David Stockman: Epic downturn is here, brace for 40% market plunge

Release Date:  Friday, November 9, 2018

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Gold and Silver Prices

Gold closed lower on Friday and suffered a weekly loss after the dollar firmed following solid conviction from the Fed that interest rates will be raised again in December was plain on the Fed's announcement on Thursday.

"'The Fed's announcement caused the dollar to strengthen and the outlook for higher U.S. interest rates has gold on the defense,' said Bob Haberkorn, senior market strategist at RJO Futures.

"Higher interest rates would be bullish for the dollar because investors from other parts of the world would rather convert local currencies to the greenback versus going into gold, he said.

"Also weighing on overall commodity market sentiment, was a decline in oil prices, with benchmark Brent crude falling to its lowest since early April.

"'Gold is re-establishing its relationship with the crude oil market,' said Miguel Perez-Santalla, vice president of Heraeus Metal Management in New York. Gold can be used as a hedge against inflation fueled by higher oil prices." ("Gold falls to 1 month low as Fed affirms rate-hiking stance," Reuters, CNBC, 11/09/18.)

Gold ended the week down $22.70, closing at $1,209.40. Silver ended the week down $0.57, closing at $14.15.

David Stockman: Epic downturn is here, brace for 40% market plunge - Landsman

Former Director of the Office of Management and Budget under President Reagan issues a warning about a recession and market correction.

"David Stockman warns a 40 percent stock market plunge is closing in on Wall Street.

"Stockman, who served as President Reagan's Office of Management and Budget director, has long warned of a deep downturn that would shake Wall Street's most bullish investors. He believes the early rumblings of that epic downturn are finally here.

"It comes as the S&P 500 Index tries to rebound from its worst month since 2011.

"'No one has outlawed recessions. We're within a year or two of one,' he said Thursday on CNBC's "Futures Now." He added that: "fair value of the S&P going into the next recession is well below 2000, 1500 - way below where we are today."

"This is far from the first time he's issued a dire warning. But this time, he suggests the latest leg down is an early tremor of the pain that lies ahead.

"'If you're a rational investor, you need only two words in your vocabulary: Trump and sell,' said Stockman, in a reference to President Donald Trump. 'He's playing with fire at the very top of an aging expansion.'

"According to Stockman, Trump's efforts to get the Federal Reserve to put the brakes on hiking interest rates from historical lows is misdirected.

"Stockman cited the trade war as another major reason why investors should brace for a prolonged sell-off. 'The trade war is not remotely rational,' he said. If the dispute worsens, it 'is going to hit the whole goods economy with inflation like you've never seen before because China supplies about 30 percent of the goods in the categories we import.'

"His latest thoughts came as stocks will try to build on last week's rebound...the index is still down 6.9 percent over the past month.

"'We're going to be in a recession, and we're going to have another market correction which will be pretty brutal,' Stockman said.

"The White House didn't respond to CNBC for a comment on Stockman's remarks." ("David Stockman: Epic downturn is here, brace for 40% market plunge," Stephanie Landsman, CNBC, 11/04/18, Updated, 11/05/18.)

Gold rises as dollar sags after U.S. mid-term results - Verma

Pressure on the dollar following the mid-term elections gave rise to gold. 

"Gold rose on Wednesday as U.S. mid-term elections delivered a split Congress and pressured the dollar, with investors now turning their attention to a Federal Reserve meeting for clues on future interest rate hikes. Spot gold was up 0.4 percent at $1,230.68 per ounce at 1333 GMT...

"'This outcome of the mid-term elections was expected by the financial markets. It would have been a big thing if gold was surprised by that,' said Julius Baer analyst Carsten Menke.

"'Today we just see gold moving in lock-step with dollar, the dollar is down and that is what is mirrored in the gold price."

"The dollar index fell more than half a percent, making bullion more attractive for holders of other currencies, as a split Congress dampened expectations for a major fiscal policy boost to the economy.

"Democrats won control of the U.S. House of Representatives, giving them the opportunity to block President Donald Trump's push for a further round of tax cuts and deregulation - measures that have turbo-charged the U.S. economy, stock markets and the dollar, and have kept the Fed on a policy-tightening path.

"'This will presumably put paid to any further tax cuts, which means in the longer term that the Fed will need to implement fewer rate hikes, which per se will have a negative impact on the U.S. dollar,' Commerzbank analysts said in a note.

"'President Trump may instead focus more on foreign policy, which is likely to generate additional uncertainty. Gold would profit long-term from both factors.'

