Should We Blame Joe Biden?
June 13, 2022
Stock Prices, Inflation, Recession & Economic Cycles
Economic cycles – also known as business cycles — are a reality, and they can be tracked over time. They generally are predictable, although not in precise time frames. Economic cycles consist of four identifiable phases or stages: (a) Expansion; (b) Peak; (c) Contraction; and (d) Trough.
Every economic cycle includes a period of euphoria and exuberance marked by a sustained period of economic growth; followed by a period of uncertainty and lethargy linked to a period of economic decline.
When Donald Trump took office in January 2017, he inherited an economy in its 91st month of economic expansion following the end of the Great Recession in June 2009. That expansion continued into 2020, becoming the longest period of expansion on record, peaking at 128 months in February 2020.
We know that Donald Trump never fails to speak his mind. During the campaign leading to the 2020 presidential election, Trump proclaimed, “If (Joe Biden) is elected, the stock market will crash!”
[In 2018, Trump said, “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win.” In late January 2020, Trump also said, “We have it (coronavirus) totally under control. It’s one person coming in from China. It’s going to be just fine.”]
Facts are facts:
- The S&P 500 fell from 4,766 in late December 2021 to 3,900 today, a 20% loss;
- We’ve seen the price of gasoline hit $5.00 per gallon, up from $3.00 just a year ago;
- Case-Shiller recently reported a 34.8% price increase for housing in the Tampa Bay area (where I currently live) from March 2021 to March 2022;
- The most recent CPI report reflects an annual rate of 8.6 percent through May 2022, the fastest rate in four decades.
What’s really going on?
There are a number of pieces to this puzzle, including:
- The lingering effects of a Pandemic;
- The Russian invasion of Ukraine;
- Aftershocks (direct and indirect) from draconian tariffs enacted beginning in 2018;
- Ongoing ripple effects from the 2017 Tax Cuts and Jobs Act (TCJA); and
- Various supply chain issues, both domestic and international.
But, the root cause of our current intersection of inflation and stock market volatility likely traces back to 2010, when the Fed launched “QE2” – quantitative easing – essentially increasing liquidity in the domestic economy to stimulate economic growth. One of the outcomes from QE is a decrease in bond prices due to falling interest rates, combined with a run-up in stock prices as investors search for yield.
When the Fed announced its QE2 plan in November 2010, 30 year mortgages were at 5%; and the S&P 500 index was 1,200. Over the course of the next few years, rates on 30 year mortgages dropped as low as 3.3%, and the S&P 500 index toward 2,010 (which it reached in September 2014).
Meanwhile, the CPI from 2010 to the end of 2020 remained relatively calm, reflecting the lagging effects of the economic recovery which began in mid-2009.
It is relatively easy to look into the rearview mirror now to observe that the Fed’s response to the impact of Covid on our economy helped to create an environment which fueled the inflation we are facing today. In March 2020, in addition to a promise to inject a $ Trillion into the U.S. banking system, the Fed cut the federal funds rate to a range of 0% to 0.25%.
Those actions of the Fed likely saved our economy from implosion, but also helped to inspire a dramatic run-up in stock prices: The S & P 500 index rose from 3,000 in early March 2020 to reach 4,700 in November 2021. (Stock prices were further affected by massive stock buybacks enabled by the 2017 TCJA).
While it seems convenient for some to blame Joe Biden for high gasoline prices; rapidly rising consumer prices; the stock market ‘meltdown’ — even for supply chain dysfunctions – history tells us there is a rather significant lag between the point when policy actions take place, until begin to see the results from those actions.
The Biden White House has pledged to fight against inflation and has stubbornly refused to blame the Fed for our current economic symptoms.
Although there are plenty of contributing factors, the real truth is over a decade of relying almost entirely on monetary policy to steer the ship brought us to this moment, not 18 months of Democratic control in the White House.
An Economic Genius: Part 2
August 1, 2019
A few weeks ago, I shared some thoughts about our current President and his economic credentials.
