Essential Economics for Politicians

Where, exactly? Economy will crash? Where does it say that?
What Happens to the Markets if Donald Trump Wins?
Image

The Trump store on Fifth Avenue. Uncertainty about what a Trump victory might mean for the markets has fueled speculation.CreditDolly Faibyshev for The New York Times


By Andrew Ross Sorkin



  • Oct. 31, 2016
Assume, for a moment, that Donald J. Trump wins the presidency.

Some readers of this column will shudder at the thought and might even stop reading now. Others in the business world will beam, like Peter Thiel, the Silicon Valley entrepreneur.

But what exactly happens the day after? To markets? To the economy?

The conventional wisdom is that, right off the bat, the stock market would fall precipitously. Simon Johnson, the Massachusetts Institute of Technology economist, posited that Mr. Trump’s presidency would “likely cause the stock market to crash and plunge the world into recession.” He predicted that Mr. Trump’s “anti-trade policies would cause a sharp slowdown, much like the British are experiencing” after their vote to exit the European Union.

In explaining his prediction, Professor Johnson wrote that Europe’s economy is so fragile that “Trump’s trade-led recession would tip Europe back into full-blown recession, which would likely precipitate a serious banking crisis.” After that, he continued: “If this risk were not contained — and the probability of a European banking debacle is already disconcertingly high — there would be a further negative spiral. Either way, the effects on emerging markets and all lower-income countries would be dramatic.”

Professor Johnson’s view may be a bit hyperbolic, but to one degree or another, his pessimism is shared by many economists across Wall Street, from Citigroup to Goldman Sachs. Each cites a different set of reasons the markets will fall if Mr. Trump wins.

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But is the conventional wisdom right?

Naturally enough, investors and analysts hate uncertainty. Hillary Clinton largely represents the status quo. Mr. Trump is more like Forrest Gump’s “box of chocolates,” as Peter Boockvar, chief market analyst at The Lindsey Group, an economic advisory firm in Washington, put it. “You never know what you’re going to get.”

In all likelihood, a Trump victory would lead to a swift, knee-jerk sell-off. Many investors will choose to sell stocks and ask questions later.

But in the days and weeks after a Trump victory, among investors who cull their portfolios carefully, the decision about buying and selling will be company by company, industry by industry, currency by currency and so forth.

In truth, it’s impossible to predict how the markets would settle into a Trump presidency, despite the speculation on all sides. In all likelihood, it will take time for investors to truly make sense and “math out” how his policies would affect the economy. Yes, the Mexican peso would most likely fall on fears of a trade fight — Goldman Sachs says it could fall by as much as 25 percent — and shares of some insurance companies could tumble on the uncertainty of what would happen if Obamacare were repealed.

But oil companies and other sectors of the traditional energy industry would be likely to rally given Mr. Trump’s plan to repeal regulations. (Renewable energy companies would fall.) Health care and biotechnology stocks, which have been driven down over concerns that Mrs. Clinton will seek greater regulation and possibly even price controls, might also pop.

If Mr. Trump wins, two companies that seem poised for an immediate pummeling are AT&T and Time Warner, given how much Candidate Trump has objected to their recently announced merger plan. AT&T, by the way, also happens to have a huge business in Mexico.

The biggest test for the stock markets might be pegged to the future leadership of the Federal Reserve. “There is much more uncertainty regarding who Trump might nominate, though he has made it clear he would not renominate Chair Yellen,” Goldman Sachs wrote in a note to clients. “His criticisms of Fed policy are somewhat ambiguous; he has suggested rates have been left too low for too long, but also warns of negative consequences of rate hikes. We would expect that financial markets would view a Trump victory as having slightly hawkish implications, since it would make a change in what many view as a dovish-leaning Fed leadership much more likely.”

A handful of economists have suggested that despite all of the promises made by the candidates, the outcome of the election might not actually decide what direction the markets will take.

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Where, exactly? Economy will crash? Where does it say that?
I am pretty sure you aren’t really as dumb as you act.
And The Hits Just Kept Coming: The Greatest (False) Predictions Of 2017


Since the day Donald Trump was elected president in November of 2016 the Dow Jones industrial average has risen by some 35%, making the last 14 months one of the greatest bull-market runs in history.

