The Fog of Trump

By David Stockman  |  June 3, 2019

Chaos was the law of nature; Order was the dream of man

– Henry Adams,
The Education of Henry Adams (1918)

“Sell in May,” indeed…

The S&P 500 Index reached a new “Peak Trump” on May 1, 2,954.13. It closed May 31 at 2,752.06, down 7% for the month.

Here are two important things to know as we begin to talk about What Comes Next…

  • The American System – political and economic – has been hijacked by statists and central planners.
  • These “policymakers” operate on self-serving groupthink that defies hard rationality and common sense.

And that’s to say nothing of the Tweeter-in-Chief, who deserves his own special category.

The Orange Swan has been at it again, setting a June 10 deadline for Mexico to “remedy” the problem at the border or have its exports to the U.S. subject to a 5% across-the-board tariff.

And, over the weekend, he linked his Trade War with his Border War:

Washington Post got it wrong, as usual. The U.S. is charging 25% against 250 Billion Dollars of goods shipped from China, not 200 BD. Also, China is paying a heavy cost in that they will subsidize goods to keep them coming, devalue their currency, yet companies are moving to…..

….U.S. in order to avoid paying the 25% Tariff. Like Mexican companies will move back to the United States once the Tariff reaches the higher levels. They took many of our companies & jobs, the foolish Pols let it happen, and now they will come back unless Mexico stops the…..

…travesty that is taking place in allowing millions of people to easily meander through their country and INVADE the U.S., not to mention the Drugs & Human Trafficking pouring in through Mexico. Are the Drug Lords, Cartels & Coyotes really running Mexico? We will soon find out!

That storm of incoherence and factual depravity tells you something critically important…

Imperial Washington’s policy machinery is in the hands of an economic ignoramus and a political demagogue. There’s no telling where the Donald’s likely to strike next.

What’s especially foreboding is that it’s not just that the power of the Oval Office can be triggered by whim, paranoia, and naked aggression. We’ve had chief executives – while not quite as unhinged as the current one – whose temperament certainly did not suit the role.

It’s that the rational empiricist elites who populate the Eccles Building have circled up into their own “ingroup” with its very own “illusion of invulnerability” that inflates its certainty that the Federal Reserve is everywhere and always making the right decision….

The danger comes not just from the Donald’s Trade War and Border War conflations, nor even his national security team’s Open War predilections.

For instance, there’s no proof anywhere that 2.00% inflation on one particular price index – the Fed’s favored Personal Consumption Expenditure Deflator Index – has any positive economic properties at all. It simply provides cover for monetary central planners’ capitulation to Wall Street whenever they try to tip-toe toward “normalization”…

Yet, not two weeks, ago, the Donald’s very own Fed Chair declared, out loud, that too-low inflation is “one of the major challenges of our time.” Mind now, Main Street, “inflation” is, over time, the erosion of the purchasing power of workers’ incomes and savers’ and retirees’ money deposits.

That’s a central banker’s way of saying the Fed’s next interest-rate move might be a cut after four increases in 2018… and a Wall Street hissy-fit…

In remarks following the Federal Open Market Committee’s March meeting, according to Bloomberg, “The world’s most powerful monetary policymaker also sketched out a harmful scenario in which consumers and companies lose faith in the Fed’s ability to hit its 2 percent inflation target.”

[Click to Enlarge]

Really? Exactly which U.S. households and what American businesses are pining for the Fed to hit its targets to the second decimal place? That’s the kind of mind closure we’re talking about.

Meanwhile, the metastasizing Trade War is already on track to trim 2021 gross domestic product by $220 billion. That’s about 1%.

May’s selloff wiped out about $1.95 trillion of market value. It’s not a “straight” comparison. But was May’s selloff overdone? Was it right?

And what’s next?

A Beacon

Desperate times call for… “common sense” measures.

And these are desperate times… Markets are corrupted by monetary central planning. They’re confused. And the road back is going to be treacherous.

We’re looking at a major re-pricing for all financial assets. And thousand-point intraday or day-to-day swings are part of that equation. Those can be frightening… for “buy and hold” investors.

I have a different approach, one that combines strategy and tactics into a plan flexible enough for you to survive and thrive amid the coming chaos. It’s called “The Stockman Model.”

All we’re after is a little stability, perhaps a chance to pocket a windfall when opportunity presents…

To common sense,

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David Stockman

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David Stockman

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.MORE FROM AUTHOR