Donald John Trump was one of 366 student members of the class of 1968 who was awarded a Bachelor of Science degree in Economics from the Wharton School of Finance and Commerce at the University of Pennsylvania.
Other than his bachelor’s degree and some experience working in the family real estate business, there is no evidence that Mr. Trump has pursued additional education, credentials or capabilities in the field of economics.
Trump’s paucity of bona fides in the world of economic theory and practice has not deterred him from taking an active role in testing new economic theories and concepts.
Below, I introduce a new chapter in my observations on Donald Trump’s economic strategy:
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July 31, 2019 (Wednesday): Federal Reserve Chairman Powell reluctantly announced a 25bp cut in the federal funds rate, the first rate cut in over a decade (December 2008). In his announcement, Chairman Powell cited, “implications of global developments for the economic outlook as well as muted inflation pressures”. The Fed also referenced an apparent global economic slowdown; uncertainty around U.S.-China trade negotiations; and ‘stubbornly low inflation’.
August 1, 2019 (Thursday): Donald Trump announced (in a series of tweets) that the U.S. would impose a new 10 percent tariff on certain goods from China beginning on September 1, 2019, following the news that trade talks with the China have failed to make sufficient progress.
These new tariffs will apply to the $300 Billion of Chinese goods which had not before faced a tariff. Another $250 Billion of Chinese goods will continue to be tariffed at a 25 percent rate.
This abrupt and unusual move roiled the equity markets, creating a major sell-off.
Since late 2018, the U.S. economy has been showing signs of slowing — bond markets are flaccid; GDP has slowed; new home sales are generally flat; and business investment is anemic, at best.
Virtually every main-stream economist agrees that Trump’s trade war is contributing to the domestic economic malaise, although it’s too early to determine by how much, and if the damage is permanent.
The Fed rate cut on Wednesday was accompanied by a caveat that one purpose was to help create a barrier to prevent Trump’s trade wars from toppling our domestic economy.
Thursday’s surprise announcement by Trump reveals a new, arbitrary, capricious and unilateral decision by the White House which will result in higher taxes to Americans on imports; and further expand uncertainty for businesses which need significant time to manage their supply chains.
The agricultural sector in the U.S. – farms and ancillary industries, suppliers, manufacturers, etc – are already fighting the unexpected impacts of climate and weather on production. Then, they were handed a potential death sentence by a White House which is guided not by strategy and planning, but by impetuous and arbitrary policy changes driven by Trump’s narcissistic compulsions.
If Trump’s Trade War battle plans were conceived within a coordinated environment (i.e. in concert with the Fed and the Congress) perhaps we would be able to see a pathway toward successful outcomes.
Trump is consistent in his bravado that he – and he alone – has the vision, wisdom and solutions to create equilibrium in the trade accounts between the U.S. and China.
According to a BBC analysis from May 2019, “Trump’s decision to take on China could lead to adverse effects for consumers in the US and in China, but also worldwide. An economic showdown between the world’s biggest economies doesn’t look good for anyone.”
Article I of the US Constitution vests the power to set tariffs in Congress, thus Congress has the power to stop this President from continuing his arbitrary and impetuous trade war. The question remains: Will elected officials in Congress wake up, do their job and use that power, or will they continue to abdicate legislative responsibilities to this President?
Trump-en-omics
May 13, 2019
Trump has formally signaled his mastery of global economics and some of the ways he believes U.S. trade policies will help guide the world economy toward optimum performance.
Some have said our president seems to be really out of control, that he must have skipped all of the courses on economics and finance when he was in school (he did go to school, right?).
I believe some further research is in order.
Although Trump continues his infatuation with Twitter where he openly shares classified information with the world, he also has his thumbs on the Tariff Buttons.
Most alarming? He apparently has the nuclear codes.
Meanwhile, since mid-April, the actions of our president have cost me a significant amount of my accumulated and hard earned savings. And, it could be worse! If I was fully invested in traditional equities, it would have been even more painful!
But, enough about me.
