Market Morning: Socialist Wins, Amazon Wants You, Yield Curve Continues to Flatten

Market Morning

Politics Alert: Supreme Court Vacancy, Socialist Wins in Bronx, Public Labor Unions Smashed

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Democrats are biting their nails today as Supreme Court Justice Anthony Kennedy, 82, has announced his retirement. Kennedy, a Reagen nominee who has sat the bench since 1988, is considered a moderate, and apparently President Trump, who many fear is to the right of Reagan for some reason even though he is the biggest spender in US history, could nominate someone even more hard right than Kennedy.

SEE: Market Morning: Futures Down, Oil Up, China Crashing, Boeing Goes Hypersonic, Tariffs Galore

Meanwhile, hard left 28-year-old member of the Democrat Socialists of America (which believes in, among other things, the “abolition of capitalism” and is in favor of an economy run by “the workers” or “the state” a la Chairman Mao) Alexandria Ocasio-Cortez won a primary election in the Bronx, winning voters over by promising guaranteed federal jobs for all, though rather unclear on how that will be paid for, considering the United States is already $21 trillion in debt and counting. She is virtually assured a victory this November as she has no Republican opponent, and even if she did, there is little chance that the Puerto Rican will lose in a heavily Puerto Rican district. She may be in the Blue party, but in terms of ideological alliances she is quite Red, though not at all in the Republican sense.

On the more fiscally conservative side of things, the Supreme Court has ruled against public sector labor unions in Janus v American Federation of State, ruling that government workers who are part of unions cannot force non-union government workers to pay union fees. Unions argue that because non-union members still benefit from collective bargaining agreements, non-union member should still pay the fee. Union members would rather not.

Amazon Wants YOU – to Deliver Its Stuff

Amazon (NASDAQ:AMZN) wants to set up a bunch of small businesses that will help it deliver goods to its customers. The retail giant is offering to rent fleets, insurance coverage, even tax and payroll classes to entrepreneurs who want to operate a fleet to help Amazon deliver packages so it won’t have to exclusively rely on the US Postal Service, or United Parcel Service (NYSE:UPS), or FedEx (NYSE:FDX). Amazon says that entrepreneurs can start with as little at $10,000.

What to do: If you’ve got $10K, why not give it a shot?

Is the US-China Trade War Devolving Into Something More Bellicose?

President of the People’s Republic of China and Chairman of the Communist Party Xi Xinping warned U.S. Defense Secretary James Mattis that China would not surrender an inch of territory it considers its own, Bloomberg reports. “This is an important time in the history of China and the United States as we work our way forward,” Mattis said. “I’m here to keep our relationship on a great trajectory, going in the right direction, and to share ideas with your leadership, your military leadership, as we look at the way ahead.”

What to do: Looks like the trade war will continue tit for tat, and might deteriorate.  The Shanghai Composite (NYSEARCA:FXI) is down just under 1% today and is now within 100 points of hitting 2016 lows, and the Chinese Yuan keeps falling as well. Stay out of China for now.

Yield Curve Keeps Plunging Amid Fears Fed Losing Control of Interest Rates

After yesterday’s late day plunge in the S&P 500 (NYSEARCA:SPY) and tech stocks (NASDAQ:QQQ), fears of a bear market are multiplying. China is already there, and notably, the yield curve keeps hitting new post financial crisis lows, now at a spread of 0.33 between the 10Y and 2Y. This indicator is being watched by many technicians and analysts, and if it breaks through .2 or .1, we could see some large exits from equity positions. Meanwhile, reports are accumulating from CNBC and Reuters namely, that tightness in money markets may mean that the Federal Reserve is “towards the end of the current rate hiking cycle” and will have to end its balance sheet shrinking program sometime next year, much sooner than the markets initially anticipated. This is because the effective federal funds rate is closer to the top of the Fed’s target range than it would like. A premature end to the shrinkage of the balance sheet would harm the Fed’s cred, and this could seriously hurt the dollar and equities. But it will all be fine assuming inflation stays at 2%, which is not guaranteed.



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