The Same Old Trump
Why Wall St. ignores the bluster
THE economy is finally picking up real steam, wages are starting to rise and stock prices are up — those are undeniable facts, and they are largely owed to the economic policies of President Trump.
Some more undeniable facts: If Trump really does believe what he says and starts a trade war with China because it’s “good” for the economy, or continues to hammer Amazon’s stock price over a belief the company is ripping off the Post Office and doesn’t stop his inane tweets about anything that pops into his head, he risks squandering all those economic gains — and his reelection.
That was the message from the wildly gyrating stock market on Wednesday, when investors were initially so spooked by Trump’s clear economic naivete that it looked like we were headed for another 500-point-plus drop.
Then came the new White House economic adviser, longtime free-market evangelist Larry Kudlow, to remind investors of Trump’s tax cuts and deregulation and to assure them that the president isn’t actually starting a trade war with China, just negotiating for better terms. And by the way, Amazon did cut a sweetheart deal with the Post Office, even if Trump’s numbers are off.
And presto, the market rout turned into a rally — by one estimate, only the third time in history the Dow reversed a 500-point loss to end the day in the green.
The big question is how long investors will ignore Trump’s absurd economic statements, whether it’s the outcome of a trade war (never good) or whether Amazon is actually screwing the US taxpayer (it isn’t).
The answer, according to the Wall Street types with big bucks in the game: Investors will keep cutting Trump slack as long as his actions don’t match his words.
As evidenced by Wednesday’s market swings, most investors I speak to believe Trump’s actions will never match his words, and they know this based on years of experience.
Wall Street types, it should be noted, have a long and fraught relationship with Trump dating back from his days as a real-estate investor in the 1980s, then a casino op- erator and later branding manager.
Most major banks stopped dealing with him after he stiffed them on loans and later junk bonds on his failed casinos, and Trump’s career as a major player in financial circles was largely over until he remade himself as a reality-show star and branding czar — putting his name on everything from buildings to pseudo-universities to men’s cologne.
By the time the early 2000s rolled around, most of Wall Street had learned to deal with Trump in a pretty straightforward way: If you were going to lend him money (many banks still wouldn’t) make sure the terms were in your favor, and divide by half whatever he said or promised.
“We used to laugh whenever Trump said one of his projects was over-sold,” said one investor who frequently dealt with him on Trump-branded buildings. “We knew he was blowing smoke and we always took that into account.”
The markets are taking a similar approach to Trump now. Yes, a trade war is bad, and the trade deficit is the wrong metric to obsess over because the country has run huge deficits during times of massive economic growth.
That’s why when Trump tweets something absurd about trade, he sounds like he doesn’t understand Econ 101 — and the markets start selling off.
But then there’s the other side of the coin: Maybe this really is all a negotiating ploy to get China to back off of its worse trade policies and stop stealing our intellectual property, and Trump can’t be crazy enough to start a trade war that will crush US manufacturers and farmers who sell stuff to its burgeoning middle class and reverse all the gains of the stock market he loves to tout.
That is, investors aren’t going on a year’s worth of experience with Trump; they’re dealing in decades. And they are pricing in the fact that he’s a blowhard. Believe it or not, at times like this that fact actually reassures them.
It can be nerve-racking to be sure, but then again, Trump wouldn’t be the first occupant in the White House to blow smoke to achieve a policy goal. Remember “if you like your health-care plan, you can keep” it? You know how that turned out.
At least for now, investors believe the BS coming from the current president is much more palatable than what they’ve had shoveled at them the past eight years. For them, the unpredictable Trump is pretty predictable.