June 24, 2017

Stock bubble to burst after Wall St party (D) no longer in power?

[Inspired by similar comments from both Nassim Taleb and Peter Schiff, here and here.]

During the campaign, Trump said that the stock market was in a big fat bubble, and that if he won, the Fed would wait to raise interest rates until he took office, so that the bubble bursting would not be blamed on Obama but on Trump. He never was a stock market guy, keeping his company from becoming publicly traded, and never basing his wealth on stocks.

Eager to point to good news during his tenure so far, especially on economic indicators, he has hyped the rise of the stock market since his election. His surrogates such as Kellyanne Conway do likewise on the media, hyping the trillions of dollars of wealth added thus far.

But this is just the bubble continuing to inflate, and none of that added wealth is real. When it pops, Trump ought to have distanced himself as much as possible from the stock market -- otherwise he will be blamed for "crashing the markets" or "blowing up the economy" or something else that frames wealthy stock-owners as the only class worth caring about, rather than the workers who put Trump over the top in the Rust Belt.

Working-class and middle-class people have been doing worse for 30-40 years straight, whether the stock market has been bulls or bears. The overall trend in stocks has been only upward over this time, though, meaning that if anything the stock market must crash and stay cut down to size if the working and middle classes are to recover the standard of living they used to enjoy before the yuppies took over during the 1980s.

Trump and his team must remember that Wall Street does not form any part of their base -- it is the main power group within the Democrats, not the Republicans (whose main power group is the Pentagon). He owes no part whatsoever of his victory to Wall Street, so he is in a position to tell them to go eat shit, and to put the blame for a declining Dow squarely where it belongs -- on the Wall Street party, the Democrats, for inflating the bubble during Obama's entire eight years. [1]

The Fed is already starting to raise interest rates, making debt more expensive to pay back, and with the gigantic amount of debt out there, pretty soon the rate hikes are going to set off a pretty big drop. So it's just like Trump said about the Fed waiting until the Democrat was out of office, and a Republican could be blamed.

Looking over a list of recessions since WWII, it looks like they're more likely to hit under Republican Presidents. I wonder if the Democrats being the finance-friendly party goes back that far, and they've been setting up their Republican successors each time to take the fall.

Aside from sabotage by the opposition party, there's also the massive re-allocation of federal funds that the Republicans will undertake when they gain power -- away from finance and toward the military. There's only so much gravy to go around, so perhaps gorging the military is enough to starve the banks. Republicans deliver military bubbles rather than financial bubbles, and when the Democrats replace them, the military bubble pops and turns back into a financial one.

At least that's the pattern since Reagan, when the GOP became the militarist party (it was the Democrats who began and escalated Vietnam, and Nixon who ran on getting us out), and when it makes sense to talk about a "Wall Street party" inflating a stock market bubble. There was the double-dip recession of the early '80s, the isolated Black Monday of '87, and the early '90s recession, all under Reagan-Bush. Then silence under Clinton, while the tech / dot-com bubble inflates like crazy. That bubble pops under Bush Jr, and later so does the housing bubble. Then silence under Obama, while a new bubble inflates, still related to tech and internet companies. That's bound to get wiped out during the Trump administration -- and perhaps be followed by a second crash later into the eight-year term.

To prepare for what seems to be a certainty, with only the timing and severity unknown, Trump must not only distance himself from the bubble, but loudly and repeatedly put the blame onto the Democrats, who are controlled by Wall Street and do the bidding of the big banks. He's already made us familiar with the line "I inherited a big fat mess," so might as well stick with that one.

And he must also make clear that, unlike the typical Republican, he was elected thanks to working-class voters, and he is only going to pay attention to measures of their economic health when he judges the success or failure of his policies. They do not own any stock, and the stocks only soar in value when the companies slash costs by firing American workers (off-shoring and bringing in immigrant workers). So if the stock market crashes, it will be due to the phony bubble wealth evaporating, plus the companies having to hire American workers and pay them a decent income again.

I know Trump wants to please the business community, but not if it means continuing to inflate their bubble and continuing to peddle the view that the stock market is an index of the average American's economic well-being. He can tell them that the stock market declining will return big businesses to a more sound and robust state, and not soft and flabby from the government feeding them everything.

Might as well go straight to the American people by using Twitter, once the market crashes: "Wealth lost by 1% who own stocks = $10 trillion. Wealth lost by workers who own none = 0. Inequality narrowing -- nice!"

[1] He is beholden to the Pentagon, and cannot get his intended policy of "getting along with Russia" and letting Assad stay in power. Obama, in contrast, did not owe anything to the Pentagon, so he was more free to attempt a "Russian re-set," and stalled long enough on striking Syria and put it up to public debate, to the point where he could wiggle out of doing the Pentagon's bidding. But Obama was beholden to Wall Street, and had to go along with whatever they wanted, i.e. bailouts for year after year.

Even if Bernie had won, he would have found himself in the same position regarding bailouts that Trump is in regarding militarism -- campaigning against it, but forced into it by the main power group that controls his party.


