Juggling Dynamite

This 20-minute primer from John Hussman was done in 2017 as the Trump tax cuts were promising to boost economic growth and make America great (er).

As Hussman and other math-lovers predicted, the policies were doomed from inception, and have suceeded in increasing government debt to further enrich capital owners at the expense of workers, productivity, innovation and social stability.

Similar trends have been unfolding in Canada over the past two decades. We need to understand why this is self-destructive as a whole and adopt new (old) policies that have reliably worked historically to redistribute resources and reboot opportunity:  making companies and capital contribute fairly to taxes enables essential productive investment in education, job training, research and development.  Grotesquely enriching a few at the price of everything else is truly dumb.

Economist John P. Hussman on the flawed logic behind the proposed 2017 tax bill, and what policymakers could do to encourage U.S. economic growth.  Here is a direct video link.

On August 9th, I noted here that the US dollar index (DXY) was looking oversold and that a hold in the 92 area could signal the next round of ‘risk-off’ in an ongoing bear cycle for global markets.  From a closing low of 92.14 on August 31, the dollar index has strengthened since and closed September at 93.88.

In Canadian dollar terms, greenback strength is shown below in my partner Cory Venable’s chart (green arrow), along with the accompanying rollover in risk assets priced in U$–gold, copper, oil and the S&P 500.  Macro forces continue to have the upper hand amid the worst global recession since the 1930s.

Caught in this, Canada’s TSX (below in black) is also looking piqued, with all the largest sectors–financials (in blue), energy (in brown), gold miners (gold), materials (orange) and REITS (in green)–seeing outflows and price weakness in September.

Over the last 13 years, the risk tolerance and time horizons of aging asset owners have come in significantly, with volatile ‘buy and hold’ efforts increasingly counter to financial and mental stability.  Companies are cutting and suspending their dividends at a record pace, and even those received are insufficient offset for the capital losses mounting.

The art of this is to stay defensive, calm and prepared to buy income yielding assets when the masses are liquidating in panic.   March offered a patch test but was too fast and shallow for the multi-month, confidence-crushing body blows needed.  In the meantime, treasuries and cash-like deposits will continue to outperform equity allocations.

Danielle was a guest with Jim Goddard on Talk Digital Network talking about recent developments in the world economy and markets.  You can listen to an audio clip of the segment here.