[RD] Did Trump Finally Manage to Kill Obama's Bull Market?

[Kaitzilla]

Stocks are in the midst of a scary October slump, sliding sharply because investors are worried about rising interest rates.

From: https://edition.cnn.com/2018/10/10/investing/stock-market-today-techs-falling/index.html

I think indirectly. Trump's economic actions have been designed to stimulate an already bullish economy, e.g. allowing corporations to bring back into America--tax free--money which they had stashed in foreign countries, removing pollution clean-up regulations. This threatened the economy with inflation. The Fed has countered this threat by allowing interest rates to rise. Rising interest rates are spooking the markets.

And Trump's trade wars only exacerbate the problem.

Fasten your seat belts kids. It's going to be a bumpy ride.

Trump is entirely correct about interest rates.
There was a mini-recession in 2016 that helped get Trump elected, and the Fed was cautious that year because they noticed it and didn't want to cause a broader recession by raising rates too fast.
https://www.nytimes.com/2018/09/29/upshot/mini-recession-2016-little-known-big-impact.html

If Ms. Yellen had been more stubborn about sticking to the plan to keep raising rates through 2016 because of her training as a labor market economist, the result might well have been an actual recession. “She’s always learning,” said Julia Coronado, president of MacroPolicy Perspectives, “and not so egotistical that she’s wedded to one view of the world.”

So far, so good.
Then after Trump was elected in November 2016, the Fed started raising rates like crazy.




When the rich get richer, that is called "low/ ideal inflation" and interest rates are kept low.
But when actual workers start getting raises, the Fed spikes interest rates (must fight inflation!) and cuts the workers' legs out from under them right when they finally have some bargaining power!
https://www.bloomberg.com/view/arti...dn-t-raises-rates-just-to-keep-wages-in-check

In the meantime, policy makers and macroeconomic analysts should rethink the basic mental model that they use to evaluate the state of the economy. Because rising wages don’t seem to trigger a wage-price spiral — or at least, not at moderate levels of wage growth — much of the conventional wisdom about the root causes of inflation is probably wrong. The failure of the accelerationist Phillips curve to match reality during the past few years means that prices don’t behave the way many experts in industry and government instinctively expect them to. If those experts keep relying on the conventional wisdom imparted from the 1970s and 1980s, big mistakes could result.

YES
Stop putting the brakes on the economy every time unemployment starts to get low!!!
Why not wait for the labor participation rate to start going UP before hitting the warning button on low unemployment?
Labor participation has not budged, and it won't until employers start raising wages and luring these people who have been out of work for 10 years back into the economy.
https://data.bls.gov/timeseries/LNS11300000


Trump is thankfully putting big pressure on the Fed since they are his greatest re-election opponent at this point.
It is a political move only though, but the independent Fed might at least think twice before the next rate increase.
Trump can blame the next recession on the Fed, and the Fed can blame it on Trump's trade war.
https://www.wsj.com/articles/trump-...-calling-the-fed-my-biggest-threat-1539720681

President Trump reiterated his complaints that the Federal Reserve is raising short-term interest rates too fast, calling the U.S. central bank “my biggest threat.”

“It’s independent so I don’t speak to him, but I’m not happy with what he’s doing, because it’s going too fast,” Mr. Trump said in an interview with the Fox Business Network, referring to Fed Chairman Jerome Powell, whom he nominated last year.

“You looked at the last inflation numbers, they’re very low,” he said while arguing for a slower increase in interest rates.

The president acknowledged Mr. Powell was his pick to replace former Fed Chairwoman Janet Yellen, and said he wasn’t blaming anyone.

“I put him there, and maybe it’s right, maybe it’s wrong,” he said, adding, “I put a couple of other people there that I’m not so happy with too. For the most part, I’m very happy with people.”

A USA 3.5% short term interest rate in 2020 is silly when Europe and Japan are still less than 0%.
The economy all over the world is still in trouble.

