Crazy, not stupid.
That phrase, is perhaps one of several phrases that could possibly be used to describe Donald Trump, the 45th President of the United States. In 2016, many people didn’t even think Trump had the slightest chance of becoming President. The very idea of Trump as President was considered too “crazy” to comprehend, and yet, here we are.
Also back in 2016, several naysayers thought the people of the UK would easily vote “Remain”, and look where we are with that as well. That vote in 2016 was in favour of Brexit, and along the way, Boris Johnson looked like he was done, having pulled out of the Tory leadership race at the time. His hopes of becoming PM dashed. And yet, on the 29th of July 2019, he moved into 10 Downing Street.
The point here, is that we should begin accepting “crazy” ideas.
After all, as we have seen, they ended up becoming reality.
So what’s the next crazy idea? How about Donald Trump, possibly trying to orchestrate the next market boom? Sound crazy? Here’s why it’s not too far-fetched:
Trump, The Master Tactician
We know Trump himself isn’t stupid. At the very least, the team of people he keeps close to him are not. If one recalls, they played the 2016 election campaign beautifully in terms of the tactics used, and outwitted Hillary Clinton who won the popular vote. Fast forward to 2019, we know that Trump absolutely wanted a rate cut from the FED (Federal Reserve). We also know that the escalating US-China trade war is causing a global economic slowdown, and the fallout of this whole “tit-for-tat” trade war is being felt around the world in one way or another.
So what does Trump do the moment he gets a small rate cut from the FED? Simple, slap more tariffs on, and continue to escalate the trade war. The fact that Trump announced the new tariffs the day after Jerome Powell announced the FED rate cut should strike you as more than just a random coincidence. Trump is likely to carry on doing what he feels will help him get what he wants; a more substantial rate cut from the FED.
The FED had no business cutting rates….
All this talk of a recession being dangerously close at hand is really just talk. Both the Dow and S&P hit new highs this year, economic data has been positive, and corporate earnings have been stellar. In the most recent round of earnings releases, most of the companies on our watch list beat estimates (e.g. AAPL, GOOGL, MSFT). And for those companies that didn’t beat estimates (e.g. GPRO, NFLX), it was largely down to industry or company specific issues as reasons that they fell short. Not because the economy is doing poorly.
In fact, numbers for economic data have never been better. The unemployment rate reached a low of 3.6% for April and May of this year, which is a level not seen since December of 1969!
If we look at Total Nonfarm Payrolls, a measure of the number of jobs being added to the US Economy, we see a very solid uptrend. The same goes for Average Hourly Earnings.
With positive economic data and mostly stellar corporate earnings, it is safe to say that overall, the economy has been doing very well. That stable economic growth has not faltered even after the FED started rate increments in December 2015.
So why then, is the FED cutting rates? Fair to say that a rate increase might not have been the smartest move given the trade war issue, but why not just hold rates steady? Why a rate cut? The numbers just didn’t really support a rate cut, no matter how small. But the FED’s official reason isn’t a surprise; they were reacting to hints of an economic slowdown due to the trade war. The FED wants to be ahead of the curve this time, and not wait for poor economic data or a full blown recession. This means that Trump, has indeed got his way and “forced” a rate cut out of Powell and the FED. With that in mind, Trump’s additional tariffs the day after Powell announces a rate cut are clearly not coincidental, and that means Trump wants more rate cuts.
A play for the 2020 Presidential Election
The 2020 presidential election is just around the corner, and Trump has already got his campaign primed and ready to go. His campaign slogan is again another cleverly devised play on voter psychology; “Keep America Great”. As the slogan implies, America is already great again thanks to Trump, so vote Trump and continue to KEEP America great. An incredible market boom leading up to the polls would be exactly what Trump wants, and he could very well get it.
If Trump keeps up this trade war with China, global markets are likely to continue slowing and the fallout from the trade war could worsen. The FED, responding to this, then lowers rates even further to keep the growth steady. At some point though, Trump will be happy with the FED’s rates, and when that happens, what’s stopping him from simply removing most, if not, ALL the tariffs, and then striking a win-win deal with China?
Low rates, and zero tariffs, can you imagine how incredible that market boom would be? And how convenient if that boom happened right in the months leading up to the 2020 Presidential Election. After all, if the people wanted to continue enjoying the longest bull run in history, they’d have to vote to keep it that way.
A vote to “Keep America Great”.