Some $6 trillion of wealth has been created for Americans — which is very good news for the 55 million Americans with 401k plans, the 25 million or so who have IRAs, and another 20 million with company pension plans and employee stock ownership plans.










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The left was certain that exactly the opposite would happen with a Trump presidency. To borrow a recent phrase from House minority leader Nancy Pelosi, Trump's policies would cause "Armageddon" for family finances, the American economy, and the stock market.


Keep all this talk of economic meltdowns and financial market doomsday in mind the next time you hear a news commentator say that "most economists" believe that Trump's policies won't work, or "mainstream economists" believe Trump doesn't know what he is doing. When it comes to Trump, his critics so far have almost all been not just wrong, but dead wrong.

Here are some of the greatest hits, gleefully compiled from the media over the past 18 months or so.

"Donald Trump's first gift to the world will be another financial crisis." Headline in the U.K. Independent. "(He) gives every impression that he will soon be hustling America — and possibly the entire world — in the direction of another catastrophic financial crisis." Same article.

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"I have no stocks. I advise people not to invest in the stock market, not now. Way too dangerous." Film maker Michael Moore, August, 2017.

"It really does now look like President Donald J. Trump, and markets are plunging. When might we expect them to recover? A first-pass answer is never… So we are very probably looking at a global recession, with no end in sight." Paul Krugman of the New York Times the day after the election.



No Hidden Agenda: Get News From A Pro-Free Market, Pro-Growth Perspective


"Trump's domestic policies would lead to recession." Former GOP presidential candidate Mitt Romney, March 2016.

"If Trump wins we should expect a big markdown in expected future earnings for a wide range of stocks — and a likely crash in the broader market (if Trump becomes president)." Eric Zitzewitz, former chief economist at the IMF, November 2016.

"Under Trump, I would expect a protracted recession to begin within 18 months. The damage would be felt far beyond the United States." Former Clinton and Obama chief economist Larry Summers, June 2016.

"Trump would likely cause the stock market to crash and plunge the world into recession." Simon Johnson, MIT economics professor, in The New York Times, November 2016.

"Citigroup: A Trump Victory in November Could Cause a Global Recession", Bloomberg Financial News headline, August 2016.

"I have never seen an election in which the markets have so strong of a view as to what was good and bad about the outcome. And what you saw was the markets rallying yesterday because of the FBI thing on Sunday. And the reason I mention this particularly is if the likely event happens and Trump wins you will see a market crash of historic proportions, I think…The markets are terrified of him." Steve Rattner, MSNBC economics guru and former Obama Car Czar, October, 2016.

"Wall Street is set up for a major crash if Donald Trump shocks the world on Election Day and wins the White House. New research out on Friday suggests that financial markets strongly prefer a Hillary Clinton presidency and could react with panicked selling should Trump defy the polls and deliver a shocking upset on Nov. 8." Ben White, Politico, October 2016.

And finally, and most unambiguously:

"A President Trump Could Destroy the World Economy", headline of Washington Post editorial, October 2016.

Just for the record, the world economy is as strong today as it has been in at least a decade, as the Wall Street Journal recently reported. Now the left has to engage in logical contortions to explain how the red hot American economy is really a result of Obama policies — every which one Trump has systematically been at work dismantling.

As I've acknowledged many times, the roaring stock market and the surging rate of growth of the economy (which is now estimated at 3.5%, up from 1.6% in Obama's last year in office), could turn against Trump in the months and years to come.

It's quite possible that the market exuberance over Trump's deregulation and tax cut policieshave run too far ahead, though I'm predicting 3% to 4% growth for 2018 with the Trump tax cut kicking in.
 

messy

PREMIER
I donʻt expect you to understand banking when you donʻt understand simple finance terms like CLTV, ROA and ROE. Run along poser.
You’re a college sophomore-level economist. With a federal government paycheck.
When you buy and sell houses and stocks, let me know what your returns and net profits are. These are things you don’t understand. Like I have told you, son, you play with letters when you should be dealing with numbers.
 
You’re a college sophomore-level economist. With a federal government paycheck.
When you buy and sell houses and stocks, let me know what your returns and net profits are. These are things you don’t understand. Like I have told you, son, you play with letters when you should be dealing with numbers.
Q.E.D.
 
