Confirming a second global growth slowdown as Trump tries to consolidate power

The big picture: deflation is back

There was a global growth slowdown that I flagged late in 2014. And it came to the fore in 2015, derailing the US economy and pushing the Fed’s rate hike timetable back. Here we are with another one. I flagged it earlier this year in March and April and again in April. I believe it is now being confirmed.

And yesterday morning, I highlighted the bear market in crude oil as a sign of slowing growth. US shale producers are pumping flat out, ostensibly to keep up with demand. But the reality is that US crude inventories have risen sharply in recent weeks. And so, today, US crude is set for its longest daily losing streak since 1984, with WTI quoted at $60.22 as I write this.

Again, this is about demand, not just supply. The nowcast work by Gavyn Davies’ firm shows that global growth has dropped by a full two percentage points. And in 2019, the US is likely to join the rest of the world as the impact of policy stimulus fades. Even if we get a rebound outside of the US, the worry has to be that US growth fades enough to end the credit cycle and usher in recession.

All of this should serve as a reminder that when this cycle ends, any cyclical inflation will be wrung out. And deflation will become a watchword once again.

Outtake: If you’re interested in oil, also see this piece from Reuters on “The knowns and unknowns of U.S. Iran oil sanction waivers“.

Have you seen the media pummeling?

Speaking of deflation, did you see the terrible news yesterday about Dish’s streaming TV efforts? Basically, year-over-year uptake was cut by 90%. That’s nine-zero. New subscribers in the year-ago quarter were 240,000. This quarter, there were only 26,000.

Dish’s SlingTV service was the pioneer and market leader for live TV over the Internet. And it supposed to help the company transition from a media world dominated by cable and satellite TV to one dominated by Internet connected devices. But the transition has really gone pear-shaped.

A lot of this shows an incredible price sensitivity to streaming TV packages. But AT&T’s DirecTV Now is also experiencing slow gains in uptake. Why? Because it’s a competitive market. We’re essentially moving from an oligopoly or monopoly when it comes to cable and satellite service provision to a free for all in the streaming TV segment.

My take: We are going to see serious price deflation here. The average spend per customer for all video media will decrease. And that’s going to crush margins at big media companies. The oligopoly they once had will move to the residential last mile where most people still have only one or two residential broadband internet providers to choose from in the US. And that means, with net neutrality busted, there’s an opportunity for rent seeking. We need to watch how this space develops.

The symbiotic relationship between Trump and the media

Switching gears here, I want to call out the BBC account of the Trump – Acosta bustup at Wednesday’s White House presser. Reader Dave alerted me to it. And I think it’s a good take. It points out that — though they profess to be adversaries of sorts — the media and Trump feed off of each other.

This part is particularly good on that score:

What worries me is the wider question of how Trump and the media interact…

Even those who were not originally taking sides are now nailing their colours to the mast. Fox and MSNBC have always played to their own bases. But now CNN, too, has editorialised its evening slot with Chris Cuomo – who gives us an essay, a comment piece, on whatever is getting him fired up…

It works for viewing figures in the same way it works for electoral success. It works, in other words, for those who like their chambers echoed – but it’s an odd place for news to sit.

So yes, those in the media – the enemy of the people – know how the president likes to portray them. We know he picks fights with individuals. We know he may even revoke a White House press pass (that won’t last – mark my words).

But we also know this: Never in the history of America has a president so loved the media and the air time we devote to him.

And never in the history of America has the media got so much entertainment from one president.

Defiant Trump blames media, fellow Republicans for House losses

Since we’re on Trump, let’s talk about what he’s thinking about the midterms. The view I’ve been pushing is that Trump sees the midterms as vindication, giving him a green light to act more boldly. That’s why he fired Sessions. This account from Reuters makes sense in that context:

The day after his party lost its lock on the U.S. Congress, President Donald Trump walked into a White House press conference ready for political combat, name-checking Republicans who he blamed for losing their seats and lashing out at reporters who challenged his assertions.

Republicans lost control of the House of Representatives to Democrats, but Trump shrugged that off, casting Tuesday’s congressional election results as “very close to complete victory” for Republicans and saying he could negotiate easier on some issues with Democrats, anyway. Republicans kept their Senate majority…

He scorned Utah’s Mia Love and Virginia’s Barbara Comstock. “Mia Love gave me no love,” he said. “And Barbara Comstock was another one. I mean, I think she could have won that race, but she didn’t want to have any embrace.”

‘The guardrails are off’: Trump takes aggressive moves he resisted before elections

Remember, I was saying yesterday that Trump has been emboldened by the election. And here’s the Washington Post with a story reinforcing that point.

“All of the guardrails are off and the rule of law is under an unprecedented threat,” said Joyce White Vance, who served as a U.S. attorney in Alabama during the Obama administration.

For more than a year, Trump has mused privately and publicly about his desire to remove Jeff Sessions because he believed the attorney general was disloyal by recusing himself from the Russia investigation due to conflicts of interest. But Trump’s advisers, including his personal attorney Rudolph W. Giuliani, counseled him against the firing — at least until after the midterm elections.

So on the day after the election, he did it…

“It became a question of when, not if, and once something becomes inevitable, it’s harder to be outraged about it,” said one former White House official, who spoke on the condition of anonymity to be candid. “Patience is not often an attribute attributed to Trump, but if he has to be, he can be very patient.”

Loss of U.S. House leaves Republicans more tied to Trump than ever

It’s not just Trump’s aggressive stance we should think about in terms of greater polarization going forward. It’s the make up of Congress minus the Mia Loves and Barbara Comstocks of the world. Here’s Reuters again:

Although some moderate Republicans who remain in the House may view the result as an indictment of Trump’s strategy of focusing relentlessly on illegal immigration in the final stretch of the campaign, they will be a small minority…

Many Republicans who lost were moderates from suburban-heavy districts who tried to keep some distance from Trump and his rhetoric, but lost anyway. That leaves a shrunken core dominated by conservatives from rural areas whose constituents overwhelmingly support Trump.

