Wednesday, August 22, 2018

PEAK TRUMP: Next Comes The Donald's Fateful Descent Into The Undrainable Swamp

Note: The following is an excerpt from David Stockman's upcoming book titled, "The Donald, The Deep State and The Undrainable Swamp".
By David Stockman

As we write, Peak Trump is happening. The robo-traders are gunning for the January highs and when they finally tag them, that will mark the spot (viz. 2883 on the S&P 500).

What comes thereafter is a long national nightmare, and not merely with respect to what will be the Donald's increasingly desperate and inflammatory struggle to retain his keys to the Oval Office. In fact, the Donald's impending demise will take down both ends of the Acela Corridor with him.

That is to say, after the November elections, Washington will witness the most dysfunctional government and unhinged, vitriolic political warfare in modern history--- if not of all American history.
And it doesn't matter whether there is a Blue Ripple on November 6th, under which the Dems gain 15 House seats and a fratricidal GOP hangs on to a hairline numerical majority, as we expect; or there occurs a modest Blue Wave, giving the Dems a gain of 30+ seats and the power to turn the US House into a 21-ring (the number of House standing and select committees) Grand Inquisition of all things Trump, as the Dems, main stream media and Deep State apparatchiks devoutly hope.

Either way, the checks-and-balances ridden government machinery wisely designed by the founders will give way to an absolute smoking and belching state of political paralysis---even as the mother of all financial crises erupts.

The latter will happen because the Donald's unf0lding Trade War and Fiscal Debauch will finally slam hard into a Fed which is resolved to normalize interest rates and dramatically shrink its balance sheet. And, even more crucially, a determination in the Eccles Building to not bend to the patently destructive economic policies of the White House and the vicious attack from the Donald's Twitter feed that is sure to come.

Still more indications of where the Trumpian tweet storm is heading came in today's Reuters interview where the Donald flat-out averred that the Fed should accommodate his inflationary tariffs and bond-pit crushing deficits by keeping interest rates capped in negative real yield land:
In his most vitriolic interview yet with regard the markets, Reuters reports that (to the establishment's horror) that he was "not thrilled" with The Fed hiking rates imploring that Jay Powell should "do what's good for the country," (which is presumably keep rates low and extend all asset bubbles)...
...he believed the U.S. central bank should be more accommodating."I'm not thrilled with his raising of interest rates, no. I'm not thrilled," Trump said in the interview.
"I should be given some help by The Fed."
Additionally, Trump said that while he believes in Fed independence, he would continue to criticize The Fed if it continues to raise rates.
Just say you've been warned. That was a mere warm-up, meaning that the impending POTUS-storm against the Fed will finally freak-out even Wall Street's day traders and gamblers.

The casino's breakpoint will come when the vaunted "independence" of the Fed appears to be under unprecedented presidential/political assault---at which time the speculators will bail en mass, triggering a thundering sell-off by the momo-traders, ETFs and other trend-following vehicles of rank speculation.

What we are saying is that the Donald's increasingly brass-knuckled----and fully warranted---attack on the likes of Brennan, Mueller, Comey, Strzok, Ohr and the entire Russia-meddling Hoax----confirm that the man does not have an ounce of self-restraint, finesse or nuance in his bones. When provoked he goes to war---Fat Thumbs pounding furiously on his twitter keyboard---in a take no prisoners modality.

So now that he has foolishly embraced lock-stock-and-barrel the most egregious and unstable stock market bubble peak of all time, its imminent implosion will send the Donald into livid and vengeful attacks on any and all scape-goats which happen to pop- up on the Fox TV screens.

We cannot overstate the intensity of the anti-Fed and anti-Wall Street tweet-storm which is coming down the pike. It will be especially vehement and unhinged because the Donald is a naïve economic ignoramus, who is not remotely prepared for another stock market crash and the recessionary crunch on main street it will inexorably deliver; and will therefore go into a shocked fit of rage when it unexpectedly happens.

Indeed, the Donald actually thinks that this final rip of the greatest central bank fueled bubble in recorded history is an endorsement of his economic policy madness; that the soon-to-be-reversed statistical quirks in the Q2 GDP figure is MAGA in the flesh, which will keep-on keeping on; and that Kudlow is not blowing white powder at him when he assures the Donald that the US economy "is crushing it" in the 3-4% growth zone as far as the eye can see.

Except, when it comes to GDP growth and the remaining tenure of this near-record 111- month business expansion, the eye can barely see over the end of its nose. The truth of the matter is that the US economy is brittle, tired, organically impaired and debt- encrusted to the gills. When the stock crash comes, you will be able to blow it over with a hair-dryer.

And that weakness will be especially compounded by America's smugly complacent C- suites: When they resort to their usual frantic round of "restructuring" (aka massive liquidation of jobs, inventories, CapEx plans and "impaired" assets) in response to the coming stock market plunge, they will be stunned by the response from the Oval Office.

That is, every time they announce sweeping restructuring and layoff plans designed to appease the trading gods of Wall Street, a floundering and thrashing someone in the early morning East Wing will come at them with both twitter-barrels blaring: It will be the Harley-Davidson treatment and Bob Mueller bashing wrapped into one and charged-up on steroids.

