Stocks gave ground yesterday amid some profit taking. A sharp drop in energy prices nicked the oil sector

Late in the day, President Trump once again spoke of the possible need for further tariffs against the Chinese should trade talks fail to make progress.

The markets reacted much less harshly than they have in the past given Mr. Trump’s behavior pattern to pull back at the last minute.  But, if anything, he is unpredictable and a poker player can’t win by bluffing all the time.  Still, it is earnings season and with companies reporting decent results against a solid economic backdrop, the overall mood is still positive.

One big overtone of the past several years is populism.  It certainly has changed to political landscape.  Populists have either been elected or been a factor is many elections.  There is no better example of this than President Trump.  Populism draws ardent supporters.  Whatever you think if Mr. Trump personally, you can’t deny his ability to draw huge crowds.  But he isn’t alone.  Bernie Sanders, in the 2016 campaign, had equally ardent supporters.  Hilary Clinton’s failure to excite those of the left politically may have cost her the election. Today enthusiasm among progressives is split.  Some of that energy has been hijacked, at least for the moment, by “the squad”, for House newbies that have very progressive and controversial ideas.  They scream loudly and crudely sometimes.  So far, their appeal is narrow.  Moreover, it saps some of the energy from the main show, those running for President.  But over time, that will change and the energy will transfer to someone the squad endorses, or at least tolerates. We have already seen moments of emotional fire from Senators Elizabeth Warren and Kamala Harris.  It is way to early to see whether early energy can light a fire but if the Democrats are going to win, they are going to have to capture their share of populist energy.

Populism isn’t a left or right ideal.  It, as the word implies, represents ability it hear the people and offer then a better path forward. Often the promises don’t morph into reality.  Nations like Venezuela are prominent examples.  In many cases, the promises mix with corruption and greed and generate undesired result. Brazil and Argentina come to mind.

We see populism coming to the forefront in Great Britain. Theresa May came into office at a crisis moment.  The Brexit referendum had passed but it needed a leader to get it executed. She wasn’t up to the task. Now, the leading candidate to replace her is Boris Johnson, Britain’s version of a populist.  First he has to win his own party’s nod and then we will see if his charisma can get the job done.   France, in its last election, chose between a right wing extreme and a young outsider with his own brand of charisma, Emanuel Macron.  Mr. Macron lost his way, however, when he started to talk down to the populace.   He heard to boos and has begun to listen better but the jury is still out.

Mr. Trump, of course, represents a different and very unique version of populism.  He has populist policies that appeal beyond his base including more rational regulation, lower taxes, and a more disciplined approach to immigration but, to be polite, his execution is often crude and controversial.  That leaves the window open for Democrats but as recent French history shows, getting too extreme is a path to defeat.

Look, for instance, at the progressive rush to Medicare for all.   Joe Biden correctly points out that what sounds great is economically unfeasible.  Seniors currently covered by Medicare have been paying Medicare payroll taxes their whole lives.   Even assume private employers pay for a Medicare plan instead of private insurance in the future, how does one account for the millions who aren’t working for an employer who pays for benefits, aren’t poor enough for Medicaid, or aren’t old enough for Medicare?  Therein lies the flaw of many purely populist ideas.  The benefits are appealing and win votes but the execution is way too costly.  In the stock market, while the health care sector has lagged year-to-date, in good part due to the rhetoric surrounding the future of health care programs, for the most part, the threat of Medicare for all hasn’t had an overwhelming impact.  Mr. Biden’s idea to rework and improve Obamacare makes more sense and can be done in a way that allows the current system to sustain itself.  Yes, Republicans want to repeal and replace but that is all semantics.  Any result would be an alteration of what is already out there.  The real arguments won’t be about the label; but about the efficiency of a better plan.

That doesn’t mean the health care sector is off the hook.  Everyone is attacking drug pricing. Drug price inflation has been falling for years.  Generic prices have actually been in steady decline for much of this decade.  At some point, the government may get into the business of negotiating drug prices.  It actually does so today but not in a universal way.  But in the end, it will be market forces that win out. That is always the way.  Drug price inflation has been falling as co-pays rise and individuals become more invested in the economics of health care.  Put the incentives in the right place and market forces will generate the proper result every time.

As for earnings season, so far it is too early to make much of a conclusion.  More on that topic will come Friday.

Today, Luke Bryan is 43.  Angela Merkel is 64. Donald Sutherland turns 83.

James M. Meyer, CFA 610-260-2220

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