It was a week to remember in Washington and a week to forget on Wall Street.
In the nation’s capital, President Trump continued to drain the swamp of his own appointees.
The departed included Secretary of State Rex Tillerson, attorney John Dowd, and National Security Adviser General H.R. McMaster.
Their replacements—respectively, CIA Director Mike Pompeo, Fox News talking head Joseph DiGenova, and uberhawk John Bolton—are uniformly more hard line and supportive of the president than were their predecessors.
Meanwhile, Trump, newly liberated to the point, Vanity Fair reported, of “f__ing doing it my way,” slapped tariffs on Chinese imports worth up to $60 billion a year. China responded with some targeted tariffs of its own.
Meanwhile, on the Left Coast, Facebook’s CEO Mark Zuckerberg remained silent for days after it was revealed that Cambridge Analytica, the data firm that helped the Trump campaign in 2016, had taken personal information on some 50 million Facebook users without their consent.
Talk of trade wars and political instability drove the Dow Jones Industrial Average down 1,000 points and the S&P 500 4% through noon Friday. Facebook’s crisis shaved 12% from its share price and helped push the Nasdaq Composite index down 5% this week.
How real is the risk?
Very much for Facebook, which will have to change its privacy policies dramatically. That’s bound to hurt its business, which makes buckets of money by selling user data to third parties. Hence, the sell-off.
Trade wars and maybe even real wars (especially with “Dr. Strangelove” Bolton as NSA) is another story. So far, Trump has exempted several countries from his original tariffs on imported steel and aluminum, and China is responding in a targeted, strategic way. I think a full-blown trade war is unlikely, but the risk is much higher than it was two weeks ago.
As for geopolitical risk, it’s off the charts. The Iran nuclear deal which, for all its flaws, kept the Islamic Republic from developing nukes for a decade, is now surely a goner and escalation in the volatile Middle East a real possibility. And if the much-ballyhooed talks between President Trump and North Korean president Kim Jong Un fail, the president will have Bolton whispering in his ear that diplomacy didn’t work and it’s time for a pre-emptive strike.
I wrote last year that markets would rise and fall depending on which Trump was in charge—the “good” Trump of tax cuts and deregulation or the “bad” Trump of trade wars and potential real ones. That’s why GoldenEgg Investing® shifted our retirement investing plans to a defensive posture. They remain defensive now.
For months, investors benefited from the “good” Trump’s bounty. Now the “bad” Trump is back and all bets are off.
GoldenEgg Investing® will not post a commentary next Friday because of the Good Friday/Passover/Easter holiday, though we will post updates during the week if market conditions warrant it. Otherwise, we’ll return April 6th.