The Trump Slump

May 19, 2017   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

Political jitters increased volatility this week.  Stocks suffered their worst one-day selloff since September, finally cracking after several weeks of little action.  The stock market had been counting on President Trump and the Republican-led Congress to deliver tax reform, deregulation, and infrastructure spending, but those plans now seem shaky as D.C. looks increasingly likely to become bogged down in investigations and finger-pointing.

While most weeks I can balance the good news with the bad, this week swung toward fear and concern.  From the President’s interactions with ex-FBI Director James Comey to allegedly leaking high-level intelligence to Russia and geopolitical problems in both Venezuela and Brazil, it wasn’t the type of week you really want to recap.

Let’s start with the concerted push to lower mortgage down payments.  The CEO of Bank of America, Brian Moynihan, was quoted this week saying, “Our goal – going back to regulatory reform – is should you move the down payment requirement from 20% to 10%?  It wouldn’t introduce that much risk but would actually help a lot of mortgages get done.”  You might recall, Bank of America was the top U.S. mortgage lender ahead of the 2008 mortgage crisis, causing it to face greater losses, both from defaults and litigation, than any other bank.

Along similar lines, a senior analyst at Wells Fargo downgraded the credit-card industry noting net charge-offs for the group rose to 3.5% in the first quarter.  There is a concern credit has become too easy once again, with subprime having the potential to become a problem.  The number of charge-offs is at a four-year high and this analyst expects it to stay elevated for the rest of the year, even in a benign economic environment.  A 1% increase in the provision for charge-offs would cut earnings for the sector by 27% on average, with Capital One faring the worst, followed by Discover, Synchrony, and American Express.

For those of you who were looking forward to the repeal of Obamacare, you may have to wait a bit longer.  For those looking to block the repeal, you got some good news this week.  Bloomberg reports that the House of Representatives may have to vote again on the Republicans’ repeal of Obamacare depending on how the Congressional Budget Office (CBO) estimates its effects.  House leaders want to ensure that the bill conforms with Senate rules for reconciliation so it can pass with a simple majority vote.  If GOP leaders hold onto the bill until the CBO releases its report, then majority leader Paul Ryan and his team can tweak it, if necessary, which would require another vote.

If you don’t follow the news, you might not know that there’s a problem brewing in Venezuela.  It’s actually quite serious and has been building for several weeks.  Earlier this week, a day that began with largely peaceful protests against Venezuela’s socialist government took a violent turn as fierce clashes between state security and demonstrators killed at least two people.  Unfortunately, the mood has spread to Brazil with suggestions of government corruption there too.  There are allegations President Michel Temer agreed to pay hush money to a key witness in the country’s biggest-ever corruption probe.  While we continue to like emerging markets, these developments are a concern and should be closely watched.  We do not have any direct exposure to either country at this time.

In closing, let’s turn to the luxury market.  Sotheby’s this week sold the world’s most expensive earrings for $57 million, topping the $17.7 million price of a pair sold by Christie’s last year.  The two pear-shaped stones are perfectly similar except for their color: one is pink while the other is blue.  Not to be outdone, Sotheby’s also sold a painting by late graffiti artist-turned-expressionist painter, Jean-Michel Basquiat, becoming the most expensive at an auction of any U.S. artist, fetching $110.5 million in New York.  We are living in very heady times.  Now you know.

May 19, 2017

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