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:
- Why the Stock Market Doesn’t Reflect the Economy
- How the Stock Market and Economy Really Work
- A Rising Stock Market Does Not Signal Economic Health
- The Stock Market Is Not The Economy
In the 21 recessions since the start of the 20th century, the average economic decline lasted 14.4 months and the Dow Jones Industrial Average tended to bottom out 8 months into that, according to Bespoke Investment Group. In line with this fact, historically, the stock market has turned the corner several months before recessions end. What does this mean? Simply that stocks may run in the same direction as the economy in general at sometimes. But more often they are at odds with one another.
So why do so many people believe that the economy and the stock market track one another?
- Because the government tells us they do.
- Because the financial press tells us they do.
- And because the big stock brokerages tell us they do.
And why do these institutions lie to us?
- The government does so to get the party in power reelected.
- The press does so to increase their ratings.
- The brokers do so to increase their profits.
Long story short: Obama pumped billions into “stimulus” packages. Much of that money found its way into the stock markets. Those markets rose. And Obama got reelected.
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:
- The stock market crashes every ten years on average. We’re due.
- One of the greatest predictors of stock movements is William O’Neill of Investor’s Business Daily. He warns that, based on history, when stocks do a “climax run” there will be a crash. In the week before the Dow reached 25,000, it gained 1,000 points for the first time in history. That’s a climax run in anyone’s book.
- The best stock analysts are saying that this market is overvalued (too expensive).
- If it doesn’t crash by July of 2018, this bull market will be the longest in history. That makes this a very scary time to be in stocks.
- All the major brokerage houses are hyping this bull market. Typically when that happens the end is not far away. (By the way, there has never been a time when the majority of brokers predicted a crash – even as the biggest crashes in history had already begun. Most brokers told investors to “hang in there” right through the summer of 2008.)
- The best ways to lose money in the markets are to give in to the dual emotions of fear and greed. Not only are these emotions counterproductive, they are decidedly unscriptural. Currently, the Greed Index is at 90%.
- This bull market has reached a level, percentage-wise, just below the peak that began the Financial Panic of 1929 – which was the prelude to the Great Depression of 1933.
- This Friday, January 19 is the 30th anniversary of Black Monday, when the Dow lost 22.61% in one day. That is the equivalent of the Dow losing 5,800 points today.
The president should be trumpeting his actual accomplishments, of which there are many. He pushed through one of the largest tax cuts in history. He has already created more real jobs than Obama supposedly “saved or created” in the same time frame. He is well on his way to forging new trade agreements that will put America first, instead of the globalist deals Obama signed. He has cut regulations that cost businesses billions, helping them become more profitable. The economy has grown twice as much in the same time as it did under the Socialist Obama.
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.
INTERNET RESOURCES: Experts Warn of Stock Market Crash in 2018 The Stock Market in 2018: Predictions from an Experienced Trader
Will The Stock Market Crash In 2018? (Video) A Stock Market Crash in Early 2018