Thursday, July 19, 2018

What A Fool Believes

Sadly, there's no such thing as unicorns, leprechauns, or free money. The truth is the exact opposite of what the Idiocracy believes. Trump's tax cut is not reflationary, it's deflationary: a giveaway to the ultra-wealthy paid for by the middle class via higher costs and higher interest rates. It won't work, other criminals have tried it already...

"Get Me Roger Stone"

"Only Richard Nixon ever sought to overtly influence the direction of monetary policy while in office"

Trump's newfound efforts to bring Fed policy into the Executive branch so as not to offset the impacts of his end-of-cycle tax cuts paid for with 100% borrowed money, are futile. It's abundantly clear that the dunces in charge of successive Republican economic administrations never passed Econ 101. Sadly, there is no such thing as "Free" money. Trump's tax cut for the ultra-wealthy is crowding out consumption, real investment, housing, and of course, Emerging Markets:

"Crowding out takes place when a large government, like that of the United States, increases its borrowing. The sheer scale of this borrowing can lead to substantial rises in the real interest rate, which has the effect of absorbing the economy's lending capacity"

Here are some examples of crowding out:

“We’re seeing pressure on both sides of the market, from increasingly expensive inputs on the supply side to prices that are charging ahead of wage growth on the demand side, and the result is that neither builders nor buyers can keep up”

And of course crowding out by Uncle Sam is far from a U.S. phenomenon. The impacts are felt across global real estate markets, with an obvious feedback loop to global banks: 

Not to mention, the dollar rally due to higher U.S. interest rates, monkey hammering Emerging Markets:

With a feedback loop to global growth and commodities:

Which means that ironically, instead of delivering reflation, Trump's reflationary tax cut is delivering deflation. 

The EXACT opposite of what every Wall Street dunce believes right now:

With a few exceptions:

The crash of October 1987 sensitized investors to the potential for stock market crashes and forever changed their view of S&P 500® returns. Investors now realize that S&P 500 tail risk - the risk of outlier returns two or more standard deviations below the mean - is significantly greater than under a lognormal distribution. The Cboe SKEW Index ("SKEW") is an index derived from the price of S&P 500 tail risk.