Apocalypse Trump

Dec 24, 2018 Elizabeth Drew, Project Syndicate

Elizabeth Drew is a Washington-based journalist and the author, most recently, of Washington Journal: Reporting Watergate and Richard Nixon’s Downfall.

With no compromise in sight to end the federal government shutdown, and no one left in President DonaldTrump’s cabinet who can restrain him, Americans and their allies are staring into the abyss that has been looming since the 2016 election.

WASHINGTON, DC – For those who hadn’t yet figured it out, the price of having a US president who disdains expert opinion and who is impulsive, mendacious, not very smart, disturbed, uninformed, incurious, incompetent, intemperate, corrupt, and a poor negotiator became irrefutably clear in recent days. Three large developments from last Wednesday through Saturday unnerved even some of Donald Trump’s Republican protectors, who had rationalized that, after all, he had cut taxes (mainly on the rich and corporations) and put two conservatives on the Supreme Court bench. But the dangers of having such a person in the Oval Office were now becoming harder to ignore.

The Coming Franco-German Bust-Up

Dec 21, 2018 Mark Leonard, Project Syndicate

Mark Leonard is Director of the European Council on Foreign Relations.

The partnership at the center of European integration is unraveling just when Euroskeptic forces are coming together. If French President Emmanuel Macron and German Chancellor Angela Merkel cannot start rebuilding the political center, next year’s European Parliament election will produce the biggest victory yet for anti-EU populists.

BERLIN – The politics of Brexit is descending into chaos. The European Union is fragmenting into northern, southern, eastern, and western tribes. And now the Franco-German marriage at the center of the European project is in danger of falling apart.

In May 2017, when German Chancellor Angela Merkel and newly elected French President Emmanuel Macron met for the first time, many hoped for a renewal of vows. Crowds of pro-European well-wishers urged them on. Macron, the fresh-faced reformer, seemed to have a Midas-like political touch. And Merkel was at the height of her power on the international stage, having been deemed the new “leader of the free world,” supplanting the “very stable genius” in the White House, Donald Trump.

Quoting the German author Hermann Hesse, Merkel observed that, “There is magic in every beginning,” but added a caveat: “The magic lasts only when there are results.” Eighteen months later, the magic most certainly has not lasted. Merkel has now handed over the leadership of the Christian Democratic Union (CDU) and will not seek another term as chancellor. And Macron, far from walking on water, has been trying not to drown in a sea of yellow-vested protesters.

In the Stock Market, It’s a Dog-Eat-Dow World

Date: 24-12-2018
Source: The Wall Street Journal

Going into the last week of the 2018, major stock indexes are on track for their worst year since 2008

Experts think more trading volatility could be in store in the year ahead.

Market volatility spurred by recent worries about interest rates, trade tensions and slowing economic growth are sending investors to the dogs—the Dogs of the Dow, that is.

Investors have fled shares of companies like technology firms that are known for their growth prospects in favor of those that offer higher dividend yields, benefiting followers of the classic investing theory, which is beating the benchmark Dow Jones Industrial Average in 2018.

The strategy entails buying the 10 highest-yielding components of the 30-stock Dow industrials at the beginning of a year and holding the shares over the following 12 months. That gives investors dividend income and the benefit of buying cheaper stocks. Excluding dividend increases, yields rise when stock prices fall, highlighting a hallmark of the strategy.

Going into the last week of the 2018, major stock indexes are on track for their worst year since 2008, and more volatility could be in store. Trading tends to be light during the holiday-shortened week, which could trigger bigger-than-normal price swings, though heavy volume in recent sessions signals things could also prove busier than usual. Worries about the Federal Reserve’s path of interest-rates increases, simmering trade tensions with China and stalling economic growth around the world have tested the durability of the nearly 10-year bull-market run in U.S. stocks in recent sessions.

The Dogs’ returns this year are negative through Friday, but the losses are smaller than those of the broader blue-chip index. That is a reversal from earlier in the year when Dogs underperformed as major indexes climbed to records on the back of robust corporate earnings growth and 2017’s massive tax overhaul.

Among this year’s Dogs are health-care giant Merck & Co., which has surged 34% in 2018 on a total-return basis including dividend payments; Cisco Systems Inc., which has climbed 13%; and Verizon Communications Inc., up 8.7%. The biggest drag is a company that lost its home in the blue-chip index earlier this year: General Electric Co.

“Buying strength in anything other than utilities or dividend payers has not worked out,” said Frank Cappelleri, executive director at Instinet LLC. He added he expects more investors to rotate into haven stocks at the start of the year when investors tend to make adjustments to their portfolios after reviewing their end-of-year performance statements.

That flight from risk appears to be accelerating heading into the final week of the year. Investors have yanked money out of both stock and bond funds at a quickening pace, in some cases moving their positions to cash. Meanwhile, utilities and real-estate companies, beloved in weak economies for their steady distribution payments, are among the best recent performers, posting smaller losses than other sectors.

Despite the outperformance of the Dogs this year, they haven’t been immune to the fears rattling the broader stock market and are on track for their first negative return since 2008, according to Dow Jones Market Data. They have slumped 2.7% through Friday on a total-return basis, versus a 7.1% fall for the broader index. That contrasts with the first three quarters of the year when the Dogs returned 5.8%, short of the Dow industrials’ 8.8% gain.

Over a longer time frame, the Dogs’ returns are more impressive. They have beaten the broader index in three of the past four years and 60% of the time over the past 20 years, according to Dow Jones Market Data. Last year was an exception: As the Dow industrials hit five 1,000-point milestones, the Dogs returned roughly 15% compared with the broader average’s 28% return.

One big attraction of the Dogs is their high distribution payments to investors. Each of the Dogs at the end of 2017 boasted a dividend yield of at least 3.1%, which is well above the current yield of 2.792% on the benchmark 10-year Treasury note and the 2.4% average dividend yield for all Dow components.

“The value in owning dividend stocks right now is these have strong balance sheets,” said Sandy Pomeroy, portfolio manager at Neuberger Berman Equity Income Fund. “Right now in particular with the economy potentially slowing and the Fed tightening, all of a sudden these things look stronger rather than buying the dream.”

Her fund holds shares of Verizon and Pfizer Inc., but she has steered clear of International Business Machines Corp. , despite its attractive yields.

“Fundamentals matter,” she said, adding that buying companies solely for a high dividend isn’t necessarily the best strategy. Her fund looks for the sustainability of the dividend and possibility for dividend growth, she said.

Merck, which carried a 3.4% dividend yield at the end of 2017, has soared this year as the pharmaceutical company has made solid progress in research and development of new drugs. Pfizer has also provided some bite in 2018, rising 20% on a total-return basis. Pharma stocks in general have had a good year—the health-care sector of the S&P 500 is the only group other than utilities on track for yearly gains, while Merck and Pfizer are the best performers in the Dow industrials on a price-basis as well.

Only four Dogs have suffered losses in 2018 after factoring in dividends: GE, IBM and energy giants Exxon Mobil Corp. and Chevron Corp. , whose tumble has coincided with a steep drop in oil prices.

GE entered the year with a hefty dividend yield of nearly 5%. Since then, its stock has lost nearly 60% of its value, the one-time industrial stalwart cut its dividend to a token penny a share and the company has been kicked out of the blue-chip index. As a result, it won’t be a part of next year’s pack of Dogs. In its place will likely be JPMorgan Chase & Co.; the other nine dogs are on track to be back in 2019.