  1. The crucial fact is that American wages peaked in 1973. Everything else is a distraction.

  2. Military spending is a good metric for whether the cultural/political zeitgeist is conservative or liberal. There are a probably a whole host of other phenomena associated with conservative vs. liberal zeitgeist, as there is for falling-crime vs. rising-crime or rising inequality vs. rising equality.

  3. Wise advice. I've said all along that if our enemies were letting their smart people run the show, they'd have quieted down about Trump after the election while tanking the economy, to make it look like he failed on his own.

    They're too controlled by emotional thinking to carry out the first half of that strategy, though, so Trump can still try blaming them back.

    Far better to be proactive though. I cringe every time I see Bill Mitchell and his ilk citing stock prices as evidence of how Trump is making things great again.

  4. I was looking at old newspapers online and noticed that there were lots of ads for small local banks that guaranteed 4-5% interest on humble passbook accounts. Now you're lucky if you find a long term CD paying more than 1%.

    So you're kind of forced to get into stocks if you want any kind of growth.

  5. This is a great point, and I really think there's something to it. It's hard not to draw a connection between Trump having threatened not to re-nominate Yellen to the Fed, and the fact that she's now hiked rates 3 times since the election (while having only hiked once during Obama's entire 8 years).

  6. Going along with that, it seems that the cycle between a conservative vs. liberal zeitgeist goes every 10 years or so. Reagan, for instance, is known for massive defense spending during the 80s, which culminated with the first Gulf War. Clinton cut defense spending significantly and inflated the stock market during the 90s. In the 2000s, George W. Bush began a major war and upped defense spending all the way until the end of his term(remember the Surge in 2007), etc.

    low defense spending in the 70s, high defense spending during the Vietnam war. Relatively low spending in the 50s(remember Eisenhower criticizing the military industrial complex)?, obviously high spending in the 40s during WWII and Korea.

    these cycles seem to go in 10 years irregardless of what party is in political power. Jimmy Carter, for instance, tried and failed to up defense spending in 1979. FDR upped it during the lend-lease act during the beginning of WWII, and of course waged war. Eisenhower, a Republican president, sharply criticized the military industrial complex.

    What we get is 10 years of war or a war footing, followed by 10 years of peace.

  7. Buried in the archives of "Dusk in Autumn", there is a comment to a post where Agnostic said that the style of fashion/movies/music tend to go in 10 year cycles of being bombastic vs. low-key. Can't find the comment, because its not a thread but a user comment.

    but that said, the 80s were said to be bombastic in fashion and music/movies style, 70s low-key, 60s bombastic, etc. Appears to correlate with defense spending - when defense spending is high, media tends to be more stylistically bombastic, when its low, the culture is more stylistically low-key.

  8. Here is a nifty bar gram chart, made by CNN, detailing defense spending since Eisenhower. Its pretty much in line with what I said(click link, scroll down):


  9. George Friedman argues that we get a recession about every 8 years, so we're due for one within the next 2 years:

    "he last recession started in 2007 and ended in 2009. The one before that started and ended in 2001. The two previous recessions ran from 1990 to 1991 and from 1981 to 1982. In these cases, the time between the end of one recession and the start of another was about eight years on average. Between 1945 and 1981, recessions were much more frequent, but obviously something has happened to extend the time between them."

    "Eight years have now passed since the last recession, and the U.S. is in the zone for one based on its experience since 1980. A recession is likely sometime between now and 2019. It is always possible that we will set a new post-war record for expansion, but that is unlikely simply because periodic recessions are necessary. During expansions, economies tend to accumulate inefficiencies. Low interest rates allow businesses to survive despite their inefficiency, and this will continue if a recession does not occur. In the current expansion, we have had extraordinarily low interest rates, so even with relatively low growth rates, pruning is needed."


  10. Now that we know that liberalism and conservatism goes in 10 years cycles, it explains something about group allegiance.

    When it comes to group allegiance, nationalist-globalist is much more important than liberal-conservative. Trump voters find more common cause with Bernie voters than they do globalist conservatives such as Paul Ryan. Why is this?

    Globalism-nationalism goes in 50 year cycles, in other words 50 years of globalism/inequality, and then 50 years of nationalism/equality. The cycles are so long that one side builds up tremendous resentment towards the other side. Egregious abuses go unanswered over multiple generations. The result is ill will between nationalists and globalists, which supercedes one's status as a liberal or conservative.

    On the other hand, liberal-conservative cycles go in 10 years. This prevents too much resentment from building up. 10 years is enough time to be egregious or abusive to the other side, but the point is that the victims don't have to wait too long before getting payback. The radical Bush administration was followed by the equally radical Obama administration. This creates a more balanced dynamic, whereby neither liberals or conservatives feel too held down.

    Furthermore, the rapidity of the cycle discourages immoderation - afterall, the other side is going to come to power in 10 years at the soonest, so you don't want to piss them off too much. Won't be long before they'll have a chance at payback. The radicalism of Bush and Obama appears to be the exception to the norm, whereby American society avoids becoming too radically liberal or conservative.

    Compare this with the past 50 years of rising globalism and inequality. The nationalists may instinctively realize that, because their enemies had power for so long, they're now going to have power for an equally long time. They don't see a reason to be nice - 50 years is a long time in the distance.


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