by Bryan Perry
October 10, 2023
The massive surprise attack on Israel by Hamas over the weekend adds to an already fluid set of potentially destabilizing scenarios around the globe that only make investing in U.S. based assets that much more attractive. This is an unprecedented attack that will result in a major escalation that has regional implications, beginning with how nations will view the long reach of Iran as a sponsor of terror in that part of the world. One thing is certain, the long running Arab/Israeli conflict just got hotter.
The obvious deep-set problems with Russia, China, and North Korea remain, but we can now add brewing trouble stemming from souring relations with Saudi Arabia, after the murder of Jamal Khashoggi, a Saudi journalist, and Washington Post contributing columnist since 2017. He was killed in 2018 in Istanbul at the consulate of Saudi Arabia. According to a U.S. intelligence assessment, Saudi Crown Prince Mohammed bin Salman (MBS) approved the operation to capture or kill Khashoggi.
Due to recent rifts with China, Mexico has now overtaken China as one of America’s biggest trading partner, as the U.S. looks to import goods closer to home to minimize our previous reliance on China. Imports from Mexico now account for 15% of total imports, compared with 14.6% from China, per July trade data. Meanwhile, foreign direct investment (FDI) in Mexico is up more than 40% this year as U.S. companies increasingly shun China, (Source: Bloomberg, “Mexico Replaced China as Top U.S. Trade Partner.”)
With that said, the crisis of illegal immigration at the southern border and the influx of fentanyl by the cartels, I believe is being allowed to continue by Mexico’s government. The U.S. Drug Enforcement Administration (DEA) admits there’s no question Mexican drug cartels are fueling the explosion of deadly fentanyl on American streets, and Mexican officials have refused to cooperate on efforts targeting fentanyl labs inside Mexico. (Source: DEA)
The trend of moving business out of China is picking up momentum. American companies are relocating to other Asian nations with India being a newfound source of re-shoring high-tech businesses. The restrictions on China are definitely putting pressure on that economy but it has not slowed China’s massive military buildup and its intentions of taking control of Taiwan.
Also, there has been little progress on addressing China’s “seven deadly sins” agenda that prompted the staggering tariffs imposed on China. Those seven sins are: Theft of intellectual property, forcing technology transfers, hacking, dumping, subsidizing, importing fentanyl and currency manipulation. And what happened to addressing human rights abuses to the Uyghur population? Beyond detentions, Uyghurs in the region have been subjected to intense surveillance, forced labor and involuntary sterilization.
Each of these sets of geo-political circumstances looks like they will deteriorate further before seeing any improvement or real change for the better. Considering the importance of each country, this argues that some of the rally in the U.S. dollar can be attributed to the broadly growing level of uncertainty in other nations. The other catalyst driving the dollar is the attraction of higher Treasury yields. The currency is following the yield curve, as the Treasury is selling record amounts of bonds to fund the federal deficit.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
This flight to safety in the U.S. currency and short-term Treasuries is being accompanied by strong buying interest in investment-grade corporate debt with short maturities and U.S. equities in companies that have fortress balance sheets. This is why on some big down sessions for the stock market, as yields run higher, shares of the Magnificent Seven stocks and other blue chip growth stocks trade higher.
As the earnings season begins this week, it will be a relief to focus on the business of business and look for the market to move into a seasonally bullish time. Whether the market can fight through the ongoing macroeconomic and geopolitical headwinds is anyone’s guess, but Wall Street loves to reward upside surprises and strong forward corporate guidance. It should be interesting to see how all this unfolds.
All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
What’s Behind the Latest Bond Rate Increase?
Income Mail by Bryan Perry
Geopolitical Risks are Net Bullish for U.S. Assets
Growth Mail by Gary Alexander
What’s Next: Inflation, Deflation or No-Flation?
Global Mail by Ivan Martchev
We Retested the S&P 500 200-Day Moving Average Twice Last Week
Sector Spotlight by Jason Bodner
Emotions Have No Place in Picking Stocks… or Market Turns
View Full Archive
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Bryan Perry
SENIOR DIRECTOR
Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.
Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry
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