Trillion Dollar Tweets, RIP

Here’s an actual Bloomberg headline which shows just how fake the “markets” have become…

Stock Traders Wait Anxiously for a Trump Tweet to Reverse Rout

three weeks after the president rekindled the trade war with China, sending the Dow into a 4% tailspin, traders are growing increasingly impatient for their dose of White House succor. Where is it?

There is literally no incentive for the Federal Reserve to intervene after a 4% correction. They’ve exited their market distorting QE efforts, already announced QT will end in about a quarter & now President Trump owns the stock market narrative.

A big part of the purpose of the Trump tax cuts was to let the economy run hot to where wages were improving & he had a big cushion he could use to put the screws to China to force a more favorable trade deal. However the Federal Reserve used the economic strength to justify lifting rates.

Many states & local governments also lifted income taxes to fund underfunded pension plans. In many areas the state & local increases more than offset the Federal rate declines.

So now there is rising input costs, disrupted supply chains, net tax rates that are flat to up, faltering stock markets, & inverted yield curves. What’s more, the Federal Reserve engaging in QT & lifting rates has been a large part of why the stock market has went nowhere over the past year and a half. So that means lower capital gains driven tax revenues, which when combined with higher interest expense on servicing the debt have blown out the deficit.

It almost feels as if the Federal Reserve prefers China dumping Ozone-depleting chemicals into the environment & supply chains with Chinese re-education camp labor in them versus the prospects of sustainable livable wages for the ordinary American.

That view is perhaps cynical, but a decade ago it was the financial economy that was saved while the actual economy was allowed to burn to the ground.

And now that Trump owns the market, the bubble fomenting arsonists at the Federal Reserve would prefer to remain in the background & wait until such a crisis emerges that they can don the firefighting suit & claim they saved the world.

So the market probably has at least another 10% to the downside before there is any serious jawboning to presage any further non-market interventions.

Leave a comment

Your email address will not be published. Required fields are marked *