On Monday, Peter Navarro showed up on CNBC to perpetuate the narrative that Donald Trump’s trade policies have nothing to do with recent market volatility.
Navarro stuck to the party line, placing the blame for the selloff squarely on the (weary) shoulders of Jerome Powell.
Trump has of course been pushing that line for the better part of three months and indeed, he started to lay the groundwork for it back in July when, during a landmark interview with Joe Kernen, the President expressed his displeasure at the course of U.S. monetary policy.
To be sure, there’s a lot be said for the narrative that Powell’s “long way from neutral” comment on October 3 was the proximate cause for the rout, but then again, that comment came within days of the administration moving forward with the imposition of tariffs on $200 billion in Chinese goods, easily the most consequential escalation in the trade war to date.
In any event, the search for a scapegoat continued apace on Tuesday afternoon, with Steve Mnuchin taking the baton.
Of course Mnuchin is no fan of the trade war and he’s also a staunch defender of Powell, which means he had to find a more creative way to deflect blame from the administration. In short, he went with algos, market structure and regulation.
We’ll spare you any attempt to put this into narrative format, because I’m not sure there’s any point. Here’s the Cliffs Notes version:
Mnuchin was speaking at a roundtable interview at Bloomberg’s Washington office.
It’s hard to argue with any of that. Indeed, we’ve variously cited electronic market making and market structure as a key factor in perpetuating the kind of liquidity vacuums and lack of market depth that help exacerbate declines. And there’s no shortage of evidence to support his contention that markets aren’t always efficient.
That said, this should be seen for what it is: an all-hands-on-deck effort to deflect blame from the trade war and Trump’s general insanity when it comes to explaining the ongoing volatility across markets.
One other thing we would note on Tuesday: It doesn’t seem like a coincidence that Mnuchin’s comments about HFTs, block trades and market structure come on the same day Trump tweeted about “illiquid” markets. You damn well know Trump didn’t come up with this on his own:
I hope the people over at the Fed will read today’s Wall Street Journal Editorial before they make yet another mistake. Also, don’t let the market become any more illiquid than it already is. Stop with the 50 B’s. Feel the market, don’t just go by meaningless numbers. Good luck!
— Donald J. Trump (@realDonaldTrump) December 18, 2018
One final note: All of this comes hot on the heels of Goldman’s early morning note regarding the effects of illiquid markets on volatility. We talked at length about that first thing Tuesday.