The roller-coaster continues today, my second day of a long vacation, at least as of about 11 Central. The DJI is down about 2.6%, but trending upwards even as I type:
Regardless of the trend, though, it’s worth talking about the state of the American markets. For this phenomenon, I’m actually willing to take President Trump at his word – he’s responsible. That is, during the continued run-up as we transitioned from the Obama Administration to the Trump Administration, many investors took Trump at his word that he would reduce regulation and taxes, and that this would result in a business renaissance. Many investors are conservatives at heart – nothing wrong with that – and are also uninformed when it comes to politics. Sure, for those of us watching politics[1], it’s been apparent from the beginning that the Trump Administration would be a new kind of animal, the sort with 15 irregular legs, two heads, and zero brains, but for most Americans he’s just the guy occupying the White House and issuing big promises.
Promises that sound good.
So the markets continued on their way, with perhaps a bit more enthusiasm in some sectors.
A few months ago came the dawning realization that the promised actions, many of which were kept, were false promises. That is, actions were promised on the premise that they’d lead to the business renaissance, which has then failed to materialize. While promises like these are not unusual, this boils down to government directly messing with the markets, only most of us didn’t get that. To me, these sorts of promises are de rigeur for Republicans, and I expect they’ll continue in the future, because it’s part of Republican ideology to believe that regulation strangles business and is therefore bad. But in this case, neither deregulation nor lower taxes for business have led to the fabled kingdom.
Then came the tariff wars, and the government interference became a trifle more obvious. When international companies decided to move operations to other countries rather than suffer damage to their bottom-line, President Trump then brazenly interfered directly through criticisms and threats – just think about his outrage at Harley-Davidson moving some of its manufacturing to Europe in order to avoid tariff costs. Or, quite recently, his frantic criticisms of General Motors for shutting down plants, which has been partly motivated by tariff costs and partially by falling demand for smaller vehicles[2].
Earlier this week, more whiplash as President Trump proclaimed a deal with China, followed by a weak following announcement from China on the same subject.
Today’s plunge, which may disappear by the time markets close, is being blamed on Chinese company Huawei’s CFO being detained in Canada and possibly extradited to the United States, at least by some, but I wouldn’t tie it to a single incident, no matter how large the company. Instead, I think the market is awakening to the frightening realization that the “conservative party” of the United States is beginning to reveal itself as more than willing to interfere in markets as whim takes it. Oh, each action may have a specific motivation, but there’s no plan, no adherence to anything but political convenience, for, after all, it’s not convenient for President Trump to “own” factory closings or bankrupt farmers, and thus we get more and more interference.
And remember the tariff wars? Exceptions, which take the form of lifting tariffs for specific companies that “require” foreign resources and products, are yet another direct interference in the market. It’s not a managed market, yet, but that’s where we’re heading with President Trump, and neither liberal nor conservative really wants that – that’s the land of autocrats, fascists, and extreme socialists[3].
Thus, market upsets each time an autocratic world leader sneezes. What is an investor to do? I think it depends on your expectations of the next American elections.
If you’re a conservative who sees a re-election victory for Trump and even a reconquest of the House of Representatives by the GOP, make plans to get out of the market right now. Markets thrive on predictability, which means, among other things, a connection between business activities and attainment of business goals. Now that the GOP is revealing itself as an interference entity, that predictability is going to disappear, because political goals do not align with business goals, despite all the effort in the world by certain businessmen to control the activities of government to their benefit. They are simply not compatible, and the frantic efforts to make the incompatible [them compatible] create non-linearities that are difficult or impossible to predict, because we don’t know which businesses have the ears of which influential politicians in Washington, do we? This corruption is the ruin of markets.
If you’re a liberal who sees Trump stumbling into obscurity in two years, and the Senate as a possible fruit of victory as well, you may want to stick around, albeit cautiously. Two years is a long time to wait for politicians and party that actually will respect both norms and laws to resume governance, but if that does happen, we can cautiously hope the markets will come back to trusting that interference in markets will resume through honest & moral regulations.
Of course, the spectre in the background of these remarks is Climate Change. The predictions of climate scientists continue to be met or exceeded, the Trump Administration even released a report indicating climate change is truly underway. If we have another two years of criminal inaction on the part of the GOP, it may impair any investments not directly related to CO2 or methane abatement.
Or even any investments at all. Along with bank accounts and those dollars you buried in a coffee can in the back yard.
Postscript: Now that I’ve finished writing this post (roughly 45 minutes), I see the market has mostly recovered. This doesn’t invalidate my point, but merely reinforces it. So long as Trump is President, the American stock markets are in for a very rough ride, because now they have to factor in Trump’s misbehaviors as he seeks to keep his base happy. No one can really predict how that’s going to work out.
1 That includes those of us who are unwilling spectators of this slow-motion train wreck.
2 A highly undesirable consequence of the undeclared war between the United States and Russia over the annexation of the Crimea, started by President Obama by orchestrating lower oil prices, which was a direct attack on the Russian export economy. I think their return stroke has been the persistent interference in our elections resulting in the election of a President and party who appears to be equal parts compromised and incompetent, as uncovered in the Mueller indictment of the Internet Research Corporation.
3 No, despite her use of the word ‘socialist’, Representative Ocasio-Cortez (D-NY) has not exhibited any socialist tendencies with regards to the general economy. If you want a socialist to fear in the Western world, try UK Labor Party leader Jeremy Corbyn, who appears to be leading a bunch of dreaming old socialists into a failed past.