The most recent abrupt and unjustified increase of U.S. tariffs on $200 Billion of Chinese goods from 10 percent to 25 percent triggered a response from China which predictably exacerbates continued economic damage to the U.S. agricultural sector, and compounds spillover impacts to related industries.
The Trump Trade War has been extremely harsh on farmers. Over time, our farmers learned to deal with unpredictable weather; wind storms; disease outbreaks; hordes of locusts; crop loss during storage; and wildly fluctuating prices of both inputs and crops.
It seems clear they never anticipated having a White House which would use them as sacrificial pawns to engage in quixotic battles against imaginary foes.
Longer term and behind the curtain, tariff increases on Chinese imports will drive up domestic prices on a broad array of consumer products, finished goods, and intermediate goods – even some raw materials used in basic manufacturing in the U.S.
The good news: the effects of these most recent tariff increases probably won’t show up for 90 days, or so.
The bad news: the costs of the these tariff increases will be fully borne by U.S. consumers, and the effects of tariff increases will result in price increases which will temper domestic economic growth while concurrently sending signals of an increase in core inflation, likely resulting in interest rate increases by the Fed.
And, it just gets worse from there…..
The Sport of Tax Avoidance
May 11, 2019
Let’s be clear: the terms ‘tax evasion’ and ‘tax avoidance’ are often used interchangeably. However, only those activities which occur in a tax avoidance scheme are considered lawful.
Plenty of reliable media sources have carefully examined and reported on the awful legacy of Donald Trump’s multiple bankruptcies on a myriad of small businesses: architects, carpet suppliers, lighting and electrical distributors, even custom cabinet-makers.
A recent expose published by The New York Times focused on Trump’s taxes and revealed a previously unexposed nuance: many of his unpaid bills were essentially ‘double counted’ through the magic of accrual accounting. Thus, Trump and his Organization underpaid many vendors, while concurrently creating a paper loss for Trump which translated into a ‘tax loss carryforward’ good to shield future profits from future taxation.
If people had been able to look at this bad behavior as a base line, and project it forward, they might have been able to see how much damage The Donald has already done to families and communities in the U.S.
Following his inauguration in January 2017, Trump’s operating principles haven’t changed at all.
A direct result of the introduction of Trump operating principles into the Executive Office has become an oblique assault on moderate and small family-owned businesses across the U.S. — in the manufacturing sector; in retail; agriculture; mining; ranching; hospitality; media; transportation; entertainment; food; construction; business services; technology; and more.
The foundation of success epitomized in the American Dream is entrepreneurial — hard work, focus and sacrifice oriented to a long term view.
The minority of small business operators who operate like Trump — those who operate at the margins and take advantage of honest business people who operate on the platform of honesty and honor — get put out of business quickly.
Tax avoidance – using any and every loophole to avoid paying taxes – is legal, even when some of the activities involved may be considered by some to be morally repugnant.
Somehow, Trump has been able to use his unique combination of charisma and showmanship to fool a rather sizeable segment of American adults into believing his shtick.
How very sad…
An example of world leadership, released by Donald J. Trump on Sunday, May 5 at 9:08 AM ET:
“For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods. These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday. 325 Billions Dollars….” “…of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!”
Impulsive? Impetuous? Misinformed? – OR — Calculated? Intentional? Willful?
However you slice it, when the President of the United States threatens — on a Sunday morning in May — to further disrupt world markets through his personal vision of how the world should behave, the predictable short term outcome is a stock market rout.
{One of the reasons it is predictable is that we have witnessed several similar episodes over the 2+ years Trump has occupied the Oval Office.}
Both Market Manipulators and Inside Traders know that when the Stock Market is confronted with unanticipated news, the Stock Market generally reacts with an abrupt and unexpected increase (or decrease) in value. And, Long-sellers (or short-sellers) get enriched (or damaged) as a result of their positions.
If they went long (or short) because of access to confidential information (known as “Insider Trading”) they have committed a white-collar crime that is often prosecuted as a felony, punishable by severe fines and prison terms of up to 20 years.
