Traders don’t concern themselves with Trump tweets anymore

What the Business Media is Reporting

After the November 2016 presidential election, the new rallying cry was the “Trump Effect” as supporters of the newly minted president sold the narrative that Mr. Trump’s administration would be good for the financial markets and the economy as a whole.  Mr. Trump’s Twitter pronouncements on NAFTA, manufacturing, and trade with China seemed to embolden markets, but as noted in this article in The Financial Times, Mr. Trump’s tweets no longer get the attention of traders.

What is getting the attention of traders?  According to Bloomberg.com, among trader concerns are the dovish comments of central banks.  The Federal Reserve has been signaling that it may take a break from rate hikes.  Low yielding debt, according to Bloomberg analysis, has been scaring investors, however, increases in yields scare asset managers given the threat to values that result from the inverse relationship between yields and asset prices.

Bloomberg estimates that, under the rule of duration,  a full percentage point increase in yields could result in a seven percent erosion in market value.  The bond markets may be looking at a $2 trillion loss.

Government Moves Traders Should be Concerned About

This is budget season as committees in Congress review agency requests.  According to the Congressional Budget Office, the U.S. government is facing a Fiscal Year 2019 budget deficit of $897 billion.  Unless the government can close this gap with increased revenues or less spending, it will go into the debt markets, issuing bonds to help close the gap.

As the deficit widens, there will be an increase in supply of government bonds, a fall in bond prices, and an increase in interest rates.  Funds will be taken out of the private sector portion of the economy and move into government coffers.  In other words there will be less money available to invest in factories, plant, and other infrastructure necessary for economic growth.

While the Federal Reserve gets a lot of play in the media, traders should not allow the glitz that the media paints on the central bank to distract them from the budget activities of Congress.  Congress, as keeper of the purse strings, has a key role in managing the economy.  Its processes, while a lot more mundane than a presidential tweet, are important to monitor.

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Don’t expect a Trump-Democratic love fest over the AT&T-Time Warner merger

Last July, the U.S. Department of Justice filed an appeal of a U.S. District Court-District of the District of Columbia finding that AT&T’s acquisition of Time Warner Media would not hurt competition. The Justice Department, according to The Hill, believes the acquisition would harm competition where AT&T might not provide access to its newly acquired content by other competing content providers or video delivery networks.

Democrats today hinted that once they take-over the U.S. House, they would investigate the Trump administration’s opposition to the merger. Since the campaign for the presidency in 2016, Mr. Trump has verbalized his concern that a merger between the telecommunications giant and the media giant would be a bad thing because of the size of the new entity. In addition, Mr. Trump has expressed no love for CNN, the cable news network that would be one of the crown jewels on AT&T’s new portfolio.

As if any one needed a reminder of the no love lost between the Trump administration and the Atlanta-based news organization, one needed look no further than the spat between CNN’s Jim Acosta and President Trump during a press conference last week. Mr. Trump had no problem suspending Mr. Acosta’s access to the White House.

Congressional Democrats have attacked the merger from the net neutrality angle. Democrats such as Senator Ed Markey have come out against the merger in part due to antitrust and consumer protection reasons. According to Senator Markey, telecommunications policy should ensure that, ” … those with the best ideas, not simply the best access, can share their content with the world.”

But given that net neutrality was not at the top of voters’ holiday shopping list last week, I don’t expect Democrats to approach the Trump administration with anything that looks like a temporary truce. According to analysisanalysis by Gizmodo, a sweep of 1,180 campaign websites saw very few office seekers trumpeting the call for a free and open internet. Real household issues, such as healthcare and the economy, were on the top of family priorities.

I’ve read analysis where it is expected that outgoing Republicans licking their wounds from their 2018 defeat will vote to approve the resolution that passed last May in the U.S. Senate to repeal the Federal Communications Commission’s Restoring Internet Freedom order. This order, passed in 2017 by the Commission, repealed a 2015 Commission order that implemented net neutrality rules. The argument is that outgoing GOP congressmen who probably leaned toward the open internet philosophy would want to appease their former constituents by supporting net neutrality rules. I don’t see that happening.

I expect that outgoing Republicans will pay attention to whatever housekeeping matters are on the agenda, including tomorrow’s testimony by Federal Reserve chairman Jerome Powell before the House financial services committee. Besides, why would a GOP former congressman want to relieve themselves of their conservative bona fides so early after an election. You just don’t relieve yourself so quickly of political capital that you will need for any future political endeavors.