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"What a Trump America Can Learn from a Berlusconi Italy" New York Times

"The Black Swan President" Politico Magazine

"Teaching 1984 in 2016" The Atlantic

"Zadie Smith on the Politics of Fiction" The Atlantic

"Out Of The Gate And Into The Fire" Hoover Institution


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Holding Trump Accountable to the Stock Market

Holding Trump Accountable to the Stock Market

President Trump has made a habit of touting the stock market’s success in the few months following his election. Back three weeks or so, when the Dow Jones was consistently in the green and soaring past 20,000 ‒ and later 21,000 ‒ for the first time ever, he tweeted about its rise on five separate occasions. His market rhetoric often carries conspicuous meaning; one Christmas Eve tweet reads,

“The world was gloomy before I won - there was no hope. Now the market is up nearly 10% and Christmas spending is over a trillion dollars!”

By claiming that his election victory increased investor confidence, he almost embodies Atlas ‒ the ancient Greek titan condemned by Zeus to hold up the sky’s weight ‒ as if he physically lifted the tickers himself.

Setting analogies aside, does Trump have authority to claim sole responsibility for the market’s rally? Yes and no. Yes, investors generally view Republicans and their pro-business plan for tax cuts and deregulation favorably, but that view isn’t exclusive to Trump or his policies. What matters more, most analysts agree, is the boom-and-bust economic cycle during a president’s four years ‒ which hinges more on the Federal Reserve’s monetary policy than any presidential policy. The Trump rally, therefore, likely has more to do with the Fed’s 7-year strategy of setting near-zero interest rates than anything else. Such low rates have artificially propped up asset prices to spur cheap borrowing and business investment. While this has helped stocks recover from the 2008 Great Recession, some investors are beginning to view prolonged low rates as a sign that we’re heading towards another market bubble.

The bubble theory could become reality if investors continue to downplay the policy risks associated with a Trump presidency; erratic behavior, a potential trade war with China, and reckless border wall spending are just beginning to factor into daily market movements. These (and other gaffes) will surely creep into investor’s minds at some point, clouding Trump’s ability to take responsibility for any future rallies.

Still, some market analysts credit Trump for roughly half of the post-election market gains. The monthly uptick in consumer confidence and increase in investors’ trading bonds for stocks are both signs of optimism towards Trump’s pro-business platform and its ability to spur economic growth. He also gets credit for using Twitter as a bully pulpit to convince auto companies like General Motors and Ford to invest at home (although there’s no conclusive evidence that his tweets actually move stock prices).

No matter how bullish your current market outlook is, it’s worth exploring diversification options to hedge against a future downturn. Even with an impressive post-election rally, investors shouldn’t expect it to continue forever. If a market bubble becomes clearer during his presidency, expect outlandish reactions from Trump. If he can take credit for the market’s success, he should own up to its failures too.

Holding Trump accountable for an imminent market downturn will be a tough albeit necessary challenge for Democrats moving forward. His thin-skinned nature makes him an easy target, as he’s shown a willingness to retaliate on Twitter against Democratic foes. On April 27, for example, he tweeted six different times blaming Democrats for their ineptitude. By continually riling up Democrats, he’s almost begging for them to berate him if the market performs poorly.

Their task will be made even easier, however, if a market downturn precedes a larger economic one. They can then claim, as some previously did when bubbles occurred during George W. Bush’s presidency, that they foresaw a rocky economic road ahead before the president has a chance to publicly indicate anything himself. If you believe that the stock market is in a bubble, then an economic downturn might be imminent. Plenty of historical research backs this assertion up, highlighting how Republican bull markets are usually a negative sign for the economy. Each major Republican tax cut ‒ Calvin Coolidge and Herbert Hoover’s in 1924 and 1928, Ronald Reagan’s in 1981, and George W. Bush’s in 2001 and 2003 ‒ all led to huge economic crises, including the Great Depression in 1929, the 1987 Stock Market Crash, and the Great Recession in 2007-08.

Will the Trumped-up trickle-down tax cuts be next? We’ll have to wait and see. But if you believe the stock market is headed for darker days, then there’s good reason to brace for economic malaise. Oddly enough, Democratic opponents could politically benefit if such events were to occur. By claiming that Trump is fully responsible for the stock market’s highs and lows, they’re in good position to criticize his boastfulness and hypocritical statements, holding him accountable when he likely refuses to acknowledge future market slumps.

-Jordan Wolken

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