Indeed, the probability of a no-holds barred Trumpian assault on the Fed, Wall Street malingerers and C-suite saboteurs is virtually certain. And that's why the casino is now more dangerous to your financial health than ever before.

Not hardly a smattering of the impending Trumpian assault is "priced-in". Even the boys and girls in today's casino, whose parents may have worked on Wall Street before the year 2000 and who may have actually listened intently to their financial bedtime stories about Fed-induced crashes ala October 1987, can't remotely imagine what's coming.

By comparison, President Harry Truman's 1951 attack on the Fed for not keeping bond yields frozen at 2.5% or LBJ's woodshed thrashing of William McChesney Martin in 1965 for not "printing the money to help my boys" trash the jungles of Vietnam will seem like a mere sunday school picnic.

And that get's us to our larger theme. We have supported the Donald all along as the Great Disrupter who can pull down the temple of debt, speculation and Bubble Finance that is ruining American capitalism and threatening Flyover America's future living standards and right to democratic self-governance.

But little did we expect the sheer unrelenting ferocity of the attack on Trump's presidency that has been prosecuted by the Dems, the Deep State and their MSM collaborators. Nor the deadly toll it has taken on the Donald's state of mind glandular impulses.

That is, the Donald was never remotely the "stable genius" he claims to be in the first place. And he was no strategy-driven empire builder at all-----just a financial con man.

And one who early on discovered that if you owe the banks a little bit, they own you; but if its a HUUGE amount you owe them, you're nuisance value can be inflated considerably by the pure art-of-the-outrageous ask.

That's essentially what's behind his unhinged Trade Wars. The very idea that a president could be contemplating 10-25% tariffs on up to $450 billion of Chinese goods (out of $505 billion of total imports) is from cuckoo land. If ever implemented it would knock main street America in the financial solar plexus as they paid up to $100 billion more for goods at Walmart, Kohl's, Dollar General, Amazon etc.

Moreover, attacking the Red Ponzi is not remotely akin to a Wall Street scam in the guise of a chapter 11 proceeding per the Donald's legendary victories. It's actually making war on the ancient land of the Middle Kingdom, where the Ming dynasty in 1423 summoned the entire civilized world to its coronation ceremony, which invitation excluded the savage tribes of North America and the grubby impoverished kingdoms of Europe.

Now a Ming wannabe is back on the throne in Beijing and the Donald's insane tariff threats have nothing to do with an Atlantic City casino deal under chapter 11. That's because other than a few symbolic cases, China's tariffs are already low at 4.33% of imported value in 2016, and the higher ones remaining apply more to European luxury goods such as BMWs, Porsche's and Swiss watches than to America's meager $130 billion of mainly commodity and industrial exports.

To the contrary, what the Donald and his wild-man trade team of Lighthizer, Navarro and Ross are attempting to batter with unprecedented tariff punishment is China's structurally embedded industrial policy. That is, they object to Red Capitalism itself---- the very mechanism that has kept the Chicoms in power long after their sell-by date.

But there is absolutely no way to trade percentage points of tariff on US imports of Chinese toasters and laptops for a sweeping Washington-dictated intervention in the heart of the communist regime of China--a venture which would gut its very modus operandi.

To be sure, there may well be a big Trump/Xi summit at the end of November. But long before then it will be abundantly clear that no trade compromise with China is possible. Indeed, to end their deep industrial subsidies and systematic currency manipulation would be to trigger a thundering collapse of China's $40 trillion house of tottering debt.

So as the Trade Wars intensify sharply in the months ahead, we think the resolve of the Fed will stiffen mightily.
The real evil of monetary central planning, of course, is the systematic inflation and falsification of inancial asset prices and the self-destructive regime of Bubble Finance which it fosters. But Trump's trade mayhem will keep the headline CPI pushing toward 3.0% and that the Fed cannot abide--even as it ignores rampant financial asset inflation.
And there is something more. The Donald's war with the Dems, Deep State and MSM over the hideous RussiaGate matter has taken a deep toll on the synapses which lurk below the Great Orange Mop on top. He has become just plain toxic in the Imperial City- --even if he does fill the minor league ball parks in Flyover America.
That's pivotal because the Fed is a pedigreed constituent of the Deep State. During the Greenspan/Bernanke/Yellen eras it seemed to lack backbone because it feared the markets far more than the pussy-cats which occupied the Oval office during that era (Clinton/Bush/Obama).
But the Donald is an altogether different story. His much warranted attack on the so- called intelligence community (IC) has generated virtually hellfire and brimstone from the forces of the status quo.
So it will be with the Fed. They will fight determinedly against the Donald's demand for "cheap money", as he described what he is demanding to some GOP fat cats this weekend at a Hampton's soiree, not just because it is bad monetary policy, but especially because these demands are coming from the Donald.
Do the thirty-somethings in the casino and the next-in-rotation Portfolio Managers see this conflagration coming?
As we explain in further installments: They most definitely do not.

The above originally appeared at David Stockman's Contra Corner.

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