Flying On A Wing And A Tweet

I never believed that the Great Disrupter made any sense on the fiscal issues. In fact, in Trumped! I called out his blather about rebuilding defense, slashing taxes and mounting a giant infrastructure program as far more reckless than Ronald Reagan’s 1981 “riverboat gamble.”
I also said back when the book was published that whatever he had in mind would quickly end up smothered in the Swamp.
I do not claim clairvoyance, but I am pretty sure that a “gong show” is exactly what is unfolding. On CNBC recently I described it as a “trainwreck from the Oval Office,” meaning a furious burst of activity which is sowing animosity, confusion, doubt, discord and pushback throughout the Imperial City.



There will be no one at home in the Eccles Building when the Wall Street casino finally explodes. Yellen and her sidekick Stanley Fischer will be approaching their January 2018 expiration dates, while any Trump appointees who might have been named by then will be stumbling around all over the lot.
It boils down to the fact that most of the possible nominees to the Fed who could pass muster with the Goldman praetorian guard in the White House (Gary Cohn, Steve Bannon and Steve Mnuchin) are closet Keynesians.
That’s essentially what you would get with Stanford economics professor John Taylor’s ridiculous money supply rules, which are just another version of printing your way to prosperity while keeping honest price discovery on Wall Street under the Fed’s lock and key.
Needless to say, under the circumstances dead ahead the boys and girls and robo machines on Wall Street will be in a world of hurt. They have been conditioned and programed, as the case may be, to operate as if the Fed always has their back. Soon, however, what they will experience is a piercing monetary cacophony ringing in their ears.
Stated differently, the actual Trump Recession that is sure to follow hard-upon the phony Trump Rally will finally destroy the credibility of Greenspan-style monetary central planning. And without monetary fireman deploying the hoses and ladders, there will be no stopping a long-suppressed inferno of honest “price discovery” in the financial markets.
The reason the coming break will be so violent and traumatic is that the stimulus junkies who are left on Wall Street will be taken totally by surprise. I believe, of course, that most of what appears in the mainstream financial press, such as the happy talk offered by Reuters, Bloomberg and MarketWatch, is likely generated by robo-writers.
Yesterday’s missive from the latter Murdoch organ, however, is so absurd that it must have actually been written by an actual carbon unit named Sue Chang:

The juggernaut of optimism unleashed by President Donald Trump’s presidency will continue to steamroll its way through the market, paving the way for stocks to carve out new highs and keep hungry bears at bay.

Wall Street is fairly upbeat on the positive impact of lower taxes and regulatory reforms promised by Trump, even if details remain murky. But despite the lack of clarity, enthusiasm for the president’s agenda has not waned with at least one prominent strategist suggesting that the so-called Trump rally is only beginning.

Binky Chadha, chief strategist at Deutsche Bank, predicted that stocks have much further to go on the back of proposed tax revisions with the S&P 500 poised to hit 2,600 by the end of the year.

It’s not hard to understand why Sue Chang is still posting. Her copy is worth exactly what readers pay for it — essentially nothing.
But then again, it is also not surprising as to who is paying Binky Chadha to issue such preposterous claptrap. After all, Deutsche Bank did not become a $2 trillion mountain of insolvency because it is populated with sobriety about the fantasyland that has replaced what were once functioning financial markets.
That was a long time ago, of course, and two-way markets are not even dimly remembered by today’s crop of feckless punters. But you would think they might have heard of March 2000 and October 2007 owing to some momentary flashback of reality that occasionally penetrates the twittersphere that passes for today’s market knowledge.

In the event they’ve forgotten, here is a reminder. During about 90 trading days between mid-November 1999 and March 27, 2000, the NASDAQ 100 soared by almost exactly 100%. There was virtually nothing speculators wouldn’t believe about their capacity to defy financial gravity.
Yet exactly one year from the peak shown below, the index was down by 63% and there was sheer carnage in the trading accounts of homegamers who had chased the madness.
And buying the dips didn’t help. By the end of September 2002, the NASDAQ-100 had lost83% of its value. It then took 16 years for the index to regain its value in nominal terms, and still remains down by 30% in real dollars of purchasing power.
Now comes word that the S&P 500 has reached a value of $20 trillion for the first time in history. Apparently there is some kind of race underway to determine who is more clueless — the day traders and algos who have bought into this lunatic number or the Trump White House which will soon reach its own $20 trilliondebt milestone.
If the Donald had an economic team in place, someone might have at least informed him about that the impending debt ceiling freeze closes in upon everything he is happily tweeting about.
That is, it seems as if the 12-month rolling average of government receipts has now crossed over into negative territory on a year-over-year basis. The history of crossing this particular “zero-bound” means one thing: recession.
Worse still, they might have also told him that those components of Federal revenues that reflect the leading edge of the U.S. economy are flashing even more urgent warnings. Income tax collections are now off by 0.3% from year ago and corporate receipts down by a thumping 12%.
As I often make clear in my commentary about the ‘fake jobs” reported by the Bureau of Labor Statistics (BLS), the U.S. Treasury’s cash box doesn’t lie. It is not modeled, molded or manipulated by seasonal maladjustments or fictional birth/death factors. Instead, day-in and day-out upwards of 170 million taxpayers and their employers pay in on what they earned in the amounts of what they owe.
And self-evidently, both of the latter are shrinking.
While no one appears to be paying attention to the most important piece of “incoming data” that is now on the radar screen, I am confident of one thing.
When the oncoming recession becomes undeniable and the Congress remains bogged down in the GOP chaos of Obamacare repeal, replace, repair, recant and retreat; and with a deficit ceiling showdown looming and with neither a budget resolution for FY 2018 nor the attached reconciliation instruction for Trump’s “phenomenal” tax plan anywhere evident, there will be a tweet storm like no other.
The Fed, the Congress, Wall Street and foreigners near and far will become the object of the Donald’s undivided wrath. The work of the Great Disrupter will indeed commence with malice aforethought.
In that event, the last Big Short will pale by comparison. So let me say it again. There is no better time than today to get started selling the bubble of a lifetime.
Regards,
David Stockman