Dow Hits 25,000 – So What?
Expect a Correction or Crash Soon
January 15, 2018
President Trump has been trumpeting the huge rise in the stock markets as one of his great economic accomplishments. My advice to him? Stop it ASAP!
When Obama ran for re-election, he knew that America wanted to see economic improvement. No matter what the big issues of the day seem to be, no president has been elected or re-elected if he couldn’t articulate a reasonable economic message. He had promised improvements in unemployment. The unemployment rate rose during his first four years and was inexcusably high when he needed to show economic strength. Likewise, the foreclosure rate was at record levels; but he had promised to reduce the number of foreclosures. Two major broken economic promises. What to do?
The only thing he could do was to throw money at the stock markets. Why did that work? Because the great majority of Americans believe the stock market reflects the economic strength of the nation. Nothing could be further from the truth.
Google “Stock Market” and “Economy” and you will see many article headlines such as these:
So why do so many people believe that the economy and the stock market track one another?
So why should Trump be wary of taking credit for today’s meteoric rise in the stock market? First, because he didn’t make it go up, so it’s not honest to take credit for it. 90 months of this bull were under Obama; only 11 months under Trump. Secondly, because if you take credit for the rise, you will have to own the fall.
If he didn’t make the market go up, who or what did? Stocks were already in a bull market when Trump was elected, and that bull hasn’t ended in the year he has been in office. Stupid policies put in place by Obama and the Congress have continued to pour money into the economy. Trump should have worked to reverse those policies. Instead, he has not only allowed them to continue; he has also been complicit in raising the debt limit.
I’m not saying that Trump has had no effect on the stock markets. The “Trump bump” to the markets has been well-documented. His pro-business orientation has instilled greater confidence in the economy in general and stocks in particular. Good economic policy (including the recent tax cuts) will have a long-term positive effect on the general economy. But the bump in the stock averages will prove to be temporary, since it is based on emotion instead of facts.
The facts are that stocks rise because investors and institutions buy based on what they project a company’s earnings will be in the future. The earnings are simply not there to support such a huge rise in stocks. They will correct – or crash – and that will happen sooner rather than later.
Most people think that the Panic of 2008 was a stock market crash. Actually, it was a real estate crash which caused stocks to crash. What crushed real estate? Read “America’s Bubble Economy: Profit when it Pops,” by the Weidemer brothers. They predicted in 2006 what happened in 2008 – and why. The truth was that housing prices were rising much faster than salaries.
The same is happening today with stock prices. They are rising much faster than earnings. Without the foundation and push of good earnings, stocks will drop dramatically when investors realize that emotion is not enough to prop up a fundamentally weak market. You should also read the Weidemers’ follow-up book. “Aftershock,” which predicts what is about to happen. They were the only ones who accurately predicted 2008. They were right then, and they will shortly be proven right again.
In summary, here is why Trump shouldn’t be claiming that the current stock market is his doing:
Trump should give the credit for this precarious stock market to Obama, who started the rise by printing money backed by nothing and doubling the National Debt during his eight years. Then when it crashes, Obama’s most ardent supporters will curse the day they elected him – as most of America already does.
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