Votes of Confidence

A mixed week ended down on Friday. The MSCI World Index closed down -1.13% while the S&P 500 lost -1.22%. The generic 30-year index rose 0.10%.

May Survives No Confidence Vote

The pound rallied 1.42% on Wednesday following Theresa May successful defense against a no-confidence vote. Prime Minister May benched a vote on the Brexit terms noting that it would not pass an approval vote if it were to go to Parliament. The EU has been vocal in dismissing calls for a better deal being negotiable but affirmed that Britain could elect to remain part of the EU without approval from other EU members. While remaining would likely be better for the country, another Brexit vote seems unlikely given the challenges related to setting a precedent of voting until you get a desired outcome. If the UK were to enter a hard Brexit, Britain would default to the WTO rules of trade with higher tariffs and barriers to entry. We are now within 100 days of the March Brexit deadline.

Google Visits Washington DC

Google’s CEO, Sundar Pichai, went to Capitol Hill to address questions of political bias in their search engine. The discussion basically broke down to senators being concerned that searches for conservative topics tended to be less prevalent and more negatively biased. Pichai tried to explain that their algorithm uses user feedback to determine various factors like relevance, freshness, popularity and how other people are using it. Perhaps the surprising fact was that 15% of daily searches Google sees are have never been seen by the algorithm before.

Inversion

Bearish sentiment in the bond market continued to prevail last week. With the curve continuing to flatten on the short end and the 3-year rates inverting relative to the 2-year rates.

Conclusion

Fear and uncertainty continue to dominate the markets in December. There is a finite life to some of these concerns. The Brexit deadline is in March and the trade war has several potential exits in the coming months with the Trump administration under pressure from the Muller investigation and a split Congress. This could provide opportunity to buy at a discount for those willing to take on the downside risk.

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