Mark St. Cyr got that right. In his Friday AM missive he charted the retreat that is now in store for the casino. That is, an entire retracement of the Peak Trump bubble, and a return to the market’s pre-midnight reaction (down 800 Dow points) to the Donald’s impending election victory on November 8, 2016.
Indeed, the Trump Bump from 2140 to 2940 on the S&P 500 will go down in history as the greatest spree of central bank induced “irrational exuberance” ever.
After all, the business cycle was already 90 months old the day he was sworn-in; the Fed was years behind the curve in normalization of interest rates and its balance sheet after nine years of egregious money-pumping; the weakest recovery in history had been accompanied by a $20 trillion explosion of new debt on the US economy; and the other two principal regions of the global economy, Europe and China, had also buried themselves in debt to finance a simulacrum of recovery from the Great Recession.
Yet even on January 20, 2017 it was apparent that the Low-Interest Man newly arrived in the Oval Office had a life-long affinity for protectionism; and that even this hoary viewpoint was anchored in a simple-minded mercantilism which viewed bilateral trade balances as a case of winning or losing.
And not just in economic terms. The Donald’s benighted impulses on trade (they don’t even add up to a “philosophy”) are actually grounded in his own gargantuan ego: He means to “win” and the relevant scoreboard is the bilateral trade balance with the principal malefactors including China, Mexico, Germany and sundry others.
Beyond that, having spent a lifetime borrowing, refinancing and defaulting on debt, it was obvious that the Donald was even more obtuse and fearless about the public debt than the average Washington pol.
Yet 2017 and after was exactly the worse time to have a GOP fiscal miscreant in the Oval Office because the demographics themselves constituted a flashing red warning sign: Namely, that the impending retirement of the entire 80 million strong Baby Boom generation during the 2020s would blow the Welfare State budget sky-high; and that piling unfinanced tax cuts and massive defense spending increases on top of the huge structural deficits Trump had inherited was the height of folly.
The fact is, the only responsible and constructive thing Trump could have done in January 2017 was to take a page from the Gippper’s playbook and put the economy and Wall Street through the wringer early in his term by eliminating the structural deficit at the top of the business cycle, as even JM Keynes himself had recommended; and by demanding that the Fed turn interest rates back to the free market and shrink its elephantine balance sheet as rapidly as practicable.
Yes, those steps would have induced a recession and sent the S&P 500 back to 1500, but they were absolutely the only route to even a semblance of MAGA on the other side, and perhaps just a smidgeon before the 2020 election.
Instead, we have a Fed which cravenly capitulated to the Donald’s attacks at the end of 2018, thereby depriving itself of even a semblance of Keynesian-style “dry powder” when the next economic downturn and financial market collapse makes its appointed rounds; and a red-ink bleeding budget that has been driven into the $1 trillion + borrowing range during the final months of the longest business expansion in history.
That means, of course, that there will be no room for a “shovel ready” fiscal stimulus or TARP style bailout when the next crisis comes—-only a bloody fiscal war in Washington over populist measures to soak-the-rich in order to fund a budget deficit soaring toward the $2 trillion per year range.
In short, the Trump Boom was never real as we have consistently documented. That is, there has been no acceleration of growth in an economy stumbling into debt-ridden old age and burdened by immense speculative excesses after a decade of virtually free carry-trade money on Wall Street.
What we actually had was just a brief interval of macro-economic “extend and pretend”.
Thus, the 2.58% average gain in real final sales during Trump’s first nine quarters was a slowdown from the 2.89% rate that prevailed during Obama’s last nine quarters; and the 202,000 per month jobs gain during the Donald’s first 28 months was a similar slowdown from the 220,000 rate of gain during Obama’s last 28 monthly reports before the 2016 election.
But now the slow-down will accelerate because the Tariff Man has thrown a giant spanner into the midst of an already failing, fragile recovery.
But here’s the thing. Not only will the arrival of recession during the months ahead come as a huge shock to the Great Ever Economy braggart in the Oval Office, but it will also positive monkey-hammer the insouciantly complacent boys and girls in the casino.
