Saturday, December 22, 2018

Trump and Nixon and the 37% Stock Market Ride

By David Stockman

At Friday's close fully 60% of the Trump Bump in the S&P 500 has been liquidated. And we have some nice round numbers to show for it. 

The broad market index stood at 2140 just hours before the shocking 2016 election results were reported, and rose by 800 points from there to 2940 on September 21, 2018. That was a gain of 37% on top of the already massively inflated stock market than extant. 

It was also Peak Trump. During the last 40 trading days 475 S&P points have gone missing in a relative heartbeat, and there's miles to go before it's over. 

And that's also why the Donald's sojourn in the Oval Office is heading for its sell-by date as well. It has been only the Trump Bump and the misleadingly happy jobs data attendant to the waning days of a failed, octogenarian business cycle that has kept him afloat with his enthusiastic base in the hinterlands and the grudging GOP establishment in the Imperial City. 

To be sure, the liquidity-crazed stock market was destined to crash anyway when the Fed finally got the gumption to begin removing the punch bowl. Or perhaps its stalwart position in favor of the thing that counts----shrinkage of its obscenely bloated balance sheet---was taken by inadvertence. 
Either way, and at long last, the Fed Put has been extinguished, and some sort of quasi- honest price discovery process now commences. 

This week's incoming data also reminded that there has been no real recovery on main street.To wit, the industrial production index for manufacturing posted at 106.0 for November 2018, meaning that it was still 2.4% below its 108.6 level posted way back in December 2007. 

Likewise, single family housing starts for November came in at an 824,000 annualized rate, barely half the production level at the 2006 housing market peak; and, in fact, equivalent to the start level posted in.....December 1960! 

Still, the Donald's self-initiated wars on the U.S. economy can only bring on the day of economic and financial reckoning that much sooner----thereby accomplishing his Great Disrupter's task, albeit in a manner the opposite of what he intends. 

We are referring to his Trade War, Border War and wars on fiscal sanity and even minimally honest money at the Fed. Taken together, they will surely finish the cratering forces that have been gathering momentum during the 40 trading days since Peak Trump.

As it happened, about 44 years ago we witnessed close up and personal the downfall of another President, who unlike the Donald, actually did commit a petty crime or two, which was otherwise described as a third-rate burglary and cover-up. 

As it also happened, the stock market had risen by about 35% in the year of his landslide election, which paled the Donald's flukish win in the Electoral College by comparison. 

That is, Nixon won the popular vote by 42 million to 28 million and received more than 500 votes in the Electoral College. 

Besides that, he had spent 27 years on the GOP rubber chicken circuit, campaigning for governors, Senators, congressman, state legislators, mayors and dog catchers, too. Unlike the Donald who had no GOP friends at all when he arrived in the Imperial City, Nixon had enough political IOUs to choke a horse. 

Still, the huge pre-January 1973 run-up in the stock market didn't last, nor did Tricky Dick. The GOP worried silently in the cloakrooms and back halls as the Watergate prosecution played out, but when the stock market fell out of bed in 1974, the GOP pols emerged from the shadows and showed Nixon the way to his last helicopter ride. 

In fact, the S&P 500 dropped by exactly 37% between his inauguration in January 1973 and his resignation in August 1974. 

Whether 37% up and then 37% down is more than a random coincidence, the soothsayers can debate indefinitely. 

But one thing is certain: The Donald doesn't have a fraction of Tricky Dick's political staying power, and a retest of Nixon's 37% down is only 600 S&P points away (1860). 

No Cigar For The CNN/Deep State Witch Hunt

Self-evidently, we don't think the Donald will survive the re-test. 

Nevertheless, let us be clear: It will be the impending hammer of financial collapse and economic retreat that will be the Donald's undoing, not the long- running CNN/MSM political indictment. 
Likewise, it is the pending assault on the paychecks of the voters and the bank accounts of the Republican donors which will awaken the GOP pols from their one eye-open slumber and mobilize them to defenestrate the Donald. That is not to say, of course, that the endless anti-Trump bloviation of the mainstream media's talking heads and their collaborators among the Washington establishment and the Dem pols has been for naught. 

They were right, for instance, about Trump's temperamental unsuitability for the office, but that's a national blessing in disguise. The Donald has single-handedly discredited the Imperial Presidency like never before, and that's the sine qua non of wresting democratic governance from the clutches of the Deep State and its permanent Washington nomenklatura. 

The same is true with respect to the charge that the Donald has alienated most of the outside world--friend and foe alike---and has thereby badly diminished America's global "leadership". 

But, ironically, that will surely remain his lasting (and likely only) accomplishment. 

What we mean is that the ruination of prosperity and liberty in America by Imperial Washington has no hope of surcease until the latter declares a war, occupation or intervention and no one shows up for the party. 

That outcome, at least, the Donald has pretty much guaranteed. 

