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.

CurveElections

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.


 

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

  1. If nothing else, Christmas looks like it will embrace lower yields, but, that could change, and rates might even be lower after Brexit, but if trump keeps flapping his fish lips, rates could also go lower, but, if the Fed ignores inflation and doesn’t play politics, rates could go even lower, but, if the dollar continues to strengthen and commodities head south, rates could go even lower, but, if investors begin to think that things are totally insane and a recession becomes a given and people hoard cash, rates could go lower. I have seen this all and more:

    https://www.cmegroup.com/tools-information/quikstrike/treasury-analytics.html

    1. The Fed has plenty of options. Sure they can cut rates lower, of course, but they can also cut rates a lot lower. If they cut rates lower, they could be seen as a hawkish surprise and the markets will force the Fed to cut rates a lot. If the Fed accedes, and the market have already priced in the Fed cutting rates a lot lower, that will be interpreted as a hawkish pivot, and the markets could crash, credit yields would widen, liquidity would evaporate, etc. etc. That can’t happen, so the Fed will have to restart printing mo…- quantitative easing. Their hands would be tied, you see. It is very complicated. That money would have to be parked at banks, so they can use that extra money to buy back their shares to make up for financial stocks being hammered lately. The Fed could also give a little insurance cut, and maybe a surprise cut in between meetings. Not doing so would be hawkish and exorbitantly tight. The Fed can always reverse stagflation by measuring it differently.

  2. Or Trump could cave. Suppose he sends Mnuchin to Beijing to ask for whatever deal they were close to last year, minus whatever China was unwilling to give then, minus whatever China is unwilling to give now, no sanction on Huawei, bless whatever Xi does in Hong Kong, and throw in some Trump family business deals.

    While beating China seems to be one of the few priorities Trump actually has, his top priority is himself and he’d sell out anyone or anything to protect that. Bolton can be muzzled – in fact, have we heard from him lately? – Navarro is disposable, maybe Jared will take over trade negotiations, with instructions to produce a deal at any cost.

    A signed Greatest Deal Ever with China (doesn’t matter how insubstantial, that’s what he’ll call it) plus successfully bullying the Fed into cutting Fed Funds to 1% – would that avert a US recession or at least delay it until 2021? If done soon enough?

    Recession is fast becoming the consensus if not the “most crowded trade”. While the yield curve inversion and plenty of econ data points point to recession, other data points don’t. Maybe the recessionary data points are the leading ones and the non-recessionary data points are the coincident ones. The lag from yield curve inversion to recession is 1-2 years, Trump just needs it to be 1.5.

  3. Haven’t we seen this farce before (w. W.)? Take a Democrat-managed economy that is growing reasonably well (2 percent) and blow it up for the benefit the .01% and your Republican cronies. But, hey, if that’s what it takes to send Trump (and his idiot kids) back to Queens, sign me up.

NEWSROOM crewneck & prints