Thursday, December 27, 2018

It’s the Trade War, Stupid!

It was no surprise that Donald Trump is clueless about what’s happening in the stock market, because the blame falls directly on him and he never accepts responsibility for anything.  But recent reports in The Times ("Stocks Extend Their Slide," December 24) indicate that Treasury Secretary Mnuchin is similarly clueless.

Investor unease has nothing to do with the liquidity of banks or the underlying strength of the U.S. economy.  They are both strong and investors know it.  (Although Mnuchin’s reassuring statement about liquidity could make them nervous about something that isn’t an issue.)  It’s true, investors don’t like the Fed’s increase in interest rates, but that’s not the big problem either.  

The big problem is Trump’s self-imposed trade war.  This has created huge uncertainty for investors as to the future strength of not just the U.S. economy but also China’s and the world's.  Secondarily, his erratic behavior on all subjects, including his recent actions in the Mideast, add to the dynamic of uncertainty.  And then, his ego-driven Twitter feeds that routinely undercut any reasonable action his administration takes compounds investor uncertainty.

Given that no one has the ability to sit Trump down and explain the facts of life to him, this does not bode well for the future. Investors will probably shrug off the latest jitters and the market will rebound, but volatility will remain. The market’s only real hope is that his mania for self-preservation will force the conclusion, hopefully soon, that he must end the trade war for the market to regain its strength.

(A shortened version of this post has been published by The New York Times as a Letter to the Editor.)

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