Let’s be clear, Steve Mnuchin pulled one of the most hilarious self-owns in the history of finance on Monday.
Within minutes of Mnuchin’s Sunday evening tweet detailing calls he made to the CEOs of America’s largest banks, most market commentators were already lampooning the Treasury Secretary.
There was no “liquidity” emergency – or at least not if you define “liquidity” the way Mnuchin was defining it.
Allow us a brief tangent. There is a liquidity emergency in terms of market depth (bottom-up liquidity) and also in terms of the rolling back of central bank accommodation (top-down liquidity). The ultimate irony is that it is Steve Mnuchin who is in charge of selling all the debt the U.S. needs to issue to fund Trump’s fiscal profligacy. Obviously, Mnuchin is acutely aware that the supply deluge is conspiring with the Fed’s balance sheet rundown to increase the net amount of U.S. debt the market is forced to absorb, a situation that saps liquidity from other assets. In other words, when it comes to top-down liquidity concerns, Mnuchin can thank the man in the mirror for his role in financing Trump’s banana republic.
Getting back to Mnuchin’s Sunday conference calls and subsequent convening of the “plunge protection team”, there was no crisis of the kind of “liquidity” Mnuchin was talking about. Jamie Dimon is not digging around in the couch cushions for loose change to fund consumer and small business lending just because the S&P is having a bad month.
In effect, Mnuchin accidentally sparked a panic by suggesting that he might know something everyone else doesn’t. Apparently, Steve actually doesn’t know anything the rest of us don’t, though. Hence the merciless lampooning from the FinTwit community.
video just emerged of Mnuchin on the phone in Cabo pic.twitter.com/DR0UmzytQX
— modest proposal (@modestproposal1) December 24, 2018
But maybe Mnuchin does know something we don’t know – namely that he’s about to be fired if he doesn’t figure out a way to engineer a market rally.
“Trump’s frustration with Powell over the market’s performance — expressed in tweets and interviews — now may turn to his Treasury chief”, Bloomberg writes, in an article that cites at least two sources who think Mnuchin might be at risk.
Remember, it was just a month ago when the Wall Street Journal reported that Trump was extremely dissatisfied with Mnuchin for a number of reasons, not the least of which is that the President blames Steve for Jerome Powell.
“[Trump] blames [Mnuchin] for the appointment of a Federal Reserve chairman who has been raising interest rates, a move Trump worries will jeopardize economic gains as his 2020 re-election campaign approaches,” the Journal said. “If he’s so good, why is this happening?”, Trump reportedly asked, during a conversation about recent market chaos.
Fast forward a month and “this” is still “happening”. And “bigly.” As everyone is aware, we’re in a bear market and that’s no surprise, after all, Trump always said he was going to run the economy like he runs his businesses.
Apparently realizing that firing Jerome Powell has the potential to catalyze something even more dramatic for stocks, Trump is instead considering removing Mnuchin, presumably on the way to installing a Treasury chief who would do something to arrest the stock slide although it’s not at all clear what that “something” would be.
“One person familiar with the president’s thinking says that Trump has weighed dismissing Mnuchin, while another said that Mnuchin’s tenure may depend in part on how much markets continue to drop”, Bloomberg goes on to document, in the article linked above, on the way to noting that “the president has asked whether one or more of his advisers could meet with Powell” a move that “would be seen as undermining the authority of the Treasury chief, who sees Powell for lunch once a week and is normally the official designated to deliver the administration’s views.”
So, perhaps Steve’s Sunday S.O.S. to banks and convening of the plunge protection team was a last ditch effort to save his job or to at least “prove” to Trump that he’s trying.
Who knows, but what we do know is that there are more than a couple of people at 1600 Penn. who would be happy to see Steve go, with Peter Navarro being the most obvious example.
The quandary for Trump is that firing Mnuchin might end up being just as bad as firing Powell when it comes to markets. After all, removing Steve would remove the last voice of reason from the trade negotiations with China.
In the meantime, Trump could always just do what Robby Strong did last Christmas and send Mnuchin a gift-wrapped box of horse manure.