Still, more than anything else, the Donald's fluke elevation to the Oval Office has finally caused the Deep State to come out of hiding and bare its fangs against American democracy itself. 

So doing, it has awakened the sleepwalkers of the Foxified Right about the immense dangers of the Warfare State and the sweeping surveillance and police state apparatus that has been created in the service of the neocon's misbegotten war on terrorism and quest for Empire. 

In a word, the terrifying capabilities, resources and (purported) credibility of the nation's $75 billion per year intelligence community were hijacked by top Obama officials led by then CIA Director, John Brennan, in furtherance of a plot to first forestall Trump's election, and then to re-litigate the outcome and eviscerate his Presidency after the voters had spoken. 

No greater threat has ever been mounted against America's constitutional democracy than the plain as day collusion of Brennan, Rice, Comey, Clapper, Yates, McCabe, Rosenstein, Strzok, Page et. al. to thwart the will of the electorate. 

That Deep State assault incepted in the utterly unjustified investigation of Russian influences on the Trump campaign during July 2016; became blatantly overt in the crude Comey/Yates entrapment ploy against General Flynn on the eve of Trump's inauguration; and then went full-on public, seizing the Justice Department's investigative and law enforcement machinery via the Mueller Special Counsel appointment in order to conduct an abusive, bare-knuckled witch-hunt against the president and any and all bystanders who could be used to discredit his incumbency. 

Needless to say, the mainstream media is so caught up in the anti-Trump mania fomented by the Imperial City's ruling classes and partisan shills that the plain fact of the attempted coup by the Deep State has been completely muffled. Indeed, this very real homegrown case of election meddling by the intelligence and law enforcement agencies of the American state has been virtually covered in spray-paint by CNN and the rest of the MSM via the Russia/Trump collusion counter-narrative.

Yet the latter is so preposterous and threadbare as to virtually force the ultimate question. Namely, given the fact that Russia's GDP is just 7% of that of the US and that Washington's defense spending is 12X greater than the Kremlin's, how in the world can rationally-thinking adults view Russia as any threat whatsoever to the security and safety of the American homeland-----to say nothing of the implied existential threat embodied in the current anti-Kremlin fulminations? 

The RussiaGate Hoax-----A Form Of Washington Bereavement Ritual 

There is a simple answer, of course, and it's not about the Kremlin's threat to national security or even the silly social media click-baiting efforts of a pint-sized St. Petersburg troll farm operated during the 2016 election by a second tier Russian oligarch and nationalist agitator. In fact, if Russia didn't exist, the Imperial City would have needed to revive Orwell's enemy states of Eurasia or Eastasia.

That's because the Dem party and the Washington establishment have been so traumatized and rebuked by losing to a buffoon like Donald Trump that they have embraced a virtually fictionalized Russian meddling story to explain the November 2016 outcome. For them, RussiaGate has apparently become a form of bereavement ritual. 
Indeed, without the implicit postulate that Trump could not have won the presidency without massive and decisive external intervention, the bare facts of the Russian meddling story fall on their own face. 
In this context, there is also something slightly more. However he got there, candidate Trump---and to a lesser extent President Trump---never bought into the Imperial City's post-2012 anti-Putin narrative for the utterly rational reason that it's unwarranted. 
The real Putin, as opposed to the Imperial City's cartoon caricature, is a completely sober and rational nationalist leader of the semi-impoverished, rump-state of Russia. The notion that he's an expansionist aggressor and mini-Hitler in the making is just the latest invention of Imperial Washington, which desperately needs a foreign enemy to justify its $1 trillion annual fleecing of America's taxpayers, current and unborn. 

In this instance, the actual truth is more nearly the opposite. It was Washington's aggressive expansion of NATO to Russia's very borders and its financing and recognition of the Ukrainian nationalist/crypto-Nazi coup on the streets of Kiev in February 2014 which forced Putin to take defense actions. 

Even then, it was limited to accommodating the overwhelming desire of the Russian- speaking population of Crimea to return to mother Russia, which it had been an integral part of for 171 years, rather than being ruled by the hostile political parties which seized power in Kiev.

The War Party's Phony Case Against Alleged Russian Aggression

The same was true of Putin's limited support for the Russian speaking populations of the Donbas (eastern Ukraine). It takes only a surface knowledge of the blood-soaked history of the region to understand why the Russian speakers there took up arms against Kiev after the 2014 nationalist/Nazi coup. 

The 1930s Stalinization of the Donbas' iron, steel, coal, chemical, engineering and armaments sectors essentially moved reliable Russians into the factories and towns; and in the process liquidated or sent to Siberia Ukrainian nationalists and other political dissidents who didn't cotton to Uncle Joe's form of socialist dystopia. 

Soon thereafter came the World War II battles which pitted Ukrainian collaborators with Hitler's Wehrmacht against the Russified locals. In the first instance, the former conducted a scorched earth march through the Donbas on the way to Stalingrad. 