Remember all the "New Normal" talk?
5 years ago the expected GDP growth between 2018 to 2022 was 2.6%.
I refuse to believe anything fundamental changed in our economy to make it much stronger.
https://www.bls.gov/opub/mlr/2013/a...-to-2022-settling-into-a-new-normal.htm#_edn1

Looking forward to 2022, the U.S. Bureau of Labor Statistics (BLS, the Bureau) expects slower GDP growth to become the “new normal.” In addition to the recession’s impact on potential growth, the economy faces a number of hurdles. As the nation’s demographic shift continues, with the baby-boom generation moving into retirement, the labor force participation rate will continue to decline, moderating growth. The need to keep the debt-to-GDP ratio under control will weigh heavily on fiscal decisions. Continued reductions to federal spending will slow growth5 and cap discretionary spending on projects that could create jobs or research and spawn technological progress. Housing remains one bright spot in the projections: even at slow rates, population growth implies a need to create homes for additional people, spurring activity in the construction sector.

From 2012–2022, BLS expects GDP to grow at a rate of 2.6 percent per year, reaching $17.6 trillion in the target year of the projections. The unemployment rate is projected to gradually decrease to 5.4 percent, accompanied by a gain in household employment of 12.3 million jobs. Productivity growth is expected to remain strong at 2.0 percent per year, helping boost output growth, despite the expected slow growth in the labor force. Housing starts are estimated to average 1.6 million per year as construction accelerates, satisfying demand for new homes and replacements for aging structures. Export growth in excess of that of imports will help narrow the trade deficit, with real net exports equal to –179.1 billion in 2022.

The object of BLS macroeconomic projections is to develop a reasonable picture of the long-term economy that can be used as a framework for the Bureau’s more detailed industry output and employment projections. As such, the focus is on the long-run economic trends, not transitory economic phenomena, such as business cycle dynamics. Presented here are the primary assumptions made in the macro model, major trends for the decade encompassing 2012–2022, and an evaluation of uncertainty in the projections.

Can't help but notice the large interest rate hike before the 2008 great recession.
https://www.forbes.com/sites/johnwa...rtgage-rates-will-increase-0-25/#12eb8ff52400

 

[FriendlyFire]

^ Didnt Trump pass a giant tax cut, along with a massive increases in government expenditures, multiple trade wars as well as rolling back banking regulations ????
As for Japan and Germany people have actual savings unlike the US ????

On the other hand the US can just print more money as usual, its not like the Economy is already awash with sub prime loans thanks to eight years of stimulus and QE under Obama. The alarm were being sounded in 2016 Iam surprised that the Feds didnt start raising interest rates earlier

 

[Kaitzilla]

The Dow plunged nearly 832 points on Wednesday, the third-worst point decline in history.

All 30 Dow stocks were in the red, sending the index below 26,000 points for the first time in a month. The index fell by more than 3%.

The S&P 500 posted its fifth straight decline, plummeting nearly 3.3%. And tech stocks got hit particularly hard.

The Nasdaq dropped more than 4% in the worst percentage decline since June 2016.

Stocks are in the midst of a scary October slump

We can even flip the table on this.

What if I told you someone sold $300 billion worth of stuff on the stock and bond market this year.
They still have another $3 trillion worth of stuff to sell to return to historical norms.
https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm

What would that do to prices?
https://www.forbes.com/sites/invest...black-swan-for-u-s-stock-market/#494eb32247fd

^ Didnt Trump pass a giant tax cut, along with a massive increases in government expenditures, multiple trade wars as well as rolling back banking regulations ????
As for Japan and Germany people have actual savings unlike the US ????

On the other hand the US can just print more money as usual, its not like the Economy is already awash with sub prime loans thanks to eight years of stimulus and QE under Obama. The alarm were being sounded in 2016 Iam surprised that the Feds didnt start raising interest rates earlier

Yes, Trump has been both irresponsible and reckless with Executive power.
When he wins his trade war against the world's #2 economy, it should blow up the entire world economy in my estimate.
No matter what, the USA comes out on top as long as we can keep the Saudis under our thumb and our currency the world's reserve currency.

 

[El_Machinae]

There is reasonable theory that says that they shouldn't unwind. Let those printed dollars stay printed, because they were used to deleverage an economy.

