On Monday’s Fast Money on CNBC we had on Société Générale’s Global Head of Economics, Michala Marcussen, who laid out what she feels are the key risks to the current fragile state of the global economy, and assigned probabilities to the outcomes of each occurring, watch here:
They all seem reasonable, but as my friend Brian Kelly stated yesterday in a post on the TickerDistrict (Will the Real Black Swan Please Stand Up?):
there are a lot of visible Black Swans which by definition makes them not rare or Black Swans. As BK has said before, “you never get hit by the bus you can see.”
So now it’s time for a hot take. The way I see it, all the macro stuff that can crush the fragile economic and financial markets balance achieved through years of unprecedented crisis monetary policy is known, and throw a dart at which one(s) ultimately causes the next global recession and/or 20% plus correction in global stocks. But in my mind the largest looming Black Swan for the financial world as we know it is the possibility of Donald Trump at the reins of the U.S. economy.
I recognize this view might offend some. But I do hope that if you have been a routine reader of RiskReversal you will respect that fact that, to use a Trumpism, I tell it the way I see it.
His candidacy has clearly resonated with people that have been left behind during the transition to a post manufacturing, globalized economy. Those concerns are real, and it’s hard to look at the economic/ tax policies from Washington D.C. over the past 36 years or so and see anyone who had their back.
Trump has spoken to some of those concerns in between stream of consciousness racist ramblings. And he has found an audience. But those racist ramblings and promise of returning the country to some past (that never existed) are two sides of the same coin. And it’s a fantasy. And Trump’s big con is he knows this.
The self-proclaimed gazillionaire appears to know little about economics despite constantly bragging about going to the University of Pennsylvania (my alma mater, sigh), and that he “knows words, all the best words“. But to me he seems way more like a thin skinned, high functioning idiot who never in a million years thought he would be where he is today (politically). His biggest asset has always been his ego, lack of shame and access to credit markets. Not his economic knowledge. Which is a big reason an ascension to the White House adds risk to all our financial stability.
Despite a 200%+ gain in the U.S. stock market since 2009 and the unemployment rate being cut in half during the same time period, there’s a sense out there that a roll of the dice may be just what we need. Trump has filled that strange desire. That’s what he does. But if his “business” career is any indication, he’ll leave the country bankrupt with everyone else holding the bill while he moves on to his next ego boosting project.
Both political parties are in deep trouble, with good reason. Perhaps the Democrats are a cycle or two away from seeing their own Trump. But it’s possible the collapse comes sooner. And an implosion of both parties in 2016 and the rise of a xenophobic demagogue like Trump all the way to the White House is just the sort of wild card that our country, and the world would have a hard time recovering from.
As far as those promises of making America Great Again by starting trade wars with Mexico and China, or the false promise of putting people back to work in coal mines here in the U.S. just down the road from the massive fracking operations that are actually putting them out of business, or his curious pledge of new international relations with leaders like Putin in Russia or Kim Jong-un in North Korea, or his campaign defining lie of being able to build a wall running the length of our southern border while rounding up millions of undocumented workers, Trump routinely demonstrates what he himself would call “total lightweight” knowledge of the topics. Oh, every step of the way throughout his run he has promised that he will surround himself with the best people, but when he is asked to name them he can’t, and when he can he mispronounces their names. This is not someone who has gotten to the place he is in life through the sober advice of knowledgeable experts by his side.
The issue of Trump not releasing his tax returns tells you everything you need to know about The Donald. He’s probably worth about 1/10th of what he claims, is levered up to the eyeballs in debt, and probably has avoided taxes like a boss. The fact he won’t release them due to a never-ending audit demonstrates that the lack of transparency and constant obfuscation shown throughout his campaign is simply a less consequential preview of what will occur under his rule, yes rule. Constantly lying about everything then threatening people who call you out on it is not “telling it like it is.”
Plain and simple the guy stands for nothing aside from his own self interest and brand. Do I believe he thinks America is not great anymore? Sure, he probably does. But by most measures he’s wrong. And the people he blames for the country’s supposed demise (aside from politicians on both sides of the aisle) are some of the most vulnerable in our society, and for the most part they lack a voice. There’s a long ugly history of those without a voice serving as pinatas to stir animal spirits among the U.S. electorate.
There was one guy in the Republican party that I thought could be effective in standing up to the Trump movement, and set the stage for a re-emergence of his party, and that was House Speaker Paul Ryan. Remembering that Paul Ryan was Mitt Romney’s running mate in the 2012 election, and that Romney has been the figurehead for the #NeverTrump movement, he was kind of its last hope after weeks of teasing that he was “not ready to support Trump”.
Then he caved.
Josh Barro of Business Insider penned a great piece prior to Ryan’s endorsement of what exactly was at stake for Ryan and his party; All Paul Ryan has left is his dignity, and he must not let Donald Trump steal it.
Yesterday, Ryan held a press conference, a week after putting his weight behind Trump, disavowing what he and every other decent American who believes in the ideals on which this country was founded felt were textbook racist comments from Trump. Yet he still supports him. Speaker Ryan, say goodbye to that little thing called dignity. And way to prove Trump’s point about DC politicians.
Both political parties in this country are at a major crossroads. Both display major hypocrisy and individuals in positions of power that lack character and are ruled by conflict of interests. But in this election the one difference I see between the two front runners for the POTUS is that one is a known quantity, who while not disrupting the status quo when they should, gives us a fairly predictable set of policies. (don’t confuse this with my belief that a day of financial reckoning is coming no matter who is in the White House, the U.S. is overdue for a recession). Trump, on the other hand, stands for nothing besides bizarre conspiracy theories. Based on what he’s promised (and the crazy stuff we’ve yet to hear), a Trump presidency would leave the country in massive debt, with sky high import prices, runaway inflation and a third world credit rating. We’d be left to clean up the aftermath in 4 years while Trump launches a new reality show.
To quote Lin-Manuel Miranda from the musical Hamilton:
If you stand for nothing, what’ll you fall for?
While I am not particularly interested in standing with Clinton, I’ve seen enough in my lifetime to recognize Trump’s con game.