Then, when the battle of Stalingrad was won, the Red Army retaliated in kind against the Ukrainian collaborators during its equally destructive march back through Ukraine on its way to Germany. 
So exactly what dog did the American people have in that hunt? 

Obviously, the safety and security of the homeland was not impacted a whit by an unnecessary re-opening of the Ukraine's bloody modern history. That's especially true since the current fight between Kiev and the Russian-speaking eastern provinces was owing to Washington's after-the-fact meddling in the country's 2010 election, which resulted in the deposing of its dully elected President by a Washington-funded street mob. 

Besides, the Ukraine for centuries has been a Russian vassal and set of meandering borders looking for a country. In that context, Washington's ridiculous demand that Crimea be "returned" to Ukraine is downright laughable. 

Crimea was never part of the Ukraine after it was purchased for good money from the Ottoman's by Catherine the Great in 1783. The "return" in question amounts to Washington's insistence on enforcing the dead hand of the Soviet Presidium, which transferred Crimea to the Ukrainian Socialist Republic in 1954 as part of Khrushchev's consolidation of power after Stalin's death. 

It may well be that the candidate Trump didn't know all the ins-and-outs of this history and Washington's phony demonization of Putin and Russia. 

Then again, he wasn't house-trained by the War Party, either; and he had enough common sense to see that rapprochement with Russia was the #1 priority----if his inchoate desire to reorient US foreign policy to an America First standard was to gain any traction at all. 

Yet that is also the very reason why the whole groundless Russia-collusion narrative got traction in the first place. To wit, the Imperial Washington groupthink was so invested in demonization of Putin and in the risible exaggeration of the Russian threat that Trump's rejection of the War Party line was taken as proof that the Russians had something on him. 

Stated differently, the entire Mueller witch hunt rested on the blind proposition that the Kremlin had blackmail because there was purportedly no other possible basis for Trump's Russia friendly position or for even such minor common sense steps as removing from the GOP platform the neocon's idiotic proposal to supply the Kiev government with lethal arms. 

Needless to say, Mueller's legal thugs have not found a sliver of evidence to support the collusion/blackmail predicate because Trump's pro-rapprochement position rested all along on common sense, not nefarious doings. 

But what the whole Deep State coup has accomplished is something quite lethal for American democracy. To wit, it has opened-up a no-holds barred war between two dangerous statist factions in the Imperial City. 

On the one hand, the anti-Trumpers have already seized the machinery of state to nullify the democratic process. Apart from the fact that candidate Trump defied the Imperial City's anti-Kremlin policy line, no honest custodian of the national intelligence machinery would have ever opened up the FBI investigation of the Trump campaign in July 2016 based on the ultra thin gruel available. And that's to say nothing of obtaining a FISA warrant to wiretap the campaign headquarters of the Republican candidate for president. 

Those actions were massively beyond the pale. After all, the target of suspicion was Carter Page, a complete no count who was a mere campaign volunteer and had never even meet Donald Trump. 
Likewise, the FISA warrant was based on the hideous, Clinton-paid for Dossier and the drunken musings of Baby George Papadopoulos, who was an even more peripheral figure in the campaign than Carter Page. 

In an honest democracy, Comey, Clapper or Brennan would have gone to candidate Trump and shared their concerns about the purported Russian connections of Page and Papadopoulos, which didn't amount to a hill of beans anyway. And it is absolutely certain that both of these no counts would have been unceremoniously booted from the 26th floor of Trump Tower---with or without a parachute. 

The plain fact is, Trump didn't know them, didn't need them and had not said a single word during his campaign based on whatever they were doing, which was actually above board, anyway. 

By the same token, from that screaming abuse of state power there metastasized the entire RussiaGate narrative, the despicable prosecution of General Flynn for doing his job and the launch of the Mueller witch-hunt designed to remove from the nation's highest office the Trumpian threat to the Deep State's rule. 

Not surprisingly, the Donald has fought back in his patented street brawling style. But so doing, he has also not surprisingly defaulted to policy positions which are no less statist than those of the anti-Trumpers. 

To wit, his massive defense build-up, unhinged Border Wars and all-out Trade War assault on China are designed to mobilize and incense his red state political base, not solve any notable national problem. 

At the end of the day, of course, it will be American capitalism, democratic governance and the prosperity and liberty of the people that will end up the worse for the wear. 

Still, the Deep State coup has visibly failed, and soon the misguided Trumpian protectionist and statist economic agenda will be crushed by the collapse of the giant Wall Street financial bubble and the phony, debt-fueled recovery that was the source of the Donald's temporary sojourn in the Oval Office. 

We have chosen to label this baleful state of affairs as Peak Trump, and in the weeks ahead we will attempt to explain why it happened and where it goes from here. 

On the latter score, we claim no clairvoyance about the future whatsoever. But what we do know is that Washington's Empire abroad and phony prosperity at home is terminally failing; and that whatever comes next won't be MAGA. 

Not by a long shot. 

David Stockman was 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.

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

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