Monday, December 24, 2018

Erratic Trump Drives Erratic Markets

Once a bright spot of the Trump presidency, the stock market is continuing in an extended rout that began earlier this year after reaching a high in early October. Treasury Secretary Steven Mnuchin attempted to shore up the market with a phone call to bank executives over the weekend, but federal reassurances did little to calm jittery investors in trading on Monday.

Secretary Mnuchin announced in a tweet Sunday night that he had spoken with the CEOs of America’s six largest banks: Bank of America, Citi, Goldman Sachs, JP Morgan Chase, Morgan Stanley, and Wells Fargo. In an attempt to reassure investors that may have had the opposite effect, a Treasury statement attached to the tweet said that the “CEOs confirmed that they have ample liquidity available for lending” and that none “have experienced any clearance or margin issues and that markets continue to function properly.”

Per the statement, Mnuchin said, “We continue to see strong economic growth in the US economy with robust activity from consumers and business. With the government shutdown, Treasury will have critical employees to maintain its core operations.”

While the US economy seems to be working well, the same cannot be said of the US government. Nonessential government services are closed in a shutdown that may last well into the new year because the two parties cannot agree on how much to increase spending for the wall. The president’s unilaterally declared trade war is adding unnecessary costs to American business and consumer spending. The world watches as many of the most experienced and stable members of the Trump Administration exit the White House. In a number of cases, the departures are explicitly tied to President Trump’s capricious leadership.

President Trump sees the situation differently. In a tweet, the president said, “The only problem our economy has is the Fed.” Trump argued that the Fed does not understand “necessary Trade Wars or Strong Dollars or even Democrat Shutdowns over Borders.”

“The Fed is like a powerful golfer who can’t score because he has no touch,” the president added, “he can’t putt!”

While it’s true that the Fed has been raising interest rates this year, it’s also true that the move was long overdue. The Fed kept rates near zero during the apostle-recession years of the Obama Administration, which penalized savers and investors. Increases to interest rates now are a sign that the Federal Reserve views the economy as healthy.

Is it any wonder that investors are nervous?

With Monday’s close, the S&P 500 followed the NASDAQ into official bear market territory. The half-day of holiday trading left the S&P 2.7 percent lower for the day at 2,351. This is more than 20 percent lower than its previous intraday peak and defines the onset of a bear market. The Dow Jones Industrial Average fell more than 650 points, losing 2.9 percent of its value, but technically remained clear of bear status. Today’s session was the worst-ever Christmas Eve for the Dow.

While many fundamentals of the US economy remain strong, President Trump and Secretary Mnuchin are missing the point. Investors are concerned precisely because the Trump economic policy includes massive taxes on trade in the form of tariffs and trade wars, because the government is stalemated and incapable of solving even simple problems, and because President Trump’s style of governance thrives on chaos and instability, the very things that markets abhor.

In fact, rumors are beginning to appear that Mr. Trump will attempt to force the removal of his latest whipping boy, Federal Reserve Chairman Jerome Powell. It is Donald Trump and his lack of coherent policy that is driving markets lower, not some concern about bank liquidity.

“Until this weekend, markets were not that concerned about liquidity or clearance issues,” WinThin, global head of currency strategy at Brown Brothers Harriman told the Financial Times. “At best, Mnuchin made a rookie policy mistake in trying to reassure markets; at worst, Mnuchin knows something that the markets don’t.”

The bottom line is that the Trump Administration cannot protect the markets from the president. Trump’s erratic behavior is translating into erratic markets. With two years to go in President Trump’s term and the senior members of the White House daycare staff hitting the exits, hopes for change seem far away.

The best gifts that Donald Trump could give to the nation this Christmas to end the trade wars, fund the government, and stay off Twitter. Unfortunately, the likelihood of these events is about the same as having Santa rappel down the White House chimney tonight.

Originally published on The Resurgent

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