The problem is that the Fed functions by bribing the rich. But Trump certainly passed a 'let the rich get richer' tax plan last year. Quite tied the hands of the Fed, since it handed gobs of cash out at the top, meaning that the Fed really cannot control the money supply at the bottom without massive amounts of bribery at the top.

 

[Birdjaguar]

Trump is entirely correct about interest rates.
There was a mini-recession in 2016 that helped get Trump elected, and the Fed was cautious that year because they noticed it and didn't want to cause a broader recession by raising rates too fast.
https://www.nytimes.com/2018/09/29/upshot/mini-recession-2016-little-known-big-impact.html



So far, so good.
Then after Trump was elected in November 2016, the Fed started raising rates like crazy.

Spoiler :

When the rich get richer, that is called "low/ ideal inflation" and interest rates are kept low.
But when actual workers start getting raises, the Fed spikes interest rates (must fight inflation!) and cuts the workers' legs out from under them right when they finally have some bargaining power!
https://www.bloomberg.com/view/arti...dn-t-raises-rates-just-to-keep-wages-in-check



YES
Stop putting the brakes on the economy every time unemployment starts to get low!!!
Why not wait for the labor participation rate to start going UP before hitting the warning button on low unemployment?
Labor participation has not budged, and it won't until employers start raising wages and luring these people who have been out of work for 10 years back into the economy.
https://data.bls.gov/timeseries/LNS11300000


Trump is thankfully putting big pressure on the Fed since they are his greatest re-election opponent at this point.
It is a political move only though, but the independent Fed might at least think twice before the next rate increase.
Trump can blame the next recession on the Fed, and the Fed can blame it on Trump's trade war.
https://www.wsj.com/articles/trump-...-calling-the-fed-my-biggest-threat-1539720681

A USA 3.5% short term interest rate in 2020 is silly when Europe and Japan are still less than 0%.
The economy all over the world is still in trouble.

Remember all the "New Normal" talk?
5 years ago the expected GDP growth between 2018 to 2022 was 2.6%.
I refuse to believe anything fundamental changed in our economy to make it much stronger.
https://www.bls.gov/opub/mlr/2013/a...-to-2022-settling-into-a-new-normal.htm#_edn1



Can't help but notice the large interest rate hike before the 2008 great recession.
https://www.forbes.com/sites/johnwa...rtgage-rates-will-increase-0-25/#12eb8ff52400

So are you saying that all the blame belongs to the FED and interest rates are always the problem? The world economy is a complex thing and to try to simplify it to US interest rates is a bit silly.

What point are you trying to make?

^ Didnt Trump pass a giant tax cut, along with a massive increases in government expenditures, multiple trade wars as well as rolling back banking regulations ????
As for Japan and Germany people have actual savings unlike the US ????

On the other hand the US can just print more money as usual, its not like the Economy is already awash with sub prime loans thanks to eight years of stimulus and QE under Obama. The alarm were being sounded in 2016 Iam surprised that the Feds didnt start raising interest rates earlier

No No No. Obama did all that. Trump has reduced the deficit through his tax cut.

 

[Moriarte]

Yes, Trump has been both irresponsible and reckless with Executive power.
When he wins his trade war against the world's #2 economy, it should blow up the entire world economy in my estimate

Why would anyone want to blow it up? China’s assets have become 1/3 cheaper on the open market than they were six months ago. So, you just buy them up and move on. The war is won. The damage is done, no one wants apocalypse, except for the hollywood producers.

 

[Kaitzilla]

So are you saying that all the blame belongs to the FED and interest rates are always the problem? The world economy is a complex thing and to try to simplify it to US interest rates is a bit silly.

What point are you trying to make?

Central banks and their activities now rule the world.

Have you not noticed?
Natural growth ended a long time ago.
https://www.yardeni.com/pub/peacockfedecbassets.pdf

 

[Kaitzilla]

Why would anyone want to blow it up? China’s assets have become 1/3 cheaper on the open market than they were six months ago. So, you just buy them up and move on. The war is won. The damage is done, no one wants apocalypse, except for the hollywood producers.

