Beyond The Wall
The financial world is observing the end of summer in Wyoming where central bankers and economists from around the world are clustering in Jackson Hole. Stock trading volume continues in its usual August doldrums with news events exaggerating price movements. The Jackson Hole conference will be closely followed even though no breaking news is expected.
The world’s major economies are all growing in sync for the first time in a decade. The Organization for Economic Cooperation and Development (OECD) tracks 45 countries and reports that all 45 are on track to grow this year with 33 expected to show growth rates accelerating from the prior year. The International Monetary fund projects global growth of 3.5% this year and 3.6% in 2018, up from 3.2% in 2016.
Simultaneous growth among the OECD countries is rare. When achieved, it has proven vulnerable to interruption by some sort of crisis. For now, growth is on track as inflation is low and central bankers have moved gradually. Federal Reserve Chairwoman Janet Yellen and European Central Bank President Mario Draghi will both be speaking in Jackson Hole and are expected to reconfirm their policies of very gradual stimulus reduction and rate increases.
Political squabbling has dominated the news here, only briefly broken by a solar eclipse. Having dipped earlier in August on fears of nuclear war, stocks have now resumed their uptrend with the Dow Jones Industrial Average bouncing 196 points, its largest gain since April, on hopes that Presidential aides and Congressional leaders may be making progress on squeezing out some sort of tax reform package.
A key aim is to reduce the corporate tax rate from its current maximum of 35%, probably to a 22%-25% range. Paying for this invites immediate controversies from a host of lobby groups, inviting Otto von Bismarck’s quip “Laws are like sausages, it is better not to see them being made.”
Wall Street, recognizing these time worn obstacles to tax “reform,” still seems to hope that reform might be deferred without blocking passage of tax cuts. Well, maybe, although our legislators may end up pushing this whole package into 2018, an election year.
Their record in achieving anything at all is discouraging. I am most concerned with their will and ability to deal intelligently with the oncoming debt ceiling, which is scheduled for impact in only one month. The Administration has threatened to couple this purely political issue with its funding demands for building a border fence.
The U.S. had no “debt ceiling” until 1917, when Congress expanded issuing Liberty Bonds to finance the country’s participation in World War I. The United States has never reached default on its debts, the closest coming in 1812 when the British burned part of Washington, including the Treasury. The “debt ceiling” was routinely raised until recent years, when it became a political football. This led to government shutdowns, leading to downgrade of Treasury debt and cutoffs of wages and other spending,
Such political spite has the potential to interrupt our economic recovery. Pending resolution, stock investors should emphasize large growth companies with technological strengths and market positions sufficient to buoy them through political squalls. These include Apple (AAPL-$159), Applied Materials (AMAT-$43), Amgen (AMGN-$170), Broadcom (AVGO-$255), Celegene (CELG-$130), Edwards Lifesciences (EW-$112), Microchip (MCHP-$82), Nvidia (NVDA-$165), Novo-Nordisk (NVO-$45) and Visa (V-$103).
Robert Frost saw this instability years ago:
Before I built a wall I’d ask to know
What I was walling in or walling out,
And to whom I was like to give offence.
Something there is that doesn’t love a wall,
Tony Crowell manages stock portfolios for individuals and their trust and retirement accounts with CROWELL•ROBERTS Investment Counsel, a registered investment advisor in Laguna Beach since 1995. [email protected] 949.494.1376/800.697.2622