This past week saw President Trump’s economic agenda beginning to meet the reality of the same old Washington gridlock that has stymied other ambitious U.S. Presidents in the past. Even as his trade and immigration executive orders and policies took center stage, his infrastructure, tax cuts, Obamacare repeal, and NAFTA renegotiations which were the centerpiece of his election campaign ran into varying degrees of headwinds within Congress.

Meanwhile the European Union, this week’s main target for the president’s assaults, took refuge in the fortress island member state of Malta where they pondered their defensive counter strategies. German Premier Angela Merkel met with her Brexit nemesis British Prime Minister Theresa May to hear the results of May’s more than cordial meeting with the U.S. President.

Amidst all the geopolitical turmoil, which according to EU President Donald Tusk now includes the United States administration alongside various threats attacking the world order (including China, Russia, and global Islamic terrorism), gold measured against the volatility index (VIX) has begun flashing warning signs that a critical breaking point is nearing in the stock markets. This is why you need gold as insurance protection for your retirement assets now more than ever.

 

First 100 Days Economic Agenda Already Hitting Hurdles of Washington Infighting

President Trump had an incredibly ambitious first 100 days agenda planned when he took the stand at his inauguration. Among these plans, he promised he would rebuild the antiquated American national infrastructure, cut taxes, repeal (and presumably replace) Obamacare, and renegotiate the North American Free Trade Agreement with Mexico and Canada.

While he has not given up on pushing these items through, the cold, hard reality of how the ineffective Washington D.C. establishment works is starting to meet his agenda headon. Even though the President enjoys a comfortable majority in the House of Representatives, his narrow majority in the Senate means that even a handful of defecting Republicans can derail his best laid plans.

Because of the revolts the new American President is facing in his own party on the hill, investors are already beginning to reduce their hopeful expectations for the business-friendly leader to ramp up the U.S. economy. This is causing some of them to walk away from the stock market-boosting Trump trade.

Photo Courtesy of CNN

Photo Courtesy of CNN

 

The problem is that it was the imminent passage of these policies (including user friendlier regulations, tax cuts, and infrastructure stimulus spending) that caused the markets to run up from November, and they may now be headed back down as the reality of significant even one year to two year delays sinks into investors’ minds. Economists headed by Alec Phillips at Goldman Sachs Group wrote in a note just late last week:

“While bipartisan cooperation looked possible on some issues following the election, the political environment appears to be as polarized as ever, suggesting that many issues that require bipartisan support are likely to face substantial obstacles. While we have not expected a sweeping overhaul of regulation in any of these areas to become law, recent developments lower the probability somewhat that even incremental changes could pass in the Senate.”

Consider each of the President’s aims and the problems they are facing in his first month:

  1. Infrastructure Modernization Plan – The goal is to spend a mind-boggling trillion dollars on bridges, roads, the electrical grid, airports, river locks, seaports, and more.  Even his own Republican-controlled Congress will not permit the President to raise the deficit by this amount. This means that his plan relies on private funding, something that only projects which can charge tolls and user fees can accommodate.
  2. Tax Cuts – Originally Trump hoped his tax cuts would pass through Congress this year. While that may still happen, it is already looking like Republican senators will only agree to smaller tax cuts unless they find a way to balance out the missing revenue.
  3. Obamacare Repeal (and Replace) – Some of the most important Republican lawmakers including Senators Lamar Alexander from Tennessee and Orrin Hatch from Utah have already started talking about decreasing the ambitious goal of repealing Obamacare to “repairing” it. Trump admits that the outline of a replacement plan will now not be available until the conclusion of this year, and that legislation is not likely to pass in 2017 at all. There is already concern that this watering down of policies and delaying tactics of democrats may become the norm with the new administration’s efforts rather than the exception.
  4. NAFTA Renegotiation – The President has the ability to either tear up the free trade treaty or renegotiate it to a point. However major U.S. companies Walmart and Target are already raising objections to the higher prices this will add to the cost of appliances, cars, produce, toys, and other items which literally millions of Americans purchase on a monthly basis. A number of economists are saying it will take minimally years for the lost jobs to return to the United States once this treaty is scrapped (or heavily renegotiated). If President Trump were to renegotiate, he would need Congressional approval, once again something that will slow down his negotiating team led by Commerce Secretary nominee business billionaire Wilbur Ross.

While all of these agenda items may be stymied, the President is achieving greater success and realizing more progress with several of his ideas, especially the goal to loosen up tight restrictions on banks caused by the Dodd-Frank Act and the goal to see the oil pipelines built which former President Obama obstructed.

Sadly for any much needed change in America, the traditional Washington gridlock is once again proving that legislation can not productively be accomplished anymore unless a dramatic terrorist attack or severe threat to national security galvanizes the senators to action.

 

EU Huddles at Malta Summit Figuring Out Responses to Trump Policies

President Trump has set his sights on the destruction of the European Union and euro currency in his most ambitious project since taking the oath of office. He accused Germany of using the EU as its own vehicle and driving exchange rates of the euro to artificially low levels in order to massively increase their trade surpluses and national wealth at the expense of both their poorer southern European neighbors and Germany’s primary trading partners.

This may (not-so-secretly) be true, but Germany is not taking the broadsides from the new administration without returning fire. At this past week’s February 3rd Malta Summit, Germany and its junior partners figuratively took shelter in the fortress island nation and plotted their counter attack strategy. This began with a hearing of Prime Minister May of Britain’s impressions of President Trump while meeting with him behind closed doors for an afternoon on January 27th to plan a bold new world.

May brought a message of hope regarding the NATO defense alliance at least. She informed them that Trump simply wants the Europeans to pay their fairly agreed upon share of two percent of their Gross Domestic Products. This graph below illustrates that only a handful of the EU nations (the United Kingdom, Estonia, and Poland) are actually meeting or exceeding their agreed upon financial commitments:

EUDefenseSpending Graph

Prime Minister May’s office told the EU leaders ahead of the talks:

“It is only by investing properly in our defense that we can ensure we are properly equipped to face our shared challenges together.” My mission is to “encourage other European leaders to deliver on their commitments to spend two percent of their GDP on defense, so that the burden is more fairly shared.”

Despite these reassurances, leaders across the European Union either fear or distrust both President Trump and his leading candidate for ambassador to the EU Ted Malloch. Socialist leader Gianni Pittella from the European Parliament has gone so far as to claim that the American President is utilizing the British Prime Minister as his “Trojan Horse” to break apart the European Union.

 

Money Pouring Into Gold Signals All Is Not Well With Stock Markets

The hedge against uncertainty gold funds have been simply pouring into ETFs and other gold vehicles which track the precious metal lately. Yet the movement in the stock market VIX volatility index has not matched as should be the case. This has caused a worrying gap to grow between the two traditionally correlated measurements, as this chart below demonstrates:

GolInflowsRising

It is all part of the many and ever-expanding reasons why you should learn more about how to invest in gold.

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