Is the so-called Trump Trade about to unravel? Economic analyst Jim Rickards thinks so. The Trump Trade rests on the idea that the president’s proposed policies of lower taxes, infrastructure spending, Obamacare repeal, and decreasing government regulations will juice the economy. As a result, corporate earnings will increase and the stock market will rise with them.
Indeed, with Trump’s election, the stock market took off on a bull run. Between Election Day and March 1, the Dow gained 15%, moving from 18,332.74 to 21,115.55. Some have dubbed it the “Trump Bump.”
Ironically, on the campaign trail, Trump called the stock market a “big, fat, ugly bubble.” He was right. Last spring, Yahoo Finance reported on analysis showing that 93% of the entire stock market move since 2008 was caused by Federal Reserve policy. Nothing has fundamentally changed. But once Trump took office, he immediately started taking credit for the stock market rally. Now we’re seeing signs that the Trump Bump may have – well – hit a bump.
Stocks fell precipitously in late March, and some analysts see it as a sign the Trump Trade is unwinding. The Dow Jones lost 2% in March. It’s lost another 100 points since the beginning of April. Why?
Part of it has to do with increasing geopolitical uncertainty. But it also seems the bloom is beginning to fall off the rose, and many have realized the Trump economic plan may never come to pass. There were hints of impatience even back in February when the market was hitting its peak.
“The fundamental backdrop continues to support us while we wait for tax reform and deregulation,” Wunderlich Securities chief market strategist Art Hogan told CNBC in February. “Investors have been patient, but at some point that patience will run out; just not today.”
However, that day may be looming. As Rickards points out, the biggest stock market nosedive in March occurred during the Obamacare repeal and replace debacle, as many Americans realized Trump may not be as adept at navigating Capitol Hill as he was the Trump Tower boardroom.
“The ramifications of Trump’s loss on Obamacare repeal go far beyond repeal itself,” Rickards said. “That loss has caused Trump to lose his aura as a winner who can succeed by the ‘art of the deal.’ The damage to Trump’s perceived deal-making abilities goes beyond healthcare, and affects his plans for tax revision, fiscal stimulus, trade deals, and other parts of his agenda.”
Rickards said he doesn’t think the Trump economic plan will ever come to pass. In fact, he called it “sheer fantasy.”
He pointed out that the last time Congress passed significant tax reform was in 1986, revealing the difficulty of that process. And it seems unlikely a Republican-controlled Congress will approve a massive infrastructure spending plan. Rickards predicts Congressional gridlock – not the implementation of an ambitious Trump agenda.
“The idea that Congress and the White House can somehow:
- revive Obamacare repeal,
- reform the Internal Revenue Code,
- pass a major spending bill,
- raise the debt ceiling cap, and
- extend the continuing resolution to keep the government going until the budget is complete
- is sheer fantasy,” he wrote.
“It’s more likely that the Congress will descend into partisan fights between Democrats and Republicans, and internal fights among various Republican factions. A government shutdown on April 28 cannot be ruled out.”
This sets us up for a major stock market correction – or as Rickards puts it – the unraveling of the Trump Trade.
“Taken as a whole, we have the set-up for a major stock market correction beginning this summer. The stock market is priced for the perfect Trump policy scenario.
Instead, we have:
- delay, and
- declining growth.
The market’s fantasy view might persist for a few more months, especially since the market misinterprets [Foreign] Fed rate hikes as a sign of growth. (That’s backward. Growth is an indicator of rate hikes, not the other way around).”
We’ve known all along at some point the stock market bubble will pop. That day may be sooner rather than later. Now may be a good time to diversify your portfolio with precious metals. Buying gold and silver will help protect your wealth during these uncertain times.
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