The US leadership seems determined to start Cold War 2.0 with China.
I'm not entirely sure why.
https://www.wsj.com/articles/mike-pence-announces-cold-war-ii-1539039480

 

[Birdjaguar]

Central banks and their activities now rule the world.

Have you not noticed?
Natural growth ended a long time ago.
https://www.yardeni.com/pub/peacockfedecbassets.pdf

Linking to a bunch of graphs without explanation makes your post significantly less useful or informative.

 

[FriendlyFire]

Why would anyone want to blow it up? China’s assets have become 1/3 cheaper on the open market than they were six months ago. So, you just buy them up and move on. The war is won. The damage is done, no one wants apocalypse, except for the hollywood producers.

Why would you want to buy Chinese assets that about to become casualties in the US-China trade war ?
Most the worlds capital is currently going to the US to take advantage of rising US interest rates

Also if you think its "Mission accomplished" then I have an Invasion of an rich oil middle eastern country to sell to you. Trade wars are double edged for example China could decide to F******* up US manufacturing lines by causing delays costing US manufacturers billions as there assembly lines are halted due to delay of their supply chain. It would also damage China tremendously to do this but thats what Trades wars are like.

 

[Kaitzilla]

Linking to a bunch of graphs without explanation makes your post significantly less useful or informative.

In simplest terms, all the central banks on Earth became market participants after 2008 when they started buying up the stock market.
They also bought up vast amounts of bonds pushing yields lower and driving people into riskier assets like the stock market. (causing stock prices to go up)

All the stock market rises are simply reflections of rising central bank balance sheets.
https://seekingalpha.com/article/4189772-world-central-banks-heavy-stock-market-lifting

Basically, that great worldwide stock market run over the last 10 years is nothing but printed money so our 401k retirement plans based on eternal growth don't detonate.
Japan as the world's most indebted country is leading the way.
https://asia.nikkei.com/Economy/BOJ-s-huge-share-purchases-cause-investor-unease

 

[FriendlyFire]

Basically, that great stock market run over the last 10 years is nothing but printed money so our 401k retirement plans based on eternal growth don't detonate.

A lot of US stocks are heavily overvalued and their profit returns/ assets dont justify their high stock values probably caused by so much capital being available and finding itself in the stock market as the rest of the US economy was already saturated with cash. I dont think it was a direct result of government policy to prop up the stock markets. The rest of the QE and low interest rates have found its way into subprime loans again.

The US is due for a recession anyways, it was only the massive tax cuts and spending that has delayed the inevitable

 

[Birdjaguar]

In simplest terms, all the central banks on Earth became market participants after 2008 when they started buying up the stock market.
All the stock market rises are simply reflections of rising central bank balance sheets.
https://seekingalpha.com/article/4189772-world-central-banks-heavy-stock-market-lifting

Basically, that great worldwide stock market run over the last 10 years is nothing but printed money so our 401k retirement plans based on eternal growth don't detonate.

If you read your link, you will see that the author repeats several times that there is a correlation between stock markets in Japan and BOJ increase in assets. No Causation mentioned. He does say that investors are using the asset increases to profit from the markets. I cannot see your path from an increase in bank assets to a ten year bull market. Where do corporate earnings fit into your picture of the market?

 

[Kaitzilla]

I cannot see your path from an increase in bank assets to a ten year bull market. Where do corporate earnings fit into your picture of the market?

When players enter the market who have an unlimited pocket book, and do nothing but buy, it can certainly touch off a 10 year bull market.
With prices almost guaranteed to go up, those corporate earning go straight into stock buybacks, further goosing the stock market.
https://www.cnbc.com/2018/08/06/com...rillion-worth-of-shares-this-year-to-kee.html

I will admit that corporate earnings doubling over the past 10 years do justify a large rise in the US stock prices , but I still see the heavy hand of the central banks everywhere.
https://tradingeconomics.com/united-states/corporate-profits

If you read your link, you will see that the author repeats several times that there is a correlation between stock markets in Japan and BOJ increase in assets. No Causation mentioned.

