Out of the Box: POLINOMICS
So, “Polinomics” is the new word that I have created indicating that politics is Trumping, so to speak, the usual economic announcements, and numbers, that drive the markets, in normal times. This also means that you must broaden your horizons to pay close attention to what is happening in the national arena that could cause havoc, or, in the inverse, optimism, because of political events. Who knows, perhaps one day Mr. Webster will include my new word in his esteemed book?
“In a society in which nearly everybody is dominated by somebody else’s mind or by a disembodied mind, it becomes increasingly difficult to learn the truth about the activities of governments and corporations, about the quality or value of products, or about the health of one’s own place and economy.
-Wendell Berry, The Art of the Commonplace: The Agrarian Essays
You may wonder why I am so focused on this and I will provide an answer. The House will probably, as things stand now, pass Articles of Impeachment and refer the matter to the Senate for trial. Then the Senate will conduct the trial. There will be a vote, and the Senate, in my opinion, will not convict the President. However, during the trial, and this is what no one seems to be thinking about right now, the President’s attorneys will have the right to subpoena and question anyone they want, and this is quite different than a special counsel investigation.
So, during the impeachment trial, we will likely be hearing testimony from James Comey, Peter Strzok, Lisa Page, Bruce Ohr, Glenn Simpson, Donna Brazile, Eric Holder, Loretta Lynch, Christopher Steele, Hillary Clinton, John Brennan, James Clapper, and a whole host of other participants. A lot of dirt will be dug up and flung about and a broad range of new revelations may come out. This could include the possibility of DNC collusion with the Clinton campaign to fix the election, the creation of the Trump dossier, and the cover up and destruction of emails, that may have included incriminating information. All kinds of stuff could pop up about the FISA court, and a whole host of new people could be implicated with possibly disastrous consequences.
What is about to take place is not at all like the Clinton or Nixon impeachment hearings, in my opinion. All kinds of very nasty stuff could come out, at the Senate’s trial, as the political landscape, in the United States, is now a raging fire of accusations, containment, and serious allegations. We have gone from political skirmishes to political warfare, in the United States now, and both the equity and bond markets are highly prone to contamination.
“Only when the tide goes out do you discover who’s been swimming naked.”
I have termed, often enough, our struggle with China as a “Game of Thrones.” It is not just tariffs and money but it is a global struggle for power and domination and control. It is true that tariffs have been the primary weapon utilized but now the United States appears to be upping the ante. The newest tactic, being considered, is the use of the American Capital Markets as an armament, in this stand-off. Bloomberg, on Friday, reported that the Trump administration is discussing ways to limit the use of American money going to Chinese entities. The MSCI China Index fell 1.6% on Friday. Chinese companies, on the three major exchanges, account for $1.2 trillion of securities, according to a report by the U.S.-China Economic and Security Review Commission.
If American access to these Chinese companies, actually gets denied then they would have to re-list elsewhere, probably in either Hong Kong or Shanghai. There would also be a problem with the debt of Chinese companies, if this new scheme comes to fruition and it would also likely politicize the Chinese holdings of American Treasuries. This new American strategy could create all kinds of problems for money managers if American liquidity is wiped out, by America’s governmental intervention. This could also lead to a battle on a new front, which would be some sort of “Currency War.”
It is politics, and who knows what will happen, at this point, but I advise you to take a long and hard look at your Chinese holdings, both equities and debt. The risk factor of owning these securities has now gone up significantly. It is a risk that cannot, and should not, be ignored.
The Barbarians are at the gates. The Barbarians are behind the gates. The world seems rife, these days, with Barbarians.
Mark J. Grant
Chief Global Strategist, Fixed Income
B. Riley FBR Inc.
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