“It’s always a surprise, for good or bad, that moves markets.” – Ken Fisher
Modern stock-market commentary is always amusing. Maybe it’s the desire among writers to secure clicks in the age of the internet, but so much of the media chatter about markets focuses on the coming “boom,” “crash,” or the always “eerie” similarities to 1929, 1987, or 2008. That it does is a sign of how worthless most equity commentary is.
The great investor Ken Fisher writes that he often asks himself “What do I know that others don’t? Usually nothing!” Fisher adds that, “Markets price events faster than journalists write or speak because their sources or their sources’ sources already bought these events into profitless oblivion.” His broad point is that whatever you the investor think you uniquely know – an unsung nuclear threat, a big tax cut, government debt allegedly too burdensome to be paid back, or an obscure chart that “always” foretells market corrections – has already been priced.
Applied to market commentary about the good times or carnage ahead, anything the columnist presumes to know that will “move the market” has already been digested. Assuming it’s useful. Big market moves result from surprise, not from what you’re reading in an obscure newsletter, or in the business section of a major newspaper. If commentators were aware of the market-moving surprises ahead, they wouldn't be commentators nor would they be telling anyone. They'd be too busy earning billions.
Which brings us to Donald Trump and his presidency. Opinions about his governance plainly vary, as do opinions about his character. Readers of this column are well aware of the opinions expressed about Trump throughout Election 2016. Most were negative owing to Trump’s mistaken assertions about the bad of free trade and liberal immigration, and the good of a weak dollar.
Yet despite Trump’s policy views that would seemingly be inimical to rising stock markets, they've continued to rally during his presidency. “Continued” is the operative word here in that this rally began years ago, March of 2009 to be exact. Under two presidents in Obama and Trump who believe in policies that don’t normally square with economic freedom, markets have done well.
In the search for why, Fisher has answers. Writing last month, he observed a crucial finding about 2017: “we’ve learned Trump can’t do as much as some had hoped and others feared.” The previous point can’t be minimized. And it requires discussion in light of the media’s coverage of Trump the politician. Barack Obama’s too.
It’s hard not to turn on CNN each day without some headline announcing the irretrievable decline of Trump’s presidency. While right-wing media regularly chronicled the no-growth, disastrous Obama presidency (mostly based on the worthless Keynesian measure that is GDP), CNN and other media outlets known to swing left are feeding their viewers a daily diet of the disaster unfolding under Trump. Yet investors plainly haven’t been bothered by the alleged Trump implosion, much as they weren’t fazed by Obama’s economic illiteracy.
Considering Obama, though he signed into law a $787 billion “stimulus” program in 2009 that logically weakened the U.S. economy (when governments consume precious capital, there’s less for private sector businesses to access) and the misnamed Affordable Care Act in 2010, the legislative portion of his presidency largely ended after that. Figure that Republicans took back control of Congress in 2010, the Senate in 2014, and the ensuing gridlock largely reduced Obama to fundraiser-in-chief. Thank goodness.
Apparently investors were relieved too. Though Obama’s understanding of economic growth is charitably weak (doubters need only read Confidence Men, an account of the economic portion of Obama’s presidency meant to cast him in favorable light), the fact that he wasn’t able to do much after 2010 rendered his economic ignorance less of a threat to investors.
As for Trump, he expresses good ideas and bad economic ideas. His thoughts on tax cuts have been encouraging, plus under him the ratio of regulations repealed to those introduced has come in at 16 to 1! Still, his views about trade are scary, anti-economic growth on a grand scale, and would normally spook investors. Yet they’re not scaring investors given the simple truth expressed by Fisher that whatever Trump believes, he can’t get much done.
About all this, we should never forget that what we call the U.S. economy isn’t some tangible blob. It’s just people. People have unlimited and unquenchable wants, they work so that they can fulfill their endless wants (“importing” from across the street, and the other side of the world), so if largely left alone they thrive. And precisely because individuals prosper when they’re left alone, so do companies (comprised of individuals) and markets that price the fortunes of companies. Figure that stock prices are merely a speculation on all the dollars companies will earn in the future. If Washington is quiet, the ability of companies to prosper for the long-term grows. A lack of legislation represents a reduced threat of surprise that imperils future earnings.
While Fisher’s belief in free markets and individual freedom is deeply held, he understands through decades of observing markets that they “love falling uncertainty, always.” That the electorate handed control of Congress to Republicans under Obama reduced the risk of legislative “surprise” from Washington, and then Trump’s distracted nature, his lack of fixed views about anything, and his strong desire to offend the very Republicans who might pass his legislative agenda point to a president who will achieve very little legislatively. That Trump will “achieve” very little explains the seeming disconnect between morbid headlines and frequently ebullient markets.
Though the tax cuts proposed by Trump actually sound very good, and would be very good, Trump’s partisans arguably do his presidency a disservice when they suggest the U.S. economy won’t grow without the cuts. In fact, the Trump economy could boom. Economies grow as a rule, and they grow with great gusto when Washington is removed as a factor. If Trump is revealed as the president who can’t sign any substantive legislation into law, he’ll by extension be revealed as a president who presides over a Congress that won’t surprise investors with legislation, good or bad.
So while we’ve all got ideas about what policies will most boost economic growth, seemingly forgotten is that economies thrive when Washington simply does nothing. Though Trump would love to be known as an effective president in the lawmaking sense, a presidency about nothing might be the path to the popularity that Trump craves even more.