Markets

We were fully invested in our US ETF strategies before the weekend French elections. We are still there and overweight financials (banks) and tech. In our volatility strategies we are also fully invested and have been for over a week. These VOL strategies are mathematically driven and they gave us the signs we needed to get in while market agents were worried about geography. In bond accounts, we continue a barbell strategy. We find the tax-free, longer-term municipal bonds of high-grade credits to be a compelling bargain.

Geography

France: Bonjour Macron. Au revoir Hollande. As for Le Pen: à bientôt.

Bonjour Macron. Au revoir Hollande. As for Le Pen: à bientôt. Frankfurt, Germany: In the wake of the French election, the European Central Bank (ECB) can now advance discussions of Quexit (exiting quantitative easing).

In the wake of the French election, the European Central Bank (ECB) can now advance discussions of Quexit (exiting quantitative easing). Japan: This nation recently experienced its first national civil defense warning since World War II. The event was ignored by US media but taken seriously in Japan. Japanese citizens were instructed how to take cover from North Korean missiles, with instructions posted on the Cabinet Office Civil Protection website. Applause and thank you to Jeff Usher’s research service, Japan Insider, for these details. Meanwhile, politics in Japan are getting hotter. The controversial school that was allegedly a recipient of largesse from Prime Minister Abe’s wife (Akie Abe) has filed for bankruptcy. The school has a 1.6 billion yen debt that it cannot pay. We shall see if this scandal erodes the political strength of Abe and his coalition.

This nation recently experienced its first national civil defense warning since World War II. The event was ignored by US media but taken seriously in Japan. Japanese citizens were instructed how to take cover from North Korean missiles, with instructions posted on the Cabinet Office Civil Protection website. Applause and thank you to Jeff Usher’s research service, Japan Insider, for these details. Meanwhile, politics in Japan are getting hotter. The controversial school that was allegedly a recipient of largesse from Prime Minister Abe’s wife (Akie Abe) has filed for bankruptcy. The school has a 1.6 billion yen debt that it cannot pay. We shall see if this scandal erodes the political strength of Abe and his coalition. On the high seas: US and Japanese naval forces are conducting joint exercises and training. Rest assured that the US Navy and Japanese Navy know exactly where their ships are. The North Koreans do not have that intelligence and tend to get it from our press reports unless it is provided to them by China or Russia or their own spy network. That explains the rationale behind the alleged and well-publicized mix-up about the location and destination of the American carrier task force. The so-called mix-up may have been fuel for America’s media, but it is likely that US forces are very directly and seriously involved in preparation for any rash behavior on the part of young Kim.

US and Japanese naval forces are conducting joint exercises and training. Rest assured that the US Navy and Japanese Navy know exactly where their ships are. The North Koreans do not have that intelligence and tend to get it from our press reports unless it is provided to them by China or Russia or their own spy network. That explains the rationale behind the alleged and well-publicized mix-up about the location and destination of the American carrier task force. The so-called mix-up may have been fuel for America’s media, but it is likely that US forces are very directly and seriously involved in preparation for any rash behavior on the part of young Kim. Punggye-ri, North Korea: North Korea has resumed activity at the Punggye-ri nuclear test site. Volleyball time has ended. The workers have placed more camouflage materials over trailers and equipment (reported on April 24, 2017, in Monday’s NightWatch).

North Korea has resumed activity at the Punggye-ri nuclear test site. Volleyball time has ended. The workers have placed more camouflage materials over trailers and equipment (reported on April 24, 2017, in Monday’s NightWatch). North Korea, China, Russia: There are now reports of troops and military movements increasing on the North Korean borders with China and Russia. Yes, North Korea borders both countries.

There are now reports of troops and military movements increasing on the North Korean borders with China and Russia. Yes, North Korea borders both countries. Venezuela: This failing country is now killing its citizens who are protesting the government. President Maduro blames the US while he uses the army to suppress his citizenry. Sadly, Venezuela is now a failed state. Such is the outcome that started with Chavez’s attaining political power. Remember, this is a country with the world’s largest oil reserves, and its entire economy is collapsing.

There are many more geopolitical risks that we see recurring in the Middle East and Africa. And we watch risk rise in the Arctic as the melting ice fields enlarge Russia’s frontier and as their military presence expands in the region. And we wonder what two former Colombian presidents are doing in private conversation at Mar-a-Lago.

This coming weekend will be interesting, as President Trump holds a rally in Pennsylvania while the White House correspondents hold their gala in Washington. Trump promises the framework of a tax reform plan. The markets are waiting for details. If the plan is delivered and seems reasonably sure of passage, we believe markets will go higher.

As for the WH correspondents’ gala, we wonder whether Alex Baldwin will make a surprise appearance. Now that would make for entertaining split-screen TV watching.