Trump ‘Rattled’ Amid Market Chaos, Is Calling Business Leaders About Economy: Sources

On Thursday afternoon, en route to a Manchester, New Hampshire, rally, Donald Trump cranked up the economic propaganda.

“If for some reason [I don’t win] the 2020 election, you’ll see this economy go down the tubes”, he warned.

He reiterated the point once he got to New Hampshire. Here’s the clip:

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“You have no choice but to vote for me because your 401(k)s — down the tubes”, Trump insisted. “Everything’s gonna be down the tubes”.

The president has delivered similarly bombastic predictions on a number of occasions lately. On July 31, for instance, he said that had he not won in 2016, “we would be in a Great Recession/ Depression right now”. He went on to declare that “the people I saw on stage last night will lead us into an economic sinkhole the likes of which we have never seen before”. He was referring to the Democratic debates.

A couple of weeks previous, on June 15, Trump tweeted that if he’s not reelected, “there will be a Market Crash” of unprecedented proportions.

The president has, of course, reveled in the stock market’s performance since his election. Indeed, he views the Dow as something of a real-time job approval barometer and whenever stocks hit record highs, he starts asking “How’s your 401(k) doing?” at rallies and fundraisers.

The sad reality is that a good portion of Trump’s base likely doesn’t participate in a 401(k) or own any stocks at all, for that matter.

Starting late last year, the market began to crack under pressure from the trade war and overtightening by the Fed. By the time Christmas rolled around, stocks were nearly in a bear market and Wall Street had logged its worst December since the Great Depression.

Equities recovered in the new year thanks largely to Jerome Powell, but recently, things have started to fall apart again, and Trump is worried.

This week’s inversion in the 2s10s and the #TrumpRecession hashtag that started trending on Twitter Tuesday have the White House on tenterhooks. Trump and Peter Navarro have taken every opportunity to blame the Fed, but according to a pair of senior officials who spoke to CNBC, the two men are alone in insisting that the trade war isn’t largely to blame.

If history is any guide, a recession will come calling right around election time, and that has Trump in a panic, according to people familiar with the situation. “He’s rattled”, one Republican source told the Washington Post, for a piece out Thursday evening. “He thinks that all the people that do this economic forecasting are a bunch of establishment weenies – elites who don’t know anything about the real economy and they’re against Trump”.

In other words, the president thinks there’s a conspiracy afoot. According to the Post, the president is now “telling some confidants that he distrusts statistics he sees reported in the news media and that he suspects many economists and other forecasters are presenting biased data to thwart his reelection”.

It is not at all far-fetched to suggest that Trump will begin to publicly deride the data that comes out of his own government if and when the economy begins to roll over on him. We are, after all, talking about a man who habitually insisted that the Obama economy was being inflated by fake statistics and who, on September 29, 2015, said of the most recent jobs report “The number is not reflective. I have seen numbers of 24 percent. I saw a number of 42 percent unemployment”.

Broadly speaking, the data continues to paint a picture of a solid US economy. Indeed, if there’s anyone who is stoking a panic, it’s Trump, with his incessant demands for rate cuts. Just Thursday, for instance, retail sales and manufacturing data came in solid, but Navarro showed up again on Fox Business to call for rate cuts. “The point of a rate cut is not to stave off recession but to make a strong economy stronger”, Navarro said.

According to multiple people who spoke to WaPo, Trump “has called a number of business leaders and financial executives to sound them out – and they have provided him a decidedly mixed analysis”. In December, during the market rout, the president made at least one panicked call to a financial luminary, according to reports at the time.

The situation is exacerbated by the fact that Trump doesn’t actually know all that much about macroeconomics, something Janet Yellen underscored in February and a sentiment echoed by Michael Strain, an economist at the right-leaning American Enterprise Institute, who told the Post that “the president doesn’t understand the basics, and his erratic behavior is likely slowing business investment, working against his signature corporate tax cuts, and hurting his own reelection chances”.

As we’ve mentioned previously, the curve inversions don’t bode well for Trump. Recall the following from a March Deutsche Bank note:

Figure 1 is the [3M-10Y] curve 18m before [an] election. The x axis shows the 10y minus 3m yield curve in basis points. The dots on the positive side of the y axis are labeled with the President’s name, and occurred when the President of the same party as the previous term was elected — i.e. the incumbent’s party won again. The dot on the negative side of the y-axis, are elections where a President from a different party to the incumbent President won the election. The red dot is the median for each occurrence — when the incumbent’s party won again, and when they lost.

The straightforward takeaway is that the red dots (i.e., the medians) do in fact suggest that a flatter curve 18 months prior to an election “implies some greater propensity for the curve to foretell a change away from the incumbent President’s party”, to quote Deutsche’s Alan Ruskin.

On June 19, during an interview with Fox Business, Jeff Gundlach suggested that if the economy takes a turn for the worse, Trump might simply drop out.

“If the economy goes into recession and he can’t pull out by removing the tariffs, there’s very little for him to run on”, Gundlach said.