hawkish hothead – John Bolton, who is likely to plunge the U.S. into another back-breaking war, either with Iran or North Korea.
So, you have a combination of the following factors:
- a huge deficit budget of USD 1.3T which has just been signed off by the President, necessary to keep the government running till end of September 2018, which has a massive allocation for the military (not all of that is necessary);
- a possible credit squeeze, with the Federal Reserve planning to raise the interest rates at least twice if not more times during this calendar year;
- a high dependency on China which buys most of the U.S. Treasury Bills;
- a looming trade war primarily with China, with the President planning to impose tariffs worth USD 50/60B on imports from China, and the already planned retaliation by China;
- a strong noose tightening around the President’s neck – the Russia investigation of Special Counsel Robert Mueller – Trump cannot fire Mueller as that would lead to unforeseen consequences, but he might still do it, plunging the U.S. into uncertainty;
- more potential exits from the Trump administration – Jeff Sessions is one clear possibility;
- sex scandals threatening Trump from a series of women – the courts are admitting the cases against the wishes of Trump and his lawyers;
- the clear possibility that Kim Jong Un might refuse to enter into talks with the U.S. if John Bolton is involved; North Korea termed Bolton as a “scum” and a “blood sucker” in 2003/04 and is unlikely to talk to him if Trump deputes him or brings him along to threaten Kim Jong Un, which will very likely happen;
- the Iran nuclear deal imbroglio; Trump might refuse to certify the continuance of the deal when it comes for his quarterly certification signature as required by the U.S. Congress, in which case Iran will be free to walk away from the deal, and that might lead to Bolton arguing his case to bomb all of Iran’s nuclear facilities;
- the continuing loss of elections to the Democratic Party as just happened in Pennsylvania – the potential loss of both the House and the Senate majority, which is not likely, but appears possible now;
- and, so on and so forth…………there are many such factors
So, the equity markets falling was expected by all and sundry. If I recollect, the U.S. market ran up by more than 6,500 points (DOW) in about 14 months from the time Trump took office, allowing him to tout the market gain as one of his signature achievements. Now out of this increase, 3,000 points are gone, and it is likely that the sell off will continue into next week.
A government that is so critical for world peace and stability cannot be tottering every day. One has to just see CNN News and the U.S. Talk Shows by major news organizations, to get the full import of what is going on in Washington D.C. The Trump administration has become a laughing stock, even within the U.S.
The only silver lining is that Trump is the first U.S. President who has succeeded in pushing North Korea to the negotiating table (mostly by harsh tweets from Trump!), though both Koreas claim that they decided to play the Olympic game together and cool off the rhetoric. The other achievement of Trump is that he is the first U.S. President to stand up to China without any fear of repercussions and challenge them to a trade war.
While these are great to see and hear about, we have to recognize that Trump has still not won any battle with either one of these countries. He could not even win the Border Wall case against Mexico, which refused to foot the bill. It is going to be very tough for the U.S. to negotiate when Trump has surrounded himself with foreign policy and military hawks such as Mike Pompeo (the new Secretary of State, yet to be confirmed by the Congress), John Bolton (the new National Security Advisor who does not need Congress confirmation), Gina Haspel (the new CIA Director nominee who needs to be confirmed by the Congress), and the perennial lady hawk Nikki Haley who is the U.S. Ambassador to the U.N. A war is surely looming with such hot heads around the President, who himself is a strong hot head who will not take a slight from anyone, or advice from anyone. All the major departures have happened apparently due to the fact that the concerned person begged to differ from the views of the President.
So, here we are, with markets having fallen all around the world, including India’s SENSEX. We are entering an uncertain phase in world history and diplomatic relationships. Everything can come off unhinged. No relationship is going to remain sacred. Continuous drama at the White House is going to rock the markets on a daily basis. The markets can no longer afford to do their own business disconnected from political and economic realities.
So, we are all in for a rocky ride, folks.
Enjoy the ride however.
24th March 2018