What Happens to the Markets if Donald Trump Wins?
Image

The Trump store on Fifth Avenue. Uncertainty about what a Trump victory might mean for the markets has fueled speculation.CreditDolly Faibyshev for The New York Times


By Andrew Ross Sorkin



  • Oct. 31, 2016
Assume, for a moment, that Donald J. Trump wins the presidency.

Some readers of this column will shudder at the thought and might even stop reading now. Others in the business world will beam, like Peter Thiel, the Silicon Valley entrepreneur.

But what exactly happens the day after? To markets? To the economy?

The conventional wisdom is that, right off the bat, the stock market would fall precipitously. Simon Johnson, the Massachusetts Institute of Technology economist, posited that Mr. Trump’s presidency would “likely cause the stock market to crash and plunge the world into recession.” He predicted that Mr. Trump’s “anti-trade policies would cause a sharp slowdown, much like the British are experiencing” after their vote to exit the European Union.

In explaining his prediction, Professor Johnson wrote that Europe’s economy is so fragile that “Trump’s trade-led recession would tip Europe back into full-blown recession, which would likely precipitate a serious banking crisis.” After that, he continued: “If this risk were not contained — and the probability of a European banking debacle is already disconcertingly high — there would be a further negative spiral. Either way, the effects on emerging markets and all lower-income countries would be dramatic.”

Professor Johnson’s view may be a bit hyperbolic, but to one degree or another, his pessimism is shared by many economists across Wall Street, from Citigroup to Goldman Sachs. Each cites a different set of reasons the markets will fall if Mr. Trump wins.

ADVERTISEMENT

But is the conventional wisdom right?

Naturally enough, investors and analysts hate uncertainty. Hillary Clinton largely represents the status quo. Mr. Trump is more like Forrest Gump’s “box of chocolates,” as Peter Boockvar, chief market analyst at The Lindsey Group, an economic advisory firm in Washington, put it. “You never know what you’re going to get.”

In all likelihood, a Trump victory would lead to a swift, knee-jerk sell-off. Many investors will choose to sell stocks and ask questions later.

But in the days and weeks after a Trump victory, among investors who cull their portfolios carefully, the decision about buying and selling will be company by company, industry by industry, currency by currency and so forth.

In truth, it’s impossible to predict how the markets would settle into a Trump presidency, despite the speculation on all sides. In all likelihood, it will take time for investors to truly make sense and “math out” how his policies would affect the economy. Yes, the Mexican peso would most likely fall on fears of a trade fight — Goldman Sachs says it could fall by as much as 25 percent — and shares of some insurance companies could tumble on the uncertainty of what would happen if Obamacare were repealed.

But oil companies and other sectors of the traditional energy industry would be likely to rally given Mr. Trump’s plan to repeal regulations. (Renewable energy companies would fall.) Health care and biotechnology stocks, which have been driven down over concerns that Mrs. Clinton will seek greater regulation and possibly even price controls, might also pop.

If Mr. Trump wins, two companies that seem poised for an immediate pummeling are AT&T and Time Warner, given how much Candidate Trump has objected to their recently announced merger plan. AT&T, by the way, also happens to have a huge business in Mexico.

The biggest test for the stock markets might be pegged to the future leadership of the Federal Reserve. “There is much more uncertainty regarding who Trump might nominate, though he has made it clear he would not renominate Chair Yellen,” Goldman Sachs wrote in a note to clients. “His criticisms of Fed policy are somewhat ambiguous; he has suggested rates have been left too low for too long, but also warns of negative consequences of rate hikes. We would expect that financial markets would view a Trump victory as having slightly hawkish implications, since it would make a change in what many view as a dovish-leaning Fed leadership much more likely.”

A handful of economists have suggested that despite all of the promises made by the candidates, the outcome of the election might not actually decide what direction the markets will take.

ADVERTISEMENT





More questions there than predictions. Is that your best effort?
 
I make much more in passive income every year than you do from your job. Stocks, bonds and rent.
Tell me what else you know about money that I don't, fool.
I keep waiting for Turdacious to call you out for bragging about your income. He called me out once because he said I was boasting about something. But since you two are politically aligned that must give you a free pass... lol!
 

messy

PREMIER
I keep waiting for Turdacious to call you out for bragging about your income. He called me out once because he said I was boasting about something. But since you two are politically aligned that must give you a free pass... lol!
I only do it to Iz, who always talks like he's the econ genius...
 
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