In short, Trump will stay Trump. Although some Republicans may blame him for Tuesday’s losses, they are unlikely to rebel, especially given that the party kept control of the Senate…

Representative Tom Cole said the Republican House caucus had always been conservative and would remain so after Tuesday’s election.

“Nothing’s going to pass that can’t get through a pretty conservative United States Senate and past a pretty conservative president,” he told Reuters in a phone interview.

At a press conference at the White House on Wednesday, Trump took the unusual step of singling out for criticism Republicans who lost House races on Tuesday, arguing that if they had embraced his policies more they would have kept their seats.

It was a clear warning to the Republicans who remain in Congress to stand by the president.

My take: This is why we should expect few big legislative achievements in the next two years. Get ready for gridlock and, perhaps even, government shutdowns. There will certainly be a standoff over the President’s wall on the US southern border with Mexico. More and more, Trump will end up acting unilaterally, using executive orders and presidential power.

Newly emboldened Democrats want healthcare protected – and Trump impeached

I know Trump feels vindicated about the midterms.  But, the Dems also think they won the midterms and are girding for confrontation. Read this:

Democrats have a clear message for party leaders who will take control of the U.S. House of Representatives next year, according to a Reuters/Ipsos national opinion poll: Protect their healthcare and impeach President Donald Trump.

The poll released on Thursday found that 43 percent of people who identified as Democrats want impeachment to be a top priority for Congress. That goal was second in priority only to healthcare, which played a major role in Democratic campaigns’ closing arguments before Tuesday’s elections.

They may be disappointed: Party leaders on Wednesday vowed to use their newly won majority to impose a new level of scrutiny on the Trump White House, but said impeachment would require evidence of action to subvert the Constitution that was so overwhelming that it would trouble even Trump’s supporters.

Democratic Party leaders had practical reasons for caution. While they were poised to gain at least 30 House seats, more than the 23 they needed for a majority, Republicans strengthened their control of the U.S. Senate, which has the power to determine guilt or innocence in an impeachment proceeding.

Likely outcomes? We’re not going to see impeachment unless Trump fires Mueller or does something else similarly outlandish. That will tick off the Democratic base. which wants impeachment. What’s more 56% of Democrats say they don’t want Nancy Pelosi as Speaker of the House. Pelosi’s Democratic opponents are trying to organize resistance to her taking the Speaker position. But I think it will fail.

I should also add that Maxine Waters is going to be the Financial Services Committee head, as I indicated a few days ago. She is going to insist on greater regulatory oversight, which many Democrats will embrace. Nevertheless, with these women as leaders, Republicans will have a field day in amping up negative sentiment against Democrats because they have already been painted as the bad guys.

If Pelosi becomes speaker, I think the result will be dissatisfaction among Democrats and, perhaps, a negative impact on turnout come 2020. In my view, the Democrats have a leadership crisis, with septa- and octogenarians not willing to cede power to the next generation. It will be interesting to see who runs for President for 2020.

The Kavanaugh debacle cost the Democrats the Senate

I was wrong about Kavanaugh amping up Democrats more than Republicans. From what I have seen in terms of analysis, as with Trump, Kavanaugh’s feelings of victimization transferred very well to the Republican base and their own sense of victimization. It got people out to vote and helped the Republicans hold the Senate. Here’s one take I think is good on this. Ignore the gloating and biased language. Concentrate on the message.

Today, Kavanaugh sits on the Supreme Court hearing cases. Meanwhile, Democratic Sens. Heidi Heitkamp (N.D.), Joe Donnelly (Ind.) and Claire McCaskill (Mo.) are packing up their Senate offices — thrown out by voters furious over their party’s brutal campaign of character assassination against Kavanaugh. Sen. Joe Manchin (W.Va.) was the only Democrat who voted for Kavanaugh, and he survived — but just barely. Two weeks before Election Day, Manchin was leading by double digits, but on Tuesday night he won by just over three points. Had he voted against Kavanaugh’s confirmation, he would likely have been toast as well.

The Democrats’ smear campaign also cost them the chance to pick up GOP seats. In Tennessee, Rep. Marsha Blackburn was trailing former Democratic governor Phil Bredesen by five points in a CNN poll before the Kavanaugh hearings. She ended up winning by just under 11 points, as the Democrats’ mistreatment of Kavanaugh united Tennessee Republicans behind her…

None of that might have been possible had it not been for the Democrats’ horrific treatment of Kavanaugh. As Senate Majority Leader Mitch McConnell put it, the failed effort to stop Kavanaugh was “like an adrenaline shot” for the GOP base.

A big short growing in Italian debt

And, finally, in Europe, Italy is still in the news. This story is from Reuters:

As Italy’s anti-establishment government attempts to pass an expansionary budget in the face of opposition from the European Union, investors are ramping up their use of a product that is increasingly being used to take bets that more losses are in store for the country’s bonds.

Italy has the biggest outstanding bond market in the euro zone and futures trading has rocketed in recent months as hedge funds have stepped up their presence, even as the underlying cash bond markets have shown signs of stress during extreme episodes of volatility.

Average daily turnover so far this year for short-term BTP futures contracts have surged 40 percent to nearly 70,000 contracts compared to 2017 while longer-term BTP futures have also grown substantially, according to futures exchange, Eurex.

The rise in turnover has also been accompanied by surging yields and growing open interest or the amount of positions left outstanding, indicating speculators are comfortable in taking outright short bets, according to market players.

Italy will remain a problem for debt markets for a long time to come.

That’s all I’ve got for now. Have a great weekend.