Saying The Stock Market Is Plummeting Because The Economy Is “Too Good”, Is Like Saying Someone On Steroids Is “Too Healthy”
Let’s Not Lose Sight Of The Fact That Trump/Republicans Decided To Do A Huge Economic Stimulus Package At A Time When The Economy Was Already Booming
That’s a grand experiment that’s never really been attempted before. Is it already backfiring? Too early to tell. Investors have now lost more than $1.6-trillion on paper so far in February, in just 3 trading sessions. While the Dow Jones Industrial Average, suffered its biggest one-day point drop ever: 1,175 points, it’s still near record highs. (And despite some mainstream media calling it a “crash”, it isn’t: typically a definition of a market crash is a single-day decline of 10% or more, this last session the Dow was down less than half that). A big drop nonetheless.
• The market likes low inflation and low growth better than anything else. That’s part of why stock prices have been on a steady upward climb since the end of the 2008 Recession. There’s been virtually no inflation (in fact, oil prices have come down substantially), and growth has been slow, but steady.
• Inflation is usually triggered by putting too many dollars in the system, which then drive up the cost of employees and products. That’s exactly what the tax cut is doing. Half of that is good: with near-full employment, salaries are going up. Half of that is bad: with more dollars available to buy goods, the price of those goods will go up, meaning for many workers it’ll end up being a wash at best: they’ll make more, but they’ll pay more for everything from housing to household goods.
• Running gigantic Federal Deficits at a time when inflation is causing rising interest rates, also means the government will have to borrow more money, and will have to pay more to borrow that money, which will then mean we’ll all have to pay more to borrow money.
• Trump’s immigration policy also plays into this. And it’s a question we’ve asked many times before (and one of the few things we agree with the Koch brothers on): why would you deport tons of people who have not committed crimes, and cut way back on the number of legal immigrants, exactly at the time you are in desperate need of more workers to keep your self-described “turbo-charged” economy revved up?
• We also feel a looming constitutional crisis and an obvious intensifying of the Trump/Russia investigation is a component that at the moment almost no one is talking about. Because another thing the market doesn’t like is uncertainty.
• It also doesn’t help that the federal government has still not managed to put an annual budget together. Instead, it’s headed for its 5th continuing resolution, with no deal in sight, and there may never be one. The budget process this year (which actually started last year), might very well involve little pieces being passed here and there along with additional continuing resolutions, reflecting an exceptionally high level of dysfunction on Capitol Hill. A stronger President might force everyone to get together and make a budget happen. Trump insists on punching people in the face first (as New Orleans Mayor Mitch Landrieu said), and then asking for their cooperation. Doesn’t work that way. And another example of instability.
• Of course none of that explains why the sell-off is happening just now, when a lot of those factors have been in play for weeks, if not months. Stock values have been way higher than underlying earnings should justify for a long time. The market’s been going up pretty much in a straight line for more than a year. Nothing goes up in a straight line. It was a bubble. It was due.
Bloomberg has a continuously updated live feed of global market activity.
Trump’s Not Using The Argument (Yet) That The Stock Market Is Plunging Because He’s Doing Too Good A Job. He’s Probably Waiting For The Sell-Off To Blow Over. Which It Might.
In fact, the President’s been silent so far on the subject of the market plunge. At a non-campaign/campaign-like appearance in Ohio, he stuck to “paychecks…going way up….taxes…going way down”.
He then quickly changed the subject: complaining Democrats didn’t applaud for him during last week’s State of the Union Address he got such “good marks” for; bringing a “negative energy” to the room. Hasn’t the President seen a State of the Union before? That’s the way it always goes. Or did he think it’d be different this time, because Trump? He even goes so far as to call Democrats “treasonous” for not cheering when he mentioned Black and Hispanic unemployment were at record lows. Watch his comments by clicking on the photo below:
Dictionary.com responded to this far better than we could: