There’s a Trump bubble in the stock market, and it’s going to pop.
“Pop” might not be the best word. But we’ll get there. First, let me set the stage.
Yesterday the Wall Street Journal reported that special counsel Robert Mueller has impaneled a grand jury in his investigation into the Trump campaign’s conspiracy with Russia. What’s more, this grand jury has reportedly already issued subpoenas directly related to the Manafort/Kushner/DJTJ meeting with Russian agents at Trump Tower. What’s more, Donald Trump himself dictated the lie that his son used to cover up the reason for the meeting (to get dirt on Hillary Clinton from the pro-Trump Russian government). What’s more, Vox then reported that, back in May, acting FBI Director Andrew McCabe told senior FBI officials to be prepared to testify in a criminal case against Donald Trump for obstruction of justice. According to senior FBI officials, this case is much stronger than people expect.
So put all of those things together, then note this: Grand juries are impaneled for criminal cases, not counterintelligence cases. Considering Trump was personally and directly involved in this cover-up, not to mention all the other cover-up bullshit he’s tried, it’s more likely than not that the President of the United States is now the subject of an FBI criminal investigation into obstruction of justice.
That’s a “wow” moment. And the markets reflected it, albeit briefly. Yesterday afternoon CNBC reported that the stock market fell at the news that Mueller had impaneled a grand jury. So much for Trump’s final positive talking point, I guess. But what’s important is that this was the first time markets reacted directly to news related to the Russia investigation. The reaction was, of course, negative.
This reminded me: Oh, yeah. Duh. The markets are going to beat Mueller.
That is, the news yesterday was relatively small. But once it seems certain that Donald Trump will actually go down, the markets are going to react in a big way. This could be gradual, or it could trigger a panic, but they’re almost guaranteed to go down before Trump does. It could be a moderately bad experience, or it could be very bad indeed. Choose your own adventure.
Like you, probably, I don’t savor reading about the economy, so I’m going to try to write about it in a loose way you’ll want to read. We’ll stick it out together.
First, though, what the fuck’s the Trump Bubble?
Gotta get this out of the way: I know markets are inscrutably complicated. If they were indeed reacting to Mueller yesterday, my reasoning here is fine. If they’re not, then throw it all out. My point isn’t that we should all panic right now. I just want to remind us that Trump’s fall is going to be a massive global event that will shake global markets. Now, have global markets already priced in unprecedented instability at the top of the world’s biggest economy? Maybe. I can’t buy it. Such an adjustment would be pretty huge, and we’ve seen no real sign of it.
And sure, you could say markets would be the same with or without Trump. But we’re with Trump, and being without him won’t be bang-bang: Trump —> no Trump. Trump’s fall will be a process, and it will be drawn-out, painful, and, most importantly, totally fucking crazy. And though Trump likes to brag about the stock market’s record high, it’s been on a steady (and unsustainable) climb for eight years now. So though he can’t claim to have driven it up, we all know he can sure as shit drive it down.
Or worse, drive it crazy.
Now onward, good people, into the Trump bubble.
The Trump Bubble
The Trump Bubble isn’t like the tech bubble or subprime mortgage bubble. Those things drove the markets artificially high, then they corrected and crashed. Trump isn’t driving markets artificially high. In this bubble, markets are artificially normal. They’re not going bonkers when by all accounts they should: Markets hate uncertainty, and Donald Trump is the most powerful vector of uncertainty the world has seen in a while.
That’s the Trump Bubble in a nutshell: “For some reason nothing batshit crazy is happening even though Trump is president.”
The other thing: We’re due for a crash, anyway. Analyst Peter DeGraaf pointed out that the U.S. suffers a “financial calamity” every seven years or so. The last one was the great recession of 2008, about nine years ago. (Not, as this chart claims, the 2015 “flash crash”; just look at the scale.)
I’m not smarter than Wall Street. The markets know Trump is a lame duck. He can’t get anything done. And Q2 earnings are up 9% y-o-y. But the thing I’m talking about is basic stability.
U.S. markets have been up based (in part) on the optimism that Trump & the GOP will be able to pass pro-business policy, e.g., tax cuts. Just look at who Trump has hired: Five Goldman-Sachs alums work in the White House (now four, after Scaramucci). That includes the two Steves, Bannon and Mnuchin (Secretary of the Treasury). The National Economic Counsel director used to run Goldman. The Commerce Secretary, Wilbur Ross, is an investment banker worth $2.5 billion. The CEO of Exxon is now our Secretary of State. Trump’s cabinet is probably the wealthiest in history. On top of this, Trump’s running the show, and the GOP in Congress is dying to give tax cuts to those besot-upon corporations who so desperately need the extra dough.
Now, Trump has been a wild card since the morning of November 9, but corporations and bankers have been betting he (read: the people at the levers) will get something for them (or could be manipulated/corrupted to their benefit). The optimism of a pro-business U.S. has been one factor (among others) keeping the markets level, perhaps even one of the key factors to their continued climb. People are literally betting money on the odds the U.S. government won’t fall apart before they can turn a nice profit.
Yesterday, however, we were reminded that at some point they’re going to have to change that bet. This could mean that the mere possibility that Trump might go down could trigger a market fall. At the very least, it will trigger a negative correction. If civil unrest follows, as it almost certainly will, things are going to get weird, indeed. And then other countries will react to the news on their own, and away we go.
This means that the election of Donald Trump, even though it happened months ago, could still be a “black swan” type of event, something that comes out of nowhere.
The Needle And The Damage Done
Here’s the big point: Global markets need political stability in the United States. Right now they’re obviously betting on that. We don’t know what will happen if there’s massive instability, which is looking more likely by the day. That’s why it’s important to mark yesterday: The market fell at the Mueller news.
But: the market ended up for the day. (“Up” by +0.04%.) My point isn’t that things are going to come tumbling down now, nor that the needle will prick and it’ll all happen at once. That’s not out of the question, of course: If some massive news breaks, or if Trump does something completely crazy, we could see the “pop” phenomenon. If we have enough of a ramp, though, things might adjust and we’ll correct downwards with a relative grace and reason. But this isn’t the age of reason. And my point is that yesterday we got a glimpse of the needle.
Economists do wonder if there’s a bubble growing now. The market is towering and we’re overdo for a correction. But we don’t ever see crashes coming. That’s why they happen in the first place: We’re blind to bubbles. But I would bet that yesterday, the bubble, if bubble there be, isn’t in housing. And it isn’t in student loans. It isn’t in consumer spending or in fossil fuels, nor is it in liquidity or cryptocurrency or interest and exchange rates. No: Donald Trump is the bubble. Donald Trump is the subprime mortgage.
We can’t see it if we’re looking for a typical bubble: Artificial growth. These aren’t typical times, and this isn’t a typical bubble: Things are artificially normal.