Trump Presidency Analysis

A Rising Stock Market Does Not Signal Economic Health

Are we in a stock market bubble? No. Will there be a crash anytime soon? No. Those are just opinions, not facts, but they are no worse than 1000+ word analysis by ‘experts’ who are often wrong all the time. My record, backed by years of blogging here and elsewhere, is almost always right.

The stock market and economy economy is driven primarily by four things: consumption, production, profit & earnings, and innovation. All of those things are doing well: consumer spending is at record highs, S&P 500 profits and earnings are at record highs, there is a lot innovation in Silicon Valley (such as Amazon and Google delivery drones and self-driving cars), and America produces and exports a lot of intellectual property. As far as the stock market and economy is concerned, the importance of GDP growth is overstated. GDP has to be put in the proper context as only a single piece of data in bigger economic picture, which the media often fails to do, treating GDP and employment as the only two pieces of data that matter and ignoring the role of profits & earnings.

The media has pages of content to fill in order to sell advertising. Every year the media proclaims it’s a ‘new paradigm’, because if it weren’t, who would listen to them and click the virus-filled ads next to the story? Clicks are the lifeblood of the news media.

When Presidents Defy Economic Gravity, Gravity Usually Wins

If Mr. Trump really wants to boost manufacturing employment he would figure out how to train workers to fill some of the 334,000 manufacturing jobs that are now vacant. If he doesn’t have the patience for that, he should just raise tariffs across the board. It would hurt consumers and could start a trade war, but at least they’d be transparent.

The problem with job training is it inevitably hits the barriers imposed by biology: age (all else being equal, it’s typicality harder for older people to learn new skills than younger people) and IQ (not everyone can be a coder). And also economic and incentive barriers: there simply may not be any jobs, so no training will help, or the jobs pay so little and or are so difficult and tedious that going on welfare or faking disability is better. Should technology render too may jobs obsolete (should the Luddite Fallacy cease being a fallacy), warehousing may the the only option, whereby the millions of people who are rendered obsolete by technological and economic fores are housed in cheap communal dwellings at taxpayer expense, along with birth control and immigration restrictions, to control population growth.

Something similar happened when Mr. Obama imposed tariffs on Chinese tires in 2009: Chinese imports plummeted while other countries’ jumped. The action saved at most 1,200 jobs, a study by the Peterson Institute for International Economics found, at a cost to consumers of $900,000 per job because of higher prices.

As the passage above shows, tariffs would increase costs, making it harder to fund a post-labor welfare state. It’s better to have cheap goods and higher unemployment under a welfare state than high inflation and overpaid jobs, and also a large welfare state (because tariffs wont create jobs, but actually destroy them.)

Tariffs make everything worse: Tariffs Won’t Bring Back American Jobs – They Will Destroy Them:

According to a study commissioned by the Consuming Industries Trade Action Coalition, steel-users — such as the U.S. auto industry, its suppliers, heavy construction equipment manufacturers and others — were harmed by higher steel prices.

It is estimated that the steel tariffs caused at least 4,500 job losses in no fewer than 16 states, with more than 19,000 jobs lost in California, 16,000 in Texas and about 10,000 each in Ohio, Michigan and Illinois.

But Trump and his staff are not idiots and are not going to ruin the longest uninterrupted bull market and economic expansion ever, by passing tariffs and provoking unnecessary trade wars. Trump will probably focus initially on the tax cuts and defense spending, both which will inflate the economy, inflate the stock market, and energize his base of voters and thus helping his odds of being reelected. Trump needs the economy to not go into recession (the odds are slim, but if it happens, it may doom his re-election). Such spending will also create debt and inflation, but most voters will not notice either. Nominal stock market gains and nominal GDP growth are what matter most, because the media doesn’t differentiate between real growth and nominal growth.

Those who expect Trump to initially enact sweeping border and immigration control and trade policy renegotiation may be disappointed, as I predict Trump will put those issues on the back burner to focus on tax cuts, stimulus, and defense spending. I could be wrong, but what has to be understood is that Trump is virtually guaranteed the nomination in 2020. The only way he could conceivably lose is if the economy fails or the left has a really good candidate. If Trump reneges on immigration and jacks up the national debt even more, neither the left nor the right can use it against him in 2020, being that the left is pro-immigration and also, to a slightly lesser extent, pro-deficit spending. And given that Trump is guaranteed the nomination in 2020, he doesn’t need too toe a hard line on immigration like he did in 2015. By passing a lot of stimulus early in his presidency, he can post good GDP and stock market gains that will help his reelection.

Trump’s policies of handouts and cronyism, should they be enacted, will boost nominal profits and earnings, and hence the stock market, due to inflation. Even if Congress balks on the tariffs and handouts, the tax cuts and defense spending will pass and help the market a lot. If I had to predict, the US economy will see 2-3% YOY GDP growth, which is considered slow or average, but 5-10% YOY earnings expansion and at least a 20-30% rise in the S&P 500 over the next four years.

Trump and the Secretary of State “Brand” Decision

Trump is just a month from assuming office…unless he’s trying to convince Congress, persuasion is less important being that he won. All he needs to do now is not screw things up until reelection. Cabinet picks don’t matter much, and owing to rational ignorance and apathy, most people are unable to name more than two current members of Obama’s cabinet [1] (excluding Biden). Even if he wanted to, Trump can’t mess things up too badly, because the economy and society is becoming increasingly autonomous. Since 2008 or so, we’ve been in an autopilot economy where we’re like automatons just carrying out the motions, as the economy becomes less and less dependent on the actions or input of any one individual, or even politicians. Also, we’re reached a point where the ‘business cycle’ has been mastered or tamed (sorta like a hydrostatic equilibrium that keeps a star intact), meaning far fewer recessions or bear markets in America. The boost-bust cycle has become a permanent protracted boom.

[1] Here are all off them courtesy of Whitehouse.gov:

Department of State
Secretary John Kerry

Department of the Treasury
Secretary Jack Lew

Department of Defense
Secretary Ashton Carter

Department of Justice
Attorney General Loretta E. Lynch

Department of the Interior
Secretary Sally Jewell

Department of Agriculture
Secretary Thomas J. Vilsack

Department of Commerce
Secretary Penny Pritzker

Department of Labor
Secretary Thomas E. Perez

Department of Health and Human Services
Secretary Sylvia Mathews Burwell

Department of Housing and Urban Development
Secretary Julián Castro

Department of Transportation
Secretary Anthony Foxx

Department of Energy
Secretary Ernest Moniz

Department of Education
Secretary John King

Department of Veterans Affairs
Secretary Robert McDonald

Department of Homeland Security
Secretary Jeh Johnson

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