December is typically a slow month for markets, but not this year… Here are the stories I’m paying attention to this week.
Oh how the tables have turned… Illinois’ pensions are underfunded and overpromised. Now the state is hoping to solve the problem, in part, by legalizing and taxing marijuana. Chicago Mayor Rahm Emanuel has flip-flopped all over the place on marijuana issues. But he’s generally opposed cannabis legalization for most of his career (when he wasn’t flip-flopping). With pensions becoming a major pain point, however, the outgoing mayor has changed his tune (again).
A study by the University of Illinois predicts the legalization of cannabis in Illinois could create 24,000 jobs and $500 million in tax revenue. It would also inject more than $1 billion into the economy by 2020.
Thomas Lee is one of the more respected crypto bulls on Wall Street. He says we should focus less on price fluctuations and more on long-term adoption (and potential), which he expects to be widespread. He says the price today doesn’t reflect the true fundamentals, which I agree with.
Canada’s housing market has been hurting lately, and it appears that its central bank is stepping in to support the market. This is yet another signal that the world is not dealing well with higher interest rates. Monetary policy makers are not sure whether assets (such as housing) can sustain current prices if credit conditions continue to tighten.
Stephen Roach, former chairman of Morgan Stanley Asia, notes that numerous banks, including Bank of America, Wells Fargo and JP Morgan, have all been punished in recent years for sanctions violations, but no executives have gone to jail. Yet one of China’s leading tech figures has been arrested over alleged violations. Roach wants to know why. Roach also told CNBC that the U.S. is “trying to enforce something that the international community is going the other way on.”
Markets Conclude the U.S. Is Riskier Than China (Bloomberg)
For the first time, China’s 12-month government bonds are priced at a premium to equivalent U.S. Treasurys. Unfortunately, a dimming U.S. outlook seems to be driving this trend.
They would be pricing in various economic realities: the slowing rate of U.S. economic growth, the U.S. government’s exploding debt, the diminished Treasury revenue caused by the 2017 tax cuts, and the Fed’s pursuit of a monetary policy keeping rates well above their [extremely low] average for the decade.
U.S. government bonds have not lost their luster in international markets yet, but the trend suggests this could be the direction we’re headed in.