No. of Recommendations: 7
Most METARs are U.S. citizens but some live outside the U.S. Each investor has a different risk/ reward balance but we all want to maximize our chosen lifestyle factors.
The Trump administration is up to its elbows in meddling with factors that directly impact the economy, including tariffs, expelling immigrants who are large parts of the service workforce, and the newly passed OBBBA which is over a thousand pages long.
One obscure part of the OBBBA negotiations impacts the taxation of American multinational corporations. Initial drafts of the OBBBA included a a Section 899, which aimed to impose tax increases on investors and repeal Section 892 benefits for foreign governments (including sovereign wealth funds) of "offending" foreign countries. These "offending" countries were generally defined as those that impose "unfair foreign taxes" on U.S. companies, such as digital services taxes (DSTs) or undertaxed profits rules (UTPRs).
An "offending country" could have taxes imposed on the interest from U.S. Treasuries. Any whiff of a suggestion of default on U.S. Treasuries (including a charge on foreign countries holding Treasuries which would constitute a partial default) could cause interest rates to rise so this could hurt the U.S. as well as the offender. The three largest foreign holders of U.S. Treasuries are the U.K., Japan and China. (China has been diversifying away from U.S. Treasuries for the past 5 years but China’s holdings of U.S. Treasury bonds were approximately $757 billion in April 2025.)
Section 899 was dropped from the final, signed-into-law OBBBA, reportedly a result of a tentative agreement between the U.S. and its G7 partners, securing an exclusion for U.S. companies from OECD Pillar 2 taxes in exchange for dropping this provision from the U.S. tax legislation. OECD Pillar 2 taxes refer to a global minimum tax framework developed by the Organisation for Economic Co-operation and Development (OECD) and the G20. The primary goal of Pillar 2 is to ensure that large multinational enterprises (MNEs) pay a minimum effective tax rate of 15% on their profits in every country where they operate.
The result is that
huge American multinational corporations can continue to escape to the lowest-tax countries. This was a nice piece of hardball on the part of American negotiators. Even risking potential blowback from the bond market if it didn't work.
https://www.nytimes.com/2025/07/18/business/stocks...
Is the U.S. Riskier Than Emerging Markets?
While the U.S. stock market has rebounded, the combination of the Trump tariffs, a volatile dollar and an erratic bond market has begun to shake global investment thinking.
By Jeff Sommer, The New York Times, July 18, 2025
People living in the United States and using mainly dollars in their personal lives may not fully appreciate the combination of shocks that have unnerved investors elsewhere in the world. The first half of the year was a game changer for investors in Europe, Japan and many other countries for whom the instability of the U.S. financial markets was a seismic event. After years of U.S. outperformance, stocks, bonds and the dollar all experienced painful reversals that were magnified for those holding euros, yen and other currencies...
The shudders in U.S. financial markets after President Trump’s tariff announcements on April 2 amounted to what Ashley Lester, the chief research officer of MSCI, called a rare “triple-red moment,” a simultaneous and significant sell-off in stocks, Treasury bonds and the U.S. dollar. That was a rare event, which last happened in 2002...
Nonetheless, the effective U.S. tariff rate is already the highest it has been since the Great Depression... The perils of this global trade war could still become much worse.
The Trump administration has been intensifying its criticism and pressure on the Federal Reserve and its chair, Jerome H. Powell, whose independence is widely viewed by economists and investors as crucial for the health of the markets and the overall economy...
Consider these annualized returns, calculated by MSCI using its own major indexes and using U.S. dollars:
U.S. stocks, from 2009 to 2024: 14.6 percent. In the first half of 2025: 5.8 percent.
Developed market stocks, excluding the United States, 2009 to 2024: 7.6 percent. In the first half of 2025: 19.7 percent.
Emerging market equities, 2009 to 2024: 7.4 percent. In the first half of 2025: 14.9 percent....
[The numbers are even worse for investors from other countries due to the drop in the USD.]
The U.S. is changing rapidly, and financial markets are reacting. Comparisons with other developed markets, and with emerging markets, are unavoidable. The numbers are unforgiving... [end quote]
From Google Gemini:
Based on recent data, primarily from the U.S. Treasury International Capital (TIC) System and other economic reports, here's an estimated breakdown of U.S. stocks and bonds owned by non-U.S. investors:
U.S. Stocks (Equities):
Foreign investors own approximately 17% to 20% of all U.S. equities outstanding. Some reports, specifically from the Treasury's Foreign Portfolio Holdings of U.S. Securities survey, indicate this figure was 18% as of June 2024. Other analyses for late 2024 suggest it could be as high as 27.1% of total U.S. stock market capitalization.