Gnnnn, ok that's true.
How about Japan's bond market?
Surely you must admit there is causation there between BOJ bond purchases and overall government bond prices?
https://www.bloomberg.com/news/arti...nese-10-year-bond-traded-tuesday-death-by-boj

The Bank of Japan has vacuumed up so much of the government bond market -- in excess of 40 percent -- that it’s left fewer securities for others to buy and sell. Some other buyers, such as pension funds and life insurers, also tend to follow buy-and-hold strategies.

That’s the backdrop to Tuesday’s session, when not a single benchmark 10-year note was traded on exchange, according to Japan Trading Co. data. Barclays Securities Japan rates strategist Naoya Oshikubo, summed it up, with perhaps an understatement: "the JGB market was generally thin."

The upside for the BOJ is that with such little going on in the market, it makes it easier to control the yield curve, with less need for intervention. Governor Haruhiko Kuroda noted to lawmakers Wednesday that the central bank has bought 75 percent of the government bonds issued in the fiscal year ending this month.

BOJ owns over 40% of the total Japan government bond market and is buying up 75% of new issuance.
That HAS to affect Japanese bond prices.
I would bet my left foot that the giant bond purchases plus stock market ETF purchases are affecting their stock market.

.
.....
Don't take anything I say too seriously, an A+ in college Economics 101 means squat.

**Edit**
A more technical explanation from 2013 of how the Fed boosts the stock market.
This is the path from increasing central bank balance sheets to a 10 year bull market.
https://www.forbes.com/sites/invest...helping-to-rig-the-stock-market/#626596a94da7

Here is what happens, as I see it now. Every day, Federal Reserve traders are buying about $4 billion in long- term Treasurys and mortgage bonds from major trading houses. How does the Fed pay for those purchases? Simple. The Fed gives the seller a credit on their Federal Reserve statement. Remember, the Fed is a bank that can legally give away money. Meanwhile, the seller of bonds to the Fed can then withdraw some or all of that money, or leave it on deposit with the Fed.

In other words, the Fed doesn’t pay anyone anything. All the Fed does is in essence create new money to give the seller. So let us follow that newly created money. The major dealers who sell the bonds to the Fed can take that money and buy other bonds in the open market. The new seller then gets paid with that newly created money, which in the bank clearing system, acts just the same as money you and I work for.

Therefore, to make this really simple, the Fed creates $4 billion a day and eventually some of that money goes into equities. And that, of course, helps keep stock prices elevated. So it doesn't matter that we are having major problems with the underlying economy and markets that normally would depress stock prices.

This seems to check out.
https://www.quora.com/Are-commercia...ir-excess-reserves-to-purchase-treasury-bonds

The tightening balance sheet of the Fed is now performing the same action in the other direction for US stock markets.
https://money.cnn.com/2018/07/31/investing/stocks-market-federal-reserve-qe/index.html

"It's no coincidence that accidents begin to pick-up the deeper you get into tightening," said Peter Boockvar, chief investment officer at Bleakley Advisory Group. "QE inflated markets to very high valuations. It's wishful thinking to believe QT isn't going to have an impact."

By shrinking its balance sheet, the Fed is draining the liquidity that sent stocks booming.

 

[Moriarte]

Why would you want to buy Chinese assets that about to become casualties in the US-China trade war ?
Most the worlds capital is currently going to the US to take advantage of rising US interest rates

They did become casualty, as a result they are cheaper now. Now, there could be another round of making them even more cheap, no denying, but that's a double-edged sword. So I think, we are witnessing the closing stages of this opera. The whole idea is to use political and economic leverage to take some steam out of fastest-growing mega-economy so that you (the Americans & other relevant parties) can take part in a ride with a cheaper point of entry, all the while reshuffling trade agreements, while you're still in a position of advantage.

The other option is to destroy Chinese economy to bits, which only makes sense if you're some kind of radical.

 

[mitsho]

Only because you want it to stop now doesn't mean that the other side wants to stop now. The fat lady hasn't sung yet, if we keep with the opera metaphor...

I'm not an expert on economics, but your story just sounds too easy for my ears. Rather, Trump looks more like the Zauberlehrling of Goethe here (sorcerors apprentice?), he will not be able to control the ghosts he has called.

