A recession is the confluence of many factors that converge at roughly the same time. Trump being inaugurated will not suddenly cause producers to stop producing, consumers to stop consuming, and manufactures to stop manufacturing. Similarly, Britain leaving the EU in June of 2016 didn’t cause economic activity to suddenly stall, contrary to the predictions of collapse if Britain left. Instead, Britain’s economy has has surpassed expectations:
Growth in the three months to September dropped to 0.5 per cent, down from 0.7 per cent in the April to June quarter, according to data from the Office for National Statistics (ONS).
Despite the slowdown the figures are stronger than the 0.3 per cent, expected by economists.
Britain’s economy has now grown for 15 quarters in a row, and is 8.2 per cent higher than the pre-economic downturn peak in early 2008.
The figures also beat the latest forecast from the Bank of England policymakers, who were predicting that third quarter growth would come in at 0.1 per cent.
It confirms not just that there was no immediate economic collapse after the referendum vote, despite the political vacuum and financial market turmoil, but that the economy continued to grow at a very decent rate. All the business surveys that pointed to the opposite outcome were wrong, and should from now on be treated as far less useful by the financial establishment.
So from multiple sources, that pretty much puts a nail in the coffin for the post-Brexit collapse predictions.
But being wrong most of the time won’t stop these useless pundits and ‘research firms’ from continuing to make sensationalist, incorrect predictions about the impact of pivotal events, be it the secession of Britain from the EU or the election of Trump. Nor will it stop the useless, hype and ad-driven financial media from broadcasting these predictions. In fact there is a symbiosis, between the two – research firms and the media. If these research firms made sober predictions, the media wouldn’t care (only hype and doom and gloom sells). These research firms are businesses and need predictions broadcast by the general media, as a form of free advertising in the hope of using the publicity to get clients who will pay for in-depth research. Likewise, the financial media needs clickbait stories with the veneer of credibility that comes from a ‘research firm’, to generate ad-dollars. The financial media is about creating the illusion of useful content so they can sell advertising…that’s pretty much it.
Here is one such example of a dire Brexit prediction produced by a firm, that made the rounds by the major media such as CNN in the days leading up to the vote, Brexit could trigger European stock market crash:
“Based on the stress test scenario, we expect a drop of 24% in U.K. equities over two to three months,” he said.
A drop of that size would wipe hundreds of billions off the value of pensions and other investment funds.
Morokoff said European stocks could fall by about 20%, and Wall Street wouldn’t escape either.
Instead, European stocks only fell 10% and US stocks fell 5% – for just two days – before immediately rebounding to new highs, and as the headlines above show, there were no long-standing economic ramifications.
And another one: ‘Brexit impact will be worse than the 2008 crash’
But back to Trump and the 2016 presidential election, yet again, the media is trotting out the doom and gloom.
Trump’s policies would curtail imports and slam the brakes on the U.S. economy
This assumes Trump is able to get his policies through congresses, which may prove difficult. But another source says it it would be easy to withdraw from NAFTA. Second, the author assumes that Trump’s polices would be harmful, or that Trump somehow wants to deliberately tank the economy for his own political gain. Repealing NAFTA, for example, may cause slower growth, but it’s worth keeping in mind that the economy was able to grow just fine in the 80’s and early 90’s without it.
Table 1.1 of the Fund’s World Economic Outlook covers the main points: a baseline forecast of 3.1% global GDP growth this year and 3.4% in 2017. This represented a nudge down from the projections in April, with signs of weakening perceived in the U.S., the eurozone, and of course the United Kingdom (grappling with the consequences of impending Brexit — the big and potentially traumatic step of leaving the European Union).
The difference between 3.4% growth and 3.1% growth is imperceptible. Also, calculating and predicting GDP growth is an imprecise science. Since 2009, US GDP growth has been kinda sluggish and revised downward many times, yet the S&P 500 is up 200% since then, so what. Profits and earnings are growing faster than GDP, and that’s what really matters to stocks.
And some more idiocy: This is what could happen to the stock market if Donald Trump wins
“If we were to go in 70/30 [for Clinton], and we think the market is 10 percent higher under Clinton than Trump, if Clinton wins it should be up about 3 percent and if Trump wins, it should go down 7 percent,” said Eric Zitzewitz, economics professor at Dartmouth College. He and Justin Wolfers of the University of Michigan studied the market effect of the first debate in a Brookings paper. Clinton’s odds in the prediction markets had been closer to 80 percent, and at that level, a Trump victory would have triggered an 8 to 10 percent sell-off, he said.
So by that logic, if the odds go to 99%, the market falls 99%? lol.
This I agree with:
Bruce Bittles, chief investment strategist at Baird, has a different view and he believes a Trump victory could result in a V-shaped move in the market, as Wall Street reflects later on positive tax changes and the looser regulatory environment Trump supports.
Even ‘reputable’ sources such as the New York Times fall for the hype, but being they are pro-Clinton they will entertain any nonsense that makes Trump looks bad:
he conventional wisdom is that, right off the bat, the stock market would fall precipitously. Simon Johnson, the Massachusetts Institute of Technology economist, posited that Mr. Trump’s presidency would “likely cause the stock market to crash and plunge the world into recession.” He predicted that Mr. Trump’s “anti-trade policies would cause a sharp slowdown, much like the British are experiencing” after their vote to exit the European Union.
Again, another absurd prediction by a research firm, the Massachusetts Institute of Technology. Yes, a very prestigious institution, but nonetheless one that will never pass on the opportunity for free publicity.
sharp slowdown, much like the British are experiencing…but as the links above show, it wasn’t a sharp slowdown…he can’t even get his facts strait.
And another researcher:
“Putting aside their personalities and policy proposals, it will likely not matter who the next president is when it comes to where markets go,” Mr. Boockvar wrote in a note to clients. “As we are in the second-longest bull market of all time, and as we approach the eighth year of this economic expansion,” he wrote, “odds are high that whoever the next president is, they will preside over a recession, a bear market and rising debts and deficits.”
LOL…as if he has any way of knowing. Bull markets don’t die of old age. They die when the fundamentals fail. Right now, the fundamentals are looking decent (not stellar, but certainly not bad enough to indicate a recession). Facebook, Netflix, Microsoft, Disney, Nike, and Google reported yet another quarter of strong earnings. Consumer spending, GDP growth, durable goods, exports, job growth, unemployment, etc. all holding steady.
A selloff on a Trump victory will be a good buying opportunity. Market participants have become so conditioned to buying the dips, any selling will be short lived. But also, as post-Brexit Europe shows (as well as dozens of other examples over the past decade), doom and gloom predictions almost always fall short of reality.