Guest editorial: Buckle up. We are in for a volatile year in Trump world.
It is often said that the stock market is not the economy. It is not even a reliable proxy for the economy, either leading or lagging: It is a beast unto itself.
But the market cares a lot about Trump and Trump cares a lot about the market.
Why does the market care? He (Trump) is the giver of all forms of regulatory relaxation the market has ever dreamed of, with bucket-loads more to come just in time for the election. He is the basher of the Fed for lower or zero or negative interest rates. He is the slasher of tax rates for corporations and the ultra-wealthy. He is everything they ever dreamed of: a politician with an urgent need to be liked and accepted and re-elected, but with no morals, no policy red lines and no strings attached.
Why does Trump care about the market? Mostly just to get re-elected. In Trump’s mind, and many others’, a strong market in 2020 leading into the November election will be his firewall because it appeals like nothing else to our worst instincts: unbridled greed and blind self-interest and to our awesome idiocy as Americans.
Forget things like social justice, health care, international relations, global warming and infrastructure. His great bet, which he may win, is that in the end Americans are completely incapable of discerning what is best for them in the short and long run. So long as we THINK things are getting better economically, even though we don’t understand exactly how because most of us are not seeing it, we will vote for him and forsake everything else that is important to us.
But to the main point: The 2020 market outlook:
1. I believe this will be the most volatile year in the market in recent memory. I believe we will see at least two, maybe three, significant corrections in the market before the election.
2. Overall, for the whole year, however, the market could finish the year marginally higher, but probably will be flat or slightly down despite GDP growth and continued low interest rates and unemployment.
3. The list of bad (or good) things that could happen in 2020 is much longer than we have ever seen before. What is good or bad depends on your perspective and that just spells more volatility in our divided country. What we can count on is that Wall Street will overreact to each and every one of them and they will never get it right the first time. Consider the following list, which I could expand to a hundred points but won’t:
• There is not even a Phase I trade deal with China by Jan. 30 and China cuts off negations and raises tariffs, and Trump in turn wages tariff war on them.
• A Phase I trade deal is announced and it is complete garbage, according to everyone with a brain.
• The House Democrats and Senate Republicans cannot even agree on how the impeachment trial in the Senate will work and if there will be witnesses. Suits are filed.
• A break-away group of 10 Republicans in the Senate demand a full and fair trial, including all key witnesses and testimony by the president. The President tells them to fly a kite.
• There are new and significant discoveries of wrongdoing by Trump, and several witnesses agree to come forward.
• Trump is convicted in the Senate, by a one-vote margin and removed from office.
• Bernie Sanders or Elizabeth Warren sweep Super Tuesday, or split it
• There are conservative and liberal riots in every major city, and bloodshed
• Putin moves hard on Ukraine and takes it, North Korea invades South Korea, China puts down all dissent of any kind, Pompeo resigns with no successor who will work for Trump
• Synagogue and other church shootings and school shootings go through the roof
• White Nationalists and Christian Evangelists unite to form a new America Party and march in every major U.S. city
As you start the New Year, please tell me which of the above scenarios are not at least plausible. The honest answer is any and almost all of them could happen. Because we are now living in Trump world. Welcome. Now imagine the cumulative effect on consumer and business confidence and spending, business activity, the market, our psyche and our future of almost any combination of these developments. Maybe most of them.
I believe this will be the most troublesome year in our collective lifetimes. Oldsters and Youngsters, buckle your seat belts and put on your hard hats.
Happy New Year.
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In the wake of the insurrection at the U.S. Capitol, PJ Falten has been thinking about the “fallen heroes who gave their lives so that something like last Wednesday could never happen on sacred ground. … What would they have thought?”