"Investors often turn to gold as insurance at times of financial and political uncertainty.

"Market participants will now keep a close eye on a two-day Fed meeting starting later in the day to gauge the outlook for U.S. monetary policy. While the Fed is expected to keep interest rates steady, markets are waiting to see whether it offers clues about possible rate increases in December and in 2019." ("Gold rises as dollar sags after U.S. mid-term results," Swati Verma, Reuters, 11/7/18.)

What a Democratic takeover of the House means for Trump's agenda - Watson

President Trump will have a much harder time accomplishing his agenda with the Dems taking control of the House.

Democrats' takeover of the House ended two years of full GOP control in Washington, during which - theoretically speaking - President Trump had full rein to implement his conservative agenda. But as Mr. Trump learned the hard way with Republicans' failure to fully repeal Obamacare, and his inability to secure anywhere near sufficient funding for a border wall, even full Republican control of both chambers of Congress and the White House isn't always enough. 

"While the president has long complained of Democrats' "obstruction," despite Republicans controlling Congress, the last two years of working the system will be a breeze compared to what the next two likely will be.

"Mr. Trump, who wants to pass a second wave of tax cuts and end birthright citizenship, will find it much harder to accomplish those things legislatively. Democrats can quite easily block the president's desired agenda. Mr. Trump himself admitted the 10 percent tax cuts he wanted for the middle class likely won't happen without Republicans at the helm.

"That leaves the president with few options. He could compromise with them...

"If there are roadblocks on Capitol Hill, the president could take executive action, a power he has resorted to before, despite his frequent criticism of former President Obama for the same thing... 'I believe that you can have a simple vote in Congress, or it's even possible, in my opinion - this is after meeting with some very talented legal scholars - that you can do it through an executive order,' Mr. Trump said last week about birthright citizenship. 'Now, I'd rather do it through Congress, because that's permanent. But we can certainly do it through - I really believe we can do it through executive order.'

"Democrats' control of the House also means they will run all of the lower chamber's committees. From the House Oversight and Government Reform Committee, to the House Ways and Means Committee, Democrats will control the agenda, the schedules, and what kind of investigations they pursue. 

"For Mr. Trump, that means Democrats will have every opportunity to obtain the president's tax returns, which he has refused to hand over since before the election. Democrats are also poised to launch or continue probes into the president's businesses and potential conflicts of interest. Mr. Trump never fully divested from his businesses upon assuming office, and Democrats are unsatisfied with the lack of information on how the president and his family might be profiting from transactions the public can't see. Litigation is already pending claiming foreign payments to Mr. Trump's businesses violate the Emoluments Clause of the U.S. Constitution. 

"But Mr. Trump isn't the only Republican in the executive branch with cause for concern - Democrats are also poised to launch or continue probes into Cabinet-level secretaries and federal agencies. 
"The Democrats who won Tuesday night take office in January." ("What a Democratic takeover of the House means for Trump's agenda," Kathryn Watson, CBS, 11/07/18.)

Trump facing unfriendly Democratic House and specter of investigations - Mosk and Siegel

Dems plan on using their new power in the House to provide a stronger check on President Trump's administration and Trump Organization finances.

"President Donald Trump will wake up to a different Washington when Democrats formally take control of the House of Representatives on Jan. 3, as a tectonic shift in power will begin to unleash a succession of new legal and political challenges for his administration.

"'I want to look at all the things the president has done that go against the mandates of our Founding Fathers in the Constitution,' said Rep. Elijah Cummings, the Maryland Democrat who is poised to take control of the powerful House Oversight Committee. 'We need accountability, transparency, integrity, and honesty from this Administration.'

"Democrats swept to power, having campaigned on the promise of providing a stronger check on the Trump administration. That pledge could initiate bruising legal battles over congressional subpoenas, a stack of demands for documents and testimony from federal agencies -- including Trump's tax returns - and withering investigations into facets of Trump's personal life, his family business, and his government.

"Cummings' committee has already compiled a list of 64 subpoenas and inquiries looking into concerns they had with Trump administration activities but were denied by the committee's Republican leadership. The Democrats said they intend to revisit the requests.

"Practically speaking, the Democrats will be well positioned to pursue their oversight agenda. The budget for the majority will enable committee leaders to hire a small army of investigators, lawyers, and other key staffers... The power of the majority will also enable Democrats to issue subpoenas, and demand records and testimony from federal officials.

otable among those powers: the ability to ask the Internal Revenue Service to turn over Trump's confidential tax records for their review.

