Bill Owens: Confounding And Confusing Events 4/8/19

Apr 8, 2019

Interest rates are entering into what is known as inversion territory which means long term rates are lower than short rates.  This event has been a precursor to prior recessions and many economists see this as one of the key indicators.  This could very well begin to take shape in 2020 and have a dramatic impact on the Presidential Election. 

Trade between the United States and China has dropped sharply, although the balance of trade continues to move in China’s favor, in other words we continue to have a negative balance of trade with China although the overall numbers are declining. China’s representatives are in the US for further talks.  How long will they last- my guess, forever.

The USMCA is failing on Capitol Hill for any number of reasons.  Speaker Pelosi announced on April the 2nd that she wants to see tightened enforcement provisions in the USMCA in order to secure her support.  Mr. Trump is pressing hard with members of the GOP to gather their support, however, without significant support from Democrats, this agreement will not be approved by the House.  It has been my long held belief that there is no real substantial change between NAFTA and the USMCA, in terms of how it impacts each country.  Some industries may be more impacted than others, but the overall impact to trade balances and GDP is unlikely to be material.  We’ve noted before Mr. Trump’s option if this fails, of course, is to tear up NAFTA, then the real fun begins.

POTUS threatens to close the US – Mexico border as a surge in migrants overwhelms US Customs and relief agencies in the region April 4, 2019, POTUS says - just kidding we won’t close the border.  Commissioner McAleenan called upon Congress for a legislative solution, although it is not clear to me if he had specific proposals that he felt would solve these issues.  The termination of Foreign Aid is also impacting the situation.  It is unclear to me if Foreign Aid actually works, sorry to say.  Back to the Marshall Plan. 

As we noted last week, health care was a surprise when the President indicated he was going to move forward in repealing and replacing Obamacare. Mr. McConnell’s response was essentially have fun and let us know how it goes with your negotiations with Speaker Pelosi.  Then on April 2, 2019, Mr.  Trump announced health care will be on hold until after the 2020 election.  Of course, being on hold is somewhat inconsistent with his support of the recent district court decision which strikes down all of Obamacare.  So which is it, are we on hold until 2020 or are we moving forward with repeal.  Imagine the chaos all of this causes.

A Wall Street Journal NBC poll provided some interesting results.  Forty (40%) percent of those polled paid attention to the recent Mueller Report while fifty-six (56%) percent  paid attention to Comey’s firing, forty (40%) percent did not believe the President was cleared, while twenty-nine (29%) percent did, with thirty-one (31%) percent unsure. The latter group might be waiting for the rest of the Report to be disclosed or, they’ve just given up.  I would simply like to know what all the facts are. 

The British Parliament continues to reject Mrs. May’s Brexit proposals.  My interest is both economic and parochial as a person of Irish ancestry, I’m deeply concerned that the reestablishment of a “hard” border between The Republic and Ulster will reignite old grievances and hurt both economies.  Some in Ireland are saying, “The Brits did it to us again”.

Mr. Trump was flailing at the wind this week.  It kills birds, the noise gives you cancer and if the wind stops, your TV goes dark.  This is my scientific note for the week.

Mr. Owens is a former member of Congress representing the New York 21st, a partner in Stafford Owens in Plattsburgh, NY and a Senior Advisor to Dentons to Washington, DC.

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