Week In Brief: Week of April 11

April 17, 2017

Last week saw markets move largely sideways with a slight downward bias. Importantly, the week was Q2's first. And put a bow on Q1. In which the Dow gained 4.6 percent. The Nasdaq climbed 9.8 percent. The index's best three-month stretch since 2013. This also marks the sixth consecutive quarterly gain for the Dow, the longest run since 2006.
Volatility remains virtually non-existent. Presenting both bulls and bears with evidence to support their disparate theses. Bulls claim it's a sign of abundant liquidity. Bears say it's a sign of complacency. SentimenTrader notes that the Dow moved an average of just 0.32% each day during the first quarter -- the lowest average daily move since 1965 when President Lyndon B. Johnson, the hardnosed Texan, inhabited the White House.

Investors typically miss volatility like they do their mothers in law. Failing to realize that a little volatility can bring good tidings. Speed up the appearance of trend lines. Set the stage for future growth.
Unemployment fell to 4.7 percent. Its lowest level in a decade. With Friday's jobs report revealing that the highest labor force participation rate has occurred with workers having the least amount of education. Contrary to the popular narrative regarding a lack of blue collar jobs. Further, it showed that college graduate unemployment is a really low two percent. Finally, the data shows that unemployment growth has been heavily driven by younger workers, ages 25-34.
Another notable economic stat? Consumer confidence has been off the charts. Hitting levels not seen since the 2000 Dot-Com Boom. Though one troubling area in which consumers disappointed was in auto sales. With light vehicle sales dropping to a 16.6M annualized rate from February's 17.6M rate. Accompanying the drop was growing concern over inventory accumulation, rising loan delinquencies, and a surplus of off-lease vehicles into the secondary market. And an eye-popping array of dealer promotions being used to entice buyers. The auto retail sector's current dynamic merits close scrutiny moving forward.
Home prices data was compelling. With seven of the twenty cities tracked by Case Shiller having surpassed their former credit crisis highs. Propelling the national index to a new high, as well. The nation's worst market? Vegas. Still 24 percent beneath its bubble-era high.
Let's glance at last week's biggest story.
Last Tuesday, at least 85 civilians, including children, were killed in a sarin gas attack in the rebel-held Syrian town of Khan Sheikhoun.
Radar and surveillance video showed al-Assad's aircraft dropping the banned, allegedly non-existent munitions. The same types of munitions that the al-Assad regime, and its Russian allies, had convinced then Secretary of State John Kerry and the Obama administration had been deliberately eradicated.
After which Susan Rice, national security advisor, said:
"I think the president stated the U.S. view, which is the use of chemical weapons is not something were prepared to allow to persist, and we didn't. We managed to accomplish that goal far more thoroughly than we could have by some limited strikes against chemical target by getting the entirety of the declared stockpile removed.
The residents of Khan Sheikhoun beg to differ.
President Trump expressed his displeasure with yet another chemical attack against innocent Syrian civilians by firing 60 patriot missiles against the very airbase from which Assad launched his atrocity. Initial reports claimed the destruction of Syrian aircraft with little to no human casualties.
The administration's response received bipartisan support. And laudatory comments from leaders around the globe.
Trump's actions revealed that his administration will have little patience with brutal despots who seek to harm innocent civilians. A stance that the world's autocrats have not seen from the U.S. in some time. And one that sent a message to a few such regimes that had long been testing America's patience and fortitude. Namely Iran. Russia. North Korea. And China.
Moreover, Trump virtually ordered the strikes in front of visiting Chinese President Xi Jinping. Going directly from a steak dinner to the situation room. And conveying to the Chinese leader that his administration will not tolerate the kind of chicanery seen in North Korea. And that, with or without you, the U.S. is capable of punishing despicable geopolitical behavior.
Iran and Russia were not happy with the Syrian strikes. Though American U.N. ambassador Nikki Haley clarified that the U.S. was prepared to do more. In response, Russia moved a warship to the Syrian port of Tartus. And we would not be surprised to soon see additional Iranian ground forces in Syria.
Aside from Assad's decision to kill 85 innocent civilian with sarin gas, the remains another important point here. That being the 2014 declaration by Secretary John Kerry and the Obama administration that Syria was eradicating its chemical weapons capability. Which, in hindsight, was obviously not true. Calling into question another of the administration's foreign policy achievements, the nuclear deal with Iran. Leading some to ask if the Mullahs are also cheating on agreements made with the previous administration.
Another side story? That the strikes against Syria, a Russian ally and client state, all but removes the Russia-Trump collusion conspiracies. A narrative that has all but consumed the media for five months. When both the Senate and House Minority leaders, neither being great fans of Trump, state the Syrian strikes were the right thing to do? The air quickly comes out of that tire. So it will be interesting to see how the media proceeds. And what new witch hunt will soon arise.
Operations like this, and the contingency actions thereafter, consume much time and resources. So, we believe that there will be legislative casualties. Namely, corporate tax reform will likely be delayed. Perhaps beyond August. And as the domestic stock market has priced in tax reform, any further delay of such legislation could catalyze a market correction.
China's leader Xi Jingping visited Trump at Mar-a-Lago this weekend. Most accounts score the meeting as a success. China made some concessions on trade. And promised more access to Chinese financial markets. All appearances revealed that good will and rapport had been built.
Elsewhere in the gaseous swamps of D.C., the popular narrative currently holds that the world is afraid of Donald Trump. Terrified of a Trump-inspired trade war. Anxious over the calamitous failure of the TPP. Nervous that the U.S. does not support NATO. Of course, such narratives completely miss the mark.
Largely unnoticed, the world is beating a path to Washington. Seeking to familiarize themselves with the new team. To ensure that trade and security relations remain intact. To ascertain the direction of interest rates. The dollar. And finally, attempting to procure a piece of the future infrastructure program. Which, aside from China's One Belt One Road program, could represent the world's second biggest infrastructure program.
We've begun reallocating capital, of late, to Europe. So we were disheartened last week to see the leader of the EU suggesting he might promote the "exiting" of Ohio or Texas from America. This, in response to some Trump tweets in support of Brexit.
One must wonder, who is the constituency for such tripe? Brexit? Already baked. Nor will Ohio or Texas be going anywhere. One would hope that European bureaucrats would spend more time figuring out how to reinvigorate the eurozone economy. And less time making idle, remarkably unhinged threats.
Stateside, many have frowned upon the extraordinary lengths to which a multitude of private and public universities have gone in attempting to dissuade free speech and diversity of opinion. Liberty advocates have underscored the danger in such campus environments. Turning bastions of intellectual openness and free thought into closed-minded autocracies.
Well, one Australian high school, tired of the lack of student and parental accountability, made its opinion known via the following voice message system (here).
Nothing defrays life's absurdities like some well-placed humor.
Stay tuned.
Weekly Results
Major indices finished lower last week. The DJIA dropped 0.03%. The S&P 500 fell 0.30%. The Nasdaq lost 0.57%. 10-year Treasury yields fell 0.34%. And gold futures rose 0.46%.

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