"Rep. Bill Pascrell, a New Jersey Democrat, is one of several committee members who told ABC News last month that the House Ways and Means Committee plans to exercise that power and initiate a review of Trump's tax filings...'We are allowed to investigate this. Nothing should step in our way.'

"Democrats on the House Intelligence Committee have been frustrated by Republicans' decision to focus their investigation into Russian election interference on the conduct of the FBI, rather than any possible ties between the Trump campaign and Russia. They now say they intend to seek testimony from more than 30 witnesses... Democrats say Republicans failed to question key witnesses and follow some relevant lines of inquiry.

"They say they intend to explore questions about the Trump Organization's finances, including the relationship between the family business and Deutsche Bank, which has financed some of the Trump Organization's real estate deals. The bank has said it is cooperating with investigators.

"They want to review, among other items, what they have called 'credible' allegations about the use of Trump properties by Russian oligarchs to launder money - allegations that Trump aides have refuted. The effort could involve hiring investigators with specialized data and forensic accounting experience, according to a congressional source. Trump has denied doing business in Russia, apart from the Miss Universe pageant.

"Democrats also want to continue investigating Trump campaign's digital operation and relationship with the data firm Cambridge Analytica. The company, which shut down in May, is still being investigated by British authorities for alleged improper use of Facebook user data.

"For months, Republicans have predicted that Democrats would overstep if they took control.

"Democrats 'have proven beyond any doubt that their sole aim is to run an endless investigation against the administration in hopes of pinning some imaginary horrific crime on them,' Jack Langer, a spokesman for House Intelligence Committee Chairman Devin Nunes, told ABC News ahead of the election.

Regarding Trump's tax returns, Republicans have said they plan to put up a fight. In October, Ways and Means Chairman Kevin Brady, a Texas Republican, responded on Twitter to statements from Democrats suggesting they would pursue copies of the returns.

"'This is dangerous,' Brady wrote. 'Once Democrats abuse this law to make public @realDonaldTrump tax returns, what stops them from prying/making public YOUR tax returns for political reasons? Who is next? #AbuseOfPower #EnemiesList'

"Some Trump allies warn that the Democrats' plans could stop the president's agenda in its tracks, and bog down the administration in endless oversight hearings.

"'Everyone has to assume if Nancy Pelosi becomes speaker that every committee will hold hearings and bring every single Trump appointee in under oath,' former House speaker Newt Gingrich, a Trump ally, told ABC News. 'It would be an enormous drain on time away from policies they'd like to pursue.'

''I'm not looking for retribution, life is too short,' said Cummings, who battled with Republicans over investigations into the 2012 Benghazi attack and Hillary Clinton's use of a private email server. 'While we are dealing with whatever may come in the storm of Trump, I have to keep in mind that there are people who have to live day to day.'

"As the new Congress gets underway, the White House that is already grappling with Mueller's probe and has begun bracing for the fresh investigative onslaught.

"'It's not going to be enough to go on Twitter and say, "This is a witch hunt!" and not cooperate,' Kurt Bardella, a public relations consultant who served as an aide to former House Oversight Committee chairman Rep. Darrell Issa, R-Calif., told ABC News.

"Democrats have taken caution not to bandy about one word that excites passions on both sides of the aisle: impeachment. But the man who would be positioned to oversee any movement to try to remove Trump from office, the expected Judiciary Committee Chairman Jerry Nadler, D-N.Y., was spotted earlier this year on the Amtrak Acela reading a stack of books on the topic.

"They will start doing everything in their power to oppose, resist, impeach, obstruct this president," Rep. Lee Zeldin, R-N.Y., a Trump ally, said in an interview with ABC News.

"While progressives have tried to force votes on articles of impeachment against Trump, senior Democrats, including Schiff, House Minority Leader Pelosi and Nadler, have all said they want to see the results of special counsel Robert Mueller's investigation before giving any thought to potential impeachment proceedings. Pelosi, in particular, has been resistant to talk of any drastic measures.

"In an interview with Rolling Stone this summer, she said... 'I don't think it's in the interest of America's working families to focus on that, unless we have more to go on, which we don't at this time,' Pelosi told the magazine. 'You get the power of subpoena, you don't know where it takes you. I wouldn't not impeach the president for political reasons. But I wouldn't impeach him for political reasons, either. That's just not what it's supposed to be about. I think it's not unifying for the country.' ("Trump facing unfriendly Democratic House and specter of investigations," Matthew Mosk and Benjamin Siegel, ABC News, 11/07/18.)