The Questions:
- Has Trump, his family, any of his cabinet members, advisors, their families and colleagues benefited by taking a long (or short) position in advance of one of Donald Trump’s unexpected and abrupt announcements?
- Is Trump a willful Market Manipulator?
- Are there any foreign (off-shore) entities which have left a trail indicating a prior knowledge of Trump Tweets?
Economic and Fiscal Policy
February 12, 2019
Our current POTUS rarely stands still long enough for anyone to really examine how his positions and policies impact us in the present, or potentially in the future.
Here are a couple of observations which I managed to glean from rapidly moving targets:
Fiscal Policy: Failure
By late 2017, the U.S. economy had enjoyed over 8 years of economic expansion (since June 2009), leading virtually all economists to conclude we were moving toward the end of an economic expansion cycle. Most experts agree that the government should constrain both borrowing and spending during an expansion phase, concurrently decreasing government debt.
When the expansion phase of a business cycle comes to an end, and the economy begins to sputter – and ultimately to contract – a government with reduced debt will have the capacity to spend more and tax less, helping to support the softening economy return to equilibrium faster and smoother.
The much-touted Tax Cuts and Jobs Act enacted at the end of 2017 introduced a $1.5 Trillion tax cut, sold as a source of economic stimulus when it was least needed.
In times of economic expansion, the government is on notice to reduce its deficit.
On February 12, 2019, the national debt passed a new milestone, topping $22 Trillion for the first time. According to the U.S. Treasury Department, total outstanding public debt hit $22.01 Trillion, up from the $19.95 Trillion when President Donald Trump took office on Jan. 20, 2017. This is mighty dangerous stuff, folks.
Trade Policy: Failure
Tariffs are a tax on consumption, paid by end users.
Over several decades, the U.S. developed a dependence on manufactured goods from China. In turn, U.S. exports to China – predominantly agricultural and unfinished goods – enjoyed strong growth over time.
President Trump abruptly started a trade war with China, imposing tariffs on goods imported into the U.S. beginning in July 2018.
China quickly retaliated, raising tariffs on American goods imported into China, resulting in significant shifts by China to alternative sources.
Winners? Brazil; Russia; Germany; Japan.
Losers? American agricultural producers in Iowa, Nebraska, Indiana, Missouri, Ohio, South Dakota, North Dakota, and Kansas; some American manufacturers; and American consumers overall.
It was once said, “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win.”
The evidence seems to emphatically refute that position.
What! No tariff on Fentanyl?
February 1, 2019
Fentanyl is a powerful synthetic opioid created in 1960, originally introduced as an anesthetic. Because it is synthetic, it can be easily and inexpensively made in a lab. It was approved by the FDA in the early 1990’s for use as a painkiller and anesthetic. It works by binding to opioid receptors in the brain, but it does so faster — and in much smaller doses — than morphine or heroin. Like other opioids, it boosts levels of the chemical dopamine, which controls feelings of reward, pleasure, euphoria, and relaxation.
Today, Fentanyl is typically prescribed to treat patients who need long-term, around-the-clock relief from severe pain. When used for medical purposes, it is often given in a shot, a patch on the skin, or in lozenges.
China has become a global source of Fentanyl because (a) it can be easily and inexpensively made in a lab; and (b) the vast chemical and pharmaceutical industries in China are lightly regulated.
Some Fentanyl comes straight to the United States from China, while other shipments come in from China to Mexico (and to a lesser extent) Canada before making its way into the U.S.
There currently is no tariff on Fentanyl imported into the U.S. from any point of origin, which indicates that the Trump administration has missed a major revenue opportunity.
Another branch of our armed forces?
I just can’t imagine an Industrial Engineer who would look at the current structure of the Pentagon and the U.S. military and not conclude that we have an extraordinarily inefficient approach to defense.
Air, land and sea. Sounds good, right?
Except that we have 5 branches which overlap, compete with each other directly and indirectly, and don’t always communicate well.
Now, the Master Obfuscator and Distracter-in-Chief wants to start a 6th branch!