 

[Birdjaguar]

When players enter the market who have an unlimited pocket book, and do nothing but buy, it can certainly touch off a 10 year bull market.
With prices almost guaranteed to go up, those corporate earning go straight into stock buybacks, further goosing the stock market.
https://www.cnbc.com/2018/08/06/com...rillion-worth-of-shares-this-year-to-kee.html

I will admit that corporate earnings doubling over the past 10 years do justify a large rise in the US stock prices , but I still see the heavy hand of the central banks everywhere.
https://tradingeconomics.com/united-states/corporate-profits



Gnnnn, ok that's true.
How about Japan's bond market?
Surely you must admit there is causation there between BOJ bond purchases and overall government bond prices?
https://www.bloomberg.com/news/arti...nese-10-year-bond-traded-tuesday-death-by-boj



BOJ owns over 40% of the total Japan government bond market and is buying up 75% of new issuance.
That HAS to affect Japanese bond prices.
I would bet my left foot that the giant bond purchases plus stock market ETF purchases are affecting their stock market.

.
.....
Don't take anything I say too seriously, an A+ in college Economics 101 means squat.

I don't. Typically, a strong bond market is bad for stocks and vice versa. Investors move their money into the most promising markets. I don't pay any attention to the Japanese bond market.

**Edit**
A more technical explanation from 2013 of how the Fed boosts the stock market.
This is the path from increasing central bank balance sheets to a 10 year bull market.
https://www.forbes.com/sites/invest...helping-to-rig-the-stock-market/#626596a94da7



This seems to check out.
https://www.quora.com/Are-commercia...ir-excess-reserves-to-purchase-treasury-bonds

The tightening balance sheet of the Fed is now performing the same action in the other direction for US stock markets.
https://money.cnn.com/2018/07/31/investing/stocks-market-federal-reserve-qe/index.html

Your links were not impressive. they were mostly opinions of not so knowledgeable people guessing. "I think money leaked from the bond market into stocks and if it was a billion dollars it would have an impact. etc. etc.

I think you are wrong that the Fed has been feeding stock prices and keeping the market going up. I think the market is going up because investors like the fundamentals and have felt that prices were low enough for them to profit by buying.

 

[FriendlyFire]

They did become casualty, as a result they are cheaper now. Now, there could be another round of making them even more cheap, no denying, but that's a double-edged sword. So I think, we are witnessing the closing stages of this opera. The whole idea is to use political and economic leverage to take some steam out of fastest-growing mega-economy so that you (the Americans & other relevant parties) can take part in a ride with a cheaper point of entry, all the while reshuffling trade agreements, while you're still in a position of advantage.

The other option is to destroy Chinese economy to bits, which only makes sense if you're some kind of radical.

Why? the heavier 25% tariffs do not start until Jan and key industries are going to be affected plus the additional threat of the rest of Trumps tarriffs on remaining Chinese imports have yet to be felt
Chinese are preparing for a thirty year trade war and expect GDP lose of around 1.5% - 2%

Trumps gaslighting is likely to negate any US gains, from the new NAFTA agreement which is the same as the old NAFTA with tiny changes hardly seems worth the damage caused.
Plus the If the US wants to take on China by itself while fantasing about how easy it is to win the a trade war and not prepare itself for a thirty year battle its just going to have to learn the hard way I guess

 

[Kaitzilla]

I don't. Typically, a strong bond market is bad for stocks and vice versa. Investors move their money into the most promising markets. I don't pay any attention to the Japanese bond market.
Your links were not impressive. they were mostly opinions of not so knowledgeable people guessing. "I think money leaked from the bond market into stocks and if it was a billion dollars it would have an impact. etc. etc.

I think you are wrong that the Fed has been feeding stock prices and keeping the market going up. I think the market is going up because investors like the fundamentals and have felt that prices were low enough for them to profit by buying.

I have been unable to find anything stronger than correlation and opinions, so I will concede my view is weaker than I thought it was.

Thanks Birdjaguar.

 

[Birdjaguar]

One possible link between fed actions and the market is that if investors like what the Fed is doing, it gives them confidence to invest in stocks. Investors like stability so if they feel that the Fed is helping keep things stable, they will invest.