In general, since forever til 8th November 2016, the fundamental principles for economic growth were political stability, clear regulations and openness.
Trump’s America First made it clear that the United States is planning to change its status from the outward-oriented to the inward-oriented nation.
Donald Trump’s unpredictability and diametrically opposed statements have set the unprecedented level of lack of clarity in terms or regulations.
Meanwhile, Trump’s numerous racist statements that he made with enviable consistency served as a solid confirmation that the United States openness is likely to shrink.
But for some reason, a choir of experts said that fundamentals point out clearly that the economy is going to grow.
What I have learned so far is that whatever sounds illogical is likely to be false. Because laws of logic are the only legislation which has not changed throughout millenniums.
Therefore, expressed optimism regarding economic growth is difficult to explain.
According to Harvard Business Review. global financial assets (which more or less represent the supply of capital invested or available for investment in the real economy) grew at an increasingly rapid pace—from $220 trillion in 1990 (about 6.5 times global GDP) to some $600 trillion in 2010 (9.5 times global GDP). We project that by 2020 the number will have expanded by half again—to about $900 trillion (measured in 2010 prices and exchange rates), or more than 10 times projected global GDP.
Financial Times reported that top-rated US companies have amassed 2.4 times net debt compared with their earnings before interest, taxes, depreciation and amortisation — a scrutinised investor metric. This is the highest level since 2002 and the fourth consecutive quarter it has increased, says Bank of America. “Leverage, if not at all-time highs, is close,” says Monica Erickson, a portfolio manager with DoubleLine Capital.
According to Financial Times, credit ratings have been dragged lower by the boom in debt issuance. Two decades ago, more than 66% of the companies rated by S&P held an investment grade rating; today it is 45%. The percentage of groups with an A or higher rating has roughly halved over that period. Now only two US companies — Microsoft and Johnson & Johnson — carry the highest triple-A opinion.
“Institutions that would traditionally invest in money market funds are starting their own trading desks,” says Michael Saunders, who heads investments and trading within BNP Paribas’s securities lending business. “The role of treasurer is evolving into a liquidity manager.”
Hans Tallis, a managing director with Wells Fargo who advises companies on investments and market risk, notes that after some companies found success buying corporate debt, others followed suit. “They tend to exhibit herd behaviour,” he says. The trend has both fed on and driven, lower corporate borrowing costs. Highly-rated companies can borrow in the US bond market at roughly 3.1%, according to Bank of America.
Financial Times quoted a New York banker who helps sell corporate debt: “[Companies] are a big component of the buyer base, particularly in the short end. … Others used to be purely Treasury focused but have since moved down the credit spectrum.”
While financial advisers applaud such diversification, companies have made themselves more vulnerable to an uptick in rates. If interest rates rise, corporate borrowing costs will climb in tandem. At the same time, they could see losses on the bonds they own.
According to The Washington Post, Stephen Moore, who served as an economic adviser to Trump during the campaign and has cheered the new tax law, said Monday that the stock market is still up sharply from the day Trump was elected in 2016. But he conceded that it is unclear whether the recent plunge is the beginning of a downturn.
TRUMP: “In the ‘old days,’ when good news was reported, the Stock Market would go up. Today, when good news is reported, the Stock Market goes down. Big mistake, and we have so much good (great) news about the economy!”
That simplistic statement shows a misunderstanding of the relationship between economic indicators and the market. It’s not true that a positive development for the economy necessarily means a rise in stocks. The opposite can happen, depending on what sort of chain reaction is anticipated by investors.
The Republican tax overhaul, which the self-proclaimed “king of debt” Trump signed into law in December, lowered the corporate tax rate to 21 percent from 35 percent. The Congressional Budget Office estimated the tax bill will increase the deficit by $1.5 trillion over the next decade and by $136 billion in fiscal 2018.
Trump has tweeted about the stock market at least 60 times since his election in November 2016. The president has explicitly tied his administration’s actions to stock market records but did not mention markets during a public appearance as they plunged on Monday. Trump has mentioned stock market success much more frequently than his predecessors.
The Washington Post says that people have all but lost count of the number of times President Trump has taken credit for the roaring stock market. He has tweeted about it. He has boasted about it. He has crowed about the growth of retirement accounts. He talked up the market in his State of the Union address.
He has claimed it is all because of him. Literally. “The reason our stock market is so successful is because of me. I’ve always been great with money, I’ve always been great with jobs, that’s what I do,” the president said in November.
It seems suspicious that some experts support Donald Trump’s statements regarding so-called bright future of stock market as they obviously do not consider a number of facts suggesting otherwise.
To summarise, these facts are as follows:
- Fading the US leadership role
- Deteriorating relationships with long-standing US allies
- Withdrawal from major international treaties
- “America First”, which suggest fewer business opportunities for American companies.
- Friction between the US and the rest NATO members
- Falling number of international tourists visiting the country
- Rise of racism
- Deteriorating infrastructure
- Trump-Russia investigation
- Republicans-Democrats faceoff
- Increasing polarization in the society
- Growing inequality gap
- Harmful fiscal policies
- Projected three interest rate hikes in 2018. But with new tax cuts in place, Federal Reserve opt for more aggressive policy.
- Ballooning household and government debts.
And since Trump has never stopped promoting the stock market even after it crashed, the ultimate question is whether Donald Trump has vested interest?
The top 10% of American households, as defined by total wealth, now own 84% of all stocks in 2016, according to a recent paper by NYU economist Edward N. Wolff.
We know that many rich individuals and businesses supported Donald Trump during his election campaign. It is clear that political donations have little or nothing to do with charity. It is pure business whereby rich people pay and elected politicians make sure that wishes of those who paid come true.
Is it possible that Trump’s continuous attempts to drive market upwards represent his part of “the agreement”? Or, is it about his own (personal) interest?
In January 2017, Donald Trump said he would maintain ownership of his global business empire but hand off control to his two oldest sons while president, an arrangement that watchdogs said would not prevent conflicts of interest in the White House.
According to Reuters, ethics experts said the arrangement did not go far enough. “Mr Trump’s ill-advised course will precipitate scandal and corruption,” said Norman Eisen, a former White House ethics adviser under Democratic President Barack Obama.
Since Trump has never disclosed his tax returns, it might not be possible to establish whether he does own stocks (others than he might have mentioned previously) and if yes, how big his investments are?
By now, there is no doubt that the only measurement Donald Trump applies to absolutely everything is money. If personal interest is not an issue, it could be exceptionally difficult to explain his continuous and strangely consistent statements regarding the stock market.