The Return of Political Risk

Let’s kick off the week with a discussion on political risk. Just how much is priced into stock markets right now? It’s an impossible question to answer, but it’s certainly heating up on the political front over in the US. Things are about to get very interesting.

Is this what the market might be starting to realise?

Just as the S&P 500 appeared set to break out to new all-time highs, in Friday’s trading session it sold off. While it’s early days, this creates the potential for a double top pattern. Check out the chart, below:

Source: Optuma

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On Friday, the S&P 500 fell 0.71% while the Dow fell 0.77%. The NASDAQ declined 0.67%.

 

What caused the sell off?

It was in response to a deepening crisis in Turkey. According to the Wall Street Journal:

WASHINGTON—President Trump’s decision to double steel tariffs on Turkey as its government battled a currency collapse marked a departure for the U.S. from how it traditionally handles financial turmoil hitting emerging markets.

Washington has generally tried to calm global markets in such moments, especially when investors are gripped by fear of contagion. Mr. Trump instead squeezed Ankara further, raising tariffs on Turkish steel imports to 50% and aluminum to 20%, which deepened the Turkish lira’s drop and worsened market fears that its banks could be shaken.

Administration officials didn’t clarify Mr. Trump’s motives. The move followed a series of actions the Trump administration has taken in recent weeks to step up economic pressure on Turkish President Recep Tayyip Erdogan to release American evangelical pastor Andrew Brunson.

So it’s a political issue. Trump is pressuring Turkey’s dictator (who throws all dissidents in jail) to release one of their own.

As the article says, Trump’s move is a departure from how the US usually handles these situations. That’s the point to note here. Everything Trump does is a departure from the status quo.

Why do you think he is so vilified by the mainstream media? They ARE the status quo. They have been for GENERATIONS, and they don’t like what Trump is doing.

And that’s why they are coordinating a response… [openx slug=inpost]

On Thursday, the editorials of around 100 US papers will speak out against Trump’s portrayal of the media. That sounds like collusion to me!

Why do you think Trump communicates via Twitter? It’s so his message hits the people unfiltered. He doesn’t have to rely on his enemies in the media distorting his words. They’ll do that anyway, but at least he has a direct line to the people who elected him.

While Trump pressuring Turkey may not seem like a big enough deal to roil international financial markets, there is also the domestic political situation to consider.

 

What you won’t read about in the mainstream media

There is a lot going on in the US right now that is potentially explosive. But you won’t read about it in the mainstream media because they don’t want you to know.

For example, this whole Russia probe thing is heating up.

A quick refresher: The Democrats are trying to impeach Trump by proving that he colluded with Russian intelligence in 2016 to disrupt the Democrats election campaign.

The Dems believe the Russians hacked emails and sent them to wikileaks, who then published them. Trump’s team believe this is false. To prove it, the US Senate Intelligence Committee have asked wikileaks founder Julian Assange (incarcerated for seven years and counting, without charge, for leaking the truth) to testify in a closed session.

While Assange hasn’t disclosed his source, he has stated on a number of occasions that it didn’t come from the Russian government or any other state party.

His testimony could be explosive and prove brutal for the Democrats, who have consistently pushed the line that Russia was involved and meddled with the elections.

Whether you hear this from the mainstream media, is another point. Whatever the narrative, the market will eventually work it out.

This could go either way for markets. It could cement Trump’s power and markets could continue to rally. Or it could turn politics feral as the liberal media increase their attacks against a (by then proven) legitimately elected President.

So grab some popcorn folks. Keep your eye on US politics in coming weeks. And keep in mind you are being sold/told a narrative by the media. Think for yourself. Keep an open mind. Things are about to turn interesting!

Regards,

Greg Canavan

Daily Wealth

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Greg Canavan is a Feature Editor at Money Morning. He likes to promote a seemingly weird investment philosophy based on the old adage that ‘ignorance is bliss’. That is, investing in the Information Age means you have all the information you need at your fingertips. But how useful is this information? Much of it is noise and serves to confuse, rather than inform, investors. And, through the process of confirmation bias, you tend to read what you already agree with. As a result, you often only think you know that you know what is going on. But, the fact is, you really don’t know. No one does. The world is far too complex to understand. When you accept this, your newfound ignorance becomes a formidable investment weapon. That’s because you’re not a slave to your emotions and biases.


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