“Maybe Trump is a genius, after all”, David Rosenberg mused on Wednesday, before presenting the following hypothetical:
What if he finally gets the steep Fed rate cuts he has been demanding? After that, he ends the trade wars, tariffs go to zero, and the stock market surges to new highs — just in time for the 2020 election!
That’s essentially just David suggesting that maybe the recent escalations in the trade war are yet another example of Trump being “crazy like a fox”.
This is a quandary that comes up all the time with the president. Just when you think he’s doomed us all, some kind of paradoxical silver lining emerges. And it’s never clear whether by accident or by design. We delved deep into this dynamic as it relates to politics in “Mueller ‘Balks’ At Public Testimony, Raising Familiar Questions About Trump’s Straitjacket Strategy“.
When it comes to markets, some have suggested that, perhaps fed up with the perceived recalcitrance of a central bank which, until January, was still hiking rates, Trump has finally decided to simply risk driving the global economy off a cliff in an effort to force the Fed’s hand.
That’s a stylized version of events. Nobody believes that’s the whole plan, but it could be part of the plan, or there could be no plan at all – that’s what’s so maddening about this situation.
Whatever the case, to the extent Trump was trying to scare everybody to death in an effort to convince the Fed to move forward with an insurance cut, he’s succeeded. Markets and analysts now agree that cuts are coming and perhaps imminently.
We’re all Stephen Moore now.
Speculation that the Fed will relent has sparked a massive two-day rally in equities. Bullard helped and Powell didn’t push back. The surge came even as Trump continues to insist that contrary to the upbeat rhetoric from Mexico and, in some cases, his own advisors, he’s “not bluffing” on Mexico tariffs.
At the same time, the Fed looks more and more cornered. As Goldman wrote Monday, “the 2y rates minus Fed Fund Rate is now close to -40bp and historically from this level the Fed has usually delivered a cut in the following months.” See the bottom pane in the chart above.
Rosenberg mentioned the same thing on Tuesday. “Surely if Powell is a ‘markets guy’ then he’ll eventually understand that when the 2-year T-note yield drifts more than 50 bps below the funds rate, nasty things tend to happen”, David tweeted, adding that it’s “time to take the blinders off.”
Is it possible that “Tariff Man” understands the same thing? It’s certainly not likely, but if, as Rosenberg quipped on Wednesday, the Fed does end up cutting rates by, say, 50bp between now and the end of the year, and Trump subsequently declares the trade war over, it’s entirely possible that stocks would explode into the stratosphere.
Crazy like a damn fox – and orange like one too.
One thing we know for sure, though. Even if Trump actually is a “genius”, he is most assuredly not a “very stable” one.
All good as long as the stock market is goin’ up. #MAGA
And guess who has promised to implement a large stim pkg. once the trade spat is over?? Xi ! Boom Pow Ping… China’s credit impulses have been diminishing since Shanghai Accord 1, without the FED easing they will not get the most bang for their DXY “Buck”… Giddy Up?
An interesting analysis. However, in order to replicate his electoral wins in OH, MI, WI, PA, etc. I’m still thinking the tariffs remain in place thru Nov 2020 (…populist leader fighting to reclaim Blue Collar jobs in America). Corporate America got their tax cuts last year, so shut up and eat the tariffs if you don’t want to move your jobs and supply lines back to the US. Fed cuts will be enough to keep the SPX from tanking. What a game plan…
What if…what if Trump actually is still an idiot, but the Fed, Senate, Justice Department, Democrats, and media are run by even dumber idiots?
A very likely scenario.
A very low bar to get under.
There is no plan. Trump is a day trader.
If most of H’s subscribers are ideologically ‘short’ Trump , which seems a reasonable assumption, then this article might represent the capitulation moment where even the purists start to doubt the long-held conviction that Trump is an inherently unstable and malign influence on the world. After all, nothing has gone terribly wrong in the past two years and he seems to be making progress towards his goals, some of which were previously deemed intractable. If the market analogy is valid, however, there’s generally not too much of a wait between the capitulation and the subsequent day of reckoning when people (re-)realise that the simplest explanation was the correct one all along. He is a fool and the apparent lack of any coherent plan is simply the result of the lack of a coherent plan. The economy and the markets will tank, with the unavoidable cyclicality of both being horribly exacerbated by his inopportune priming of the pump and undermining of the current world order that has kept them afloat for decades.
U guys, in case it somehow didn’t come through: this post is mostly satire.
Your analysis makes sense, and it is what may happen. The president thinks – if at all – in micro.management terms. But only an idiot would not consider the consequences beyond his re-election, when markets can go nowhere but down. Or maybe the guy that said “DOW at 30,000” in 2020 is the genius?
Title should have been Trump is ingenious….off course that would not be satirical
How many of the ‘swing voters’ care about the SP500 versus, say getting a special MAGA ticket in powerball where they won $100 – because of Trump.
H, got that satire @ “We’re all Stephen Moore now.”
Mr H, i realize this post is mostly in jest. unfortunately there are many who are jumping on this theory. Plans like this only work in Ocean’s 11 Hollywood type movies. in real life, plans turn out more like the saudi prince and the empire actor.
I mean, don’t get me wrong, the outcome could end up looking like a “genius” move (i.e., if the fed cuts and stocks surge, it might occur to him that ending the trade war would propel stocks to even higher record highs), but i will never be convinced that there was a “plan” for the trade war
It’s simple, isn’t it? The one and only issue Trump has held a strong & consistent view on is trade. Since at least 1989. On everything else, he has flip-flopped around. The same for Navarro.
To assume his trade efforts were designed and launched with the Fed in mind is a crazy assumption.
The only planning Trump does is to plan to feed his “YUGE” Ego. Those closest to him not only know it, they use that fact to manipulate him. They are actually using his ego to feed their plans…