I can only conclude that The Donald is running wild trying to divert attention away from some of his self-created demons: Immigration; His war on Canada; His new love affair with Kim Jong Un; A ‘tax reform’ plan which will leave America bankrupt; The deterioration and ultimate disintegration of the American health care system; The ‘Russia thing’; Cyber security intrusions and risks across the entire U.S. public and private sector; Rapidly deteriorating physical infrastructure across the U.S.; Escalating gun violence, the NRA and 21st century gun control; Mueller and his ‘Russian Witch Hunt Hoax’; Stormy Daniels; and Dozens of other critical issues which need to be addressed in an honest, responsible and strategic fashion.
Donald J. Trump has the attention span of a gnat, the moral turpitude of a ‘made man’ and the integrity of a Carnival Barker. Despite that, he is our POTUS, and he continues to dash along his path toward fooling many of the people most of the time.
The Art of the Deal Gone Bad
June 10, 2018
It seems wherever we look, Donald Trump’s appalling behavior sets a new and very low standard upon which to measure the 21st Century version of The Ugly American.
His most recent tweets about Canadian PM Trudeau which followed Trump’s rude early departure from the G-7 meeting are deplorable.
Then, he sent his thugs Kudlow and Navarro off to reinforce the message in harsh, scorched-earth fashion.
Said Navarro on Sunday, June 10, 2018: “All Justin Trudeau had to do was take the win. President Trump did the courtesy to Justin Trudeau to travel up to Quebec for that summit. He had other things, bigger things on his plate in Singapore. And what did Trudeau do? As soon as the plane took off from Canadian airspace, Trudeau stuck our president in the back. That will not stand.”
Trump did a courtesy? Hello? Red meat to the Trump base; An insult to everyone else who lives on Planet Earth.
Donald Trump said what Canada has “done to our dairy farm workers is a disgrace. It’s a disgrace. And our farmers in Wisconsin and New York State are being put out of business, our dairy farmers.”
Trump has gone on to tell us that “Canada charges the U.S. a 270% tariff on Dairy Products! They didn’t tell you that, did they? Not fair to our farmers!”
No, they didn’t because it’s just not true. There is one specific dairy product which has ignited this Tempest in a Teapot, a product which exists in surplus due to overcapacity in the U.S. dairy industry.
The product at the center of the dispute is ultra-filtered milk, which is used to make cheese and yogurt.
It is not governed by any tariffs under NAFTA, because it essentially did not exist when NAFTA was originally negotiated. The U.S. dairy industry has been selling surplus ultra-filtered milk — duty-free — to Canadian processors. And that is part of the root problem for Canadian dairy farmers.
Never heard of ultra-filtered milk? Neither had I.
Ultra-filtered milk (sometimes called diafiltered milk) is generally a byproduct of butter production after the milk fat has been removed to provide the basic ingredient for butter.
It is a sub-classification of milk protein concentrate which is created by passing the remaining low- or no-fat milk under pressure through a thin, porous membrane to separate the components of milk according to their size. Ultra-filtration allows the smaller lactose, water, mineral, and vitamin molecules to pass through the membrane, while the larger protein molecules are retained and concentrated. The removal of water and lactose reduces the volume of milk, significantly lowering storage and transportation costs.
In 2016, the U.S. dairy industry sold about $133 Million of ultra-filtered milk to dairy product producers in Canada, a rounding error on the total trade transactions between the U.S. and Canada.
The federal U.S. Trade Representative reported a U.S. $12.5 Billion trade surplus for goods and services with Canada in 2016, exporting $320.1 Billion and importing $307.6 Billion. (The reported U.S. surplus was $8.4 Billion in 2017).
Meanwhile, the man who affirmed that he would faithfully execute the office of President of the United States, and would — to the best of his ability — preserve, protect and defend the Constitution of the United States has given us clear and irrefutable evidence that his abilities are deficient, inadequate, unacceptable, inferior and dreadful. Or, perhaps he is an untruthful traitor.
Either way, he has put our entire world in danger of a real world war.
walrus51 