Archive for the ‘Stock Valuations’ Category

Trump’s Not Reagan or Obama

Monday, December 5th, 2016

Donald Trump is not Ronald Reagan. That should be obvious, but many optimistic conservatives are drawing parallels and predicting economic nirvana over the next four years.

That’s unlikely to happen, but, conversely, the incoming president is not Barack Obama, either. The Obama presidency has been disastrous on many fronts, creating economic stagnation, a doubling of the national debt, and foreign policy disasters, such as the lifting of sanctions against Iran and Cuba in return for pretty much nothing.trump

We’re not about to join the media in bashing the president elect for choosing cabinet members that do not share U.S. Senator Elizabeth Warren’s ideological views, but we’re also concerned that the stock market’s post-election surge is yet another case of irrational exuberance.

Stocks were already overpriced before the election, yet the market was up 5.4% for the month of November. That’s not going to continue for four more years.

Stephen Moore, a senior economic advisor to the Trump campaign, is not surprisingly among those comparing Trump with Reagan. As he wrote in RealClear Policy, “After the election of Ronald Reagan in 1981, the U.S. Economy experienced one of its greatest booms in history. The growth rate averaged nearly 4 percent for seven years 1982–89. And the stock market rose from less than 1,000 on the Dow to more than 10,000 over the next two decades. This was a period of wealth and job creation that the nation and middle class had seldom seen before. All the liberal critics wrongly said it could not and would not happen. (more…)

The Apolitical Fed and the “Big, Fat, Ugly Bubble”

Monday, October 3rd, 2016

“ … nothing at the Fed is political.”                                                     Neil Kashkari, new head of the Minneapolis Fed

The Federal Reserve Board was designed to be a nonpartisan entity, existing solely for the benefit of the American economy. Apparently, there is a flaw in the design.

During the first debate between presidential candidates Hillary Clinton and Donald Trump, Mr. Trump accused the Federal Reserve Board of keeping interest rates near zero to help Democrats in November, while creating a “big, fat, ugly bubble” that will pop after the election when the central bank raises rates.

According to Ruchir Sharma, chief global strategist for Morgan Stanley, “This riff has some truth to it.”djia

“Since the Fed began aggressive monetary easing in 2008,” Sharma wrote on Zero Hedge, “my calculations show that nearly 60% of stock market gains have come on those days, once every six weeks, that the Federal Open Market Committee announces its policy decisions.

“Put another way, the S&P 500 index has gained 699 points since January 2008, and 422 of those points came on the 70 Fed announcement days. The average gain on announcement days was 0.49%, or roughly 50 times higher than the average gain of 0.01% on other days.”

It must be a coincidence that gains are 50 times higher on days when the FOMC announces policy decisions.

Sharma’s conclusions are further supported by this chart from Showrealhist.com, which shows an inflation-adjusted Dow Jones Industrial Average.  Note the upward surge that began when the Fed began QE in 2008. (more…)