But as Mark St. Cyr pointed out this AM, the triple top of the Trump Bump is so plain that if it were a snake it would bit them.
Still, it has not yet become vaguely evident to the boys and girls in the casino that Donald is just the Great Disrupter, and exactly that. He never had even a semblance of a coherent economic program—only a dog’s breakfast of whims, fetishes, canards and obsessions.
Foremost among the latter is his obsession with the Mexican border based on an entirely hyped-up, Foxified lie that the border is crawling with dangerous criminals and terrorists.
That is utter and completely nonsense: the tens of thousands backed-up on the border are overwhelmingly desperate refugees from the murderous economic chaos that afflicts Central America; and which has been exacerbated by the sheer incompetence and malevolence of the Trump Administration’s border control crackdown.
And that has now led to the unthinkable. That is, the total abuse of Presidential tariff authorities to dragoon the Mexican government into doing the Donald’s bidding. Yet Trump has not even a clue that he has crossed the line into virtual unconstitutional authoritarian rule:
Earlier Thursday, Trump hinted at changes to his administration’s border policy as he departed for Colorado, telling reporters he was “going to do something very dramatic on the border” and would announce it in a “big league statement.”
“It will be a statement having to do with the border and having to do with people illegally coming over the border,” he said. “And it will be my biggest statement, so far, on the border. We have brought something to the light of the people. They see now it’s a national emergency, and most people agree.”
Needless to say, this latest foray is set to ignite a firestorm of reaction from the sleepwalkers on both sides of the aisle in the Imperial City.
And you can be absolutely sure that when the Donald tweeted out his 5%-25% punitive Tariff on Mexico last night, he had not thought more than a day ahead, as Bloomberg’s Tim O’Brien noted this morning:
“I think it is almost always a mistake to think that President Trump is acting strategically. He’s just not that kind of thinker,” said Tim O’Brien, the executive editor of Bloomberg Opinion and the author of a 2005 biography of the future president.
“He doesn’t think long-term, he doesn’t think about moving pieces of a puzzle. He generally thinks about what is in front of him. Most of his reactions to things tend to be instinctive and visceral.”
Moreover, the use of tariffs to punish a country for its internal policies is not only an act of economic war—it is blatantly illegal. As trade expert Deborah Elms of the Asian Trade Centre pointed out:
“You may ask what is the difference with steel, aluminum, washing machines, China, etc. and Mexican immigrants? The former actions all had at least a thin veneer of legal justification. Most of these decisions are being fought over at the World Trade Organization now, but they had rules to argue about.”
“The Mexican immigration issue is simply not allowed. There is no provision that lets a member block trade over migrants. The consequences are therefore much bigger than just what happens to companies operating between the U.S. and Mexico or within NAFTA. This is a global concern.”
At the same time that the Donald was igniting a showdown with Mexico, the Chinese were issuing a warning through their go to spokesman, Hu Xijin, who is the editor of communist party organ called the Global Times:
As Beijing’s trade-war rhetoric increasingly focuses on its plans to retaliate for the blacklisting of Huawei, Global Times editor Hu Xijin tweeted Friday that China is planning to implement “major retaliatory measures” against US companies over the blacklisting of Huawei.
Based on what I know, China will take major retaliative measures against the US placing Huawei and other Chinese companies on Entity List. This move indicates Beijing will not wait passively and more countermeasures will follow.
Combined, there is about $1.15 trillion in outstanding U.S. leveraged loans (this is effectively “subprime” corporate debt) — a record that is double the level five years ago — and, as noted, these loans increasingly are being made with less protection for lenders and investors. Just to put this into some context, the amount of sub-prime mortgages peaked slightly above $600 billion or about 50% less than the current leveraged loan market.”
Likewise, 50% of the investment-grade bond market now sits on the lowest rung of the quality ladder. And there’s a reason BBB-rated debt is so plentiful. Ultra-low interest rates have seduced companies to pile into the bond market and corporate debt has surged to heights not seen since the global financial crisis.”