U.S. Bonds (Debt Securities):
This category can be further broken down:
U.S. Treasury Securities (Government Bonds): Foreign investors hold a significant portion of U.S. Treasury securities. As of December 2024 and April 2024, foreign investors held approximately 30% to 33% of the publicly held U.S. federal debt. This amounts to around $8.5 trillion. While the total dollar amount has increased, the percentage share has slightly declined in recent years as the total U.S. debt has grown even faster.
U.S. Corporate Debt: Foreign investors own approximately 27% of U.S. corporate debt outstanding.
Overall U.S. Securities:
Across all major U.S. securities (equities, Treasuries, corporate debt), foreign investors owned about 21% of the total outstanding as of June 2024, a share that has remained relatively stable over the last decade. [end quote]
For comparison, U.S. GDP is $30 Trillion (1Q25 annualized).
Political and currency moves that make the U.S. a less favorable, less stable investment venue could drive foreign investors away.
Another news item is that
President Donald Trump signed the "Guiding and Establishing National Innovation for US Stablecoins Act," widely known as the GENIUS Act, into law on Friday, July 18, 2025. This legislation is a significant development for the cryptocurrency industry in the United States, as it establishes a comprehensive regulatory framework for stablecoins.
https://www.govinfo.gov/app/details/BILLS-119s1582...In honor of the GENIUS Act I have added IBIT (the largest Bitcoin ETF) to the Control Panel. I personally think that cryptocurrency is a dangerous bubble with no practical use. I'm glad the government is regulating stablecoins to protect the public from fraud and potential "runs on the bank." As of mid-July 2025, the total amount currently invested in stablecoins, represented by their collective market capitalization, is estimated to be over $260 billion USD.
Other legislation concerning cryptocurrency is in Congress but it's still being debated. Recent reports indicate that the global cryptocurrency market capitalization touched a record $4 trillion on Friday, July 18, 2025. Cryptocurrency is not counted as part of M1 (liquid money such as cash and checking accounts). As of May 2025, the latest reported value for the M1 money supply in the U.S. is approximately $18.71 trillion USD.
I'm absolutely stunned that cryptocurrency is 21% of M1.
Cryptocurrency's value is purely speculative. It's in a classic bubble formation which could burst at any time. Aside from its criminal uses I can't even buy a tulip bulb with bitcoin.
The stock market is also in a bubble. It's rising to new records. However, the percent of SP100 stocks above their 200 day MA recently fell a little. This could be noise or a loss of momentum.
The Treasury Yield curve rose slightly but there hasn't been much change lately. There will be a 10-year TIPS auction this week that is expected to yield 2%.
The Chicago Fed’s National Financial Conditions Index (NFCI), which provides a comprehensive weekly update on U.S. financial conditions in money markets, debt and equity markets, and the traditional and “shadow” banking systems, is loose and getting looser.
The price of copper popped due to a new 50% tariff. That will increase the cost of housing, manufacturing, new electrical lines...so many real things ... because it takes years to develop new domestic copper mines.
Silver is rising but gold is flat. Oil is rising but natgas is flat. USD rose a little but the trend since January 2025 is down.
The trade is risk-on. The Greed & Fear Index is in Extreme Greed.
The Atlanta Fed's GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2025 was 2.4 percent on July 18. This is a nice, sustainable growth rate which has been stable for weeks.
The Cleveland Fed's Inflation Nowcast shows inflation well above their target of 2%.
Quarter CPI Core CPI PCE Core PCE Updated
2025:Q2 1.78 2.20 07/18
2025:Q3 2.55 2.74 2.40 2.59 07/18
This strong economic growth, low unemployment (4.1%) and high inflation would keep the Federal Reserve from cutting the fed funds rate even if the uncertainty of rising tariffs didn't. Even so, 60% options traders predict a 0.25% cut in September. I think they are front-running the Fed again. President Trump is trying to fire Fed Chair Jerome Powell on trumped-up charges of fraud but that would be a huge mistake.
https://www.wsj.com/economy/central-banking/jerome...The next major Macroeconomic news story will happen on August 1 when Trump will either impose tariffs or TACO.
The METAR for next week is sunny.
Wendy
https://stockcharts.com/freecharts/candleglance.ht...https://stockcharts.com/freecharts/candleglance.ht...https://stockcharts.com/freecharts/candleglance.ht...https://stockcharts.com/freecharts/yieldcurve.phphttps://www.cnn.com/markets/fear-and-greedhttps://fred.stlouisfed.org/series/DFII10https://www.chicagofed.org/research/data/nfci/curr...https://www.clevelandfed.org/indicators-and-data/i...https://fred.stlouisfed.org/series/UNRATEhttps://www.cmegroup.com/markets/interest-rates/cm... 