Trump Embraces the Bubble

The President and his fans like to point to the stock market, specifically the Dow Jones Industrial Average (DJIA), as a reflection of how well Trump is doing in Making America Great Again. President Trump likes to ask, “How’s your 401(k) doing?”

On July 15th he tweeted “Stock Market at new all-time high!” On July 29th, “U.S. Stock Market up almost 20% since Election!” He recognized another all-time high on October 5th and six days later, “Stock Market has increased by 5.2 Trillion dollars since the election on November 8th, a 25% increase.”

Last November he tweeted about “another great day for the Stock Market”  adding, “I guess somebody likes me (my policies)!” A few days earlier, he had tweeted: “Stock market hit yet another record high yesterday. There is great confidence in the moves that my Administration is making.”

The Washington Post reported December 19th, “‘DOW RISES 5000 POINTS ON THE YEAR FOR THE FIRST TIME EVER — MAKE AMERICA GREAT AGAIN!’ the president tweeted at 6:04 a.m. Tuesday, marking the 58th time he has mentioned the stock market on Twitter since taking office. By comparison, he has tweeted 24 times about his proposed border wall and 20 times about standing for the national anthem.”

Some may forget that Trump was a doom and gloomer as a candidate. "If rates go up, you're going to see something that's not pretty," he told Fox News in August of 2016. "It's all a big bubble."

During the first presidential debate he said, “Believe me: We’re in a bubble right now. And the only thing that looks good is the stock market — but if you raise interest rates even a little bit, that’s going to come crashing down,” Trump said. “We are in a big, fat, ugly bubble. And we better be awfully careful.”

Wanting to keep the stock market party going, Trump appointed Jerome Powell to replace Janet Yellen to run the Federal Reserve, hitching his political wagon to cheap money and market bubbles.

Powell said in 2012, “I think we are actually at a point of encouraging risk taking, and that should give us pause. Investors really do now understand we will be there to prevent serious losses.  It is not that it is easy for them to make money but that they have every incentive to take more risk, and they are doing so.  Meanwhile, we look like we are blowing a fixed-income duration bubble right across the credit spectrum that will result in big losses when rates come up down the road. You can almost say that that is our strategy.”

Today was a dramatic day in some parts of Trump’s bubbleland, with Bitcoin closing at $10,124, down 25% for the day and a steep fall from $19,343 on December 19th. The DJIA broke 26,000 for the first time but closed lower, and the 2-year treasury note yield burst through 2 percent for the first time since the dark days of late 2007.  

No doubt Mr. Powell will do all he can, however, the president is fickle, and his love affair with the stock market may have peaked.