Donald Trump's Very Bad Day in the Stock Market

Today, March 4, President Trump had a very bad day in the stock market.  Yesterday, Super Tuesday for the Presidential primaries, Joe Biden won a series of contests among the Democrats and took the lead in delegates over his principal rival, Bernie Sanders.  Today, the Dow Jones Industrial Average rose almost 1,200 points in celebration. 

Since before his inauguration, Trump has touted a buoyant stock market as one of the hallmarks of his Presidency.  To him, it signaled approval, achievement and prosperity.  Whenever the market showed signs of queasiness, Trump was quick to pummel the Federal Reserve Board for interest rate cuts to prop up stocks.  Trump equated stocks with himself, and stocks seemed to reciprocate.

But not today.  Today, the market loved Joe Biden.  And Trump could only watch the love fest. The market no longer needs him.  It can bounce up with Biden in the White House.  The contest for the Democratic Presidential nomination is far from over.  Biden's lead over Sanders is modest, with close to two-thirds of the delegates yet to be chosen.  Many of the remaining primaries are in Western and Midwestern states, where the demographics may be more favorable to Sanders.  But if Biden can maintain his momentum and secure the nomination, Trump won't be able to count on the stock market for support.

Winners and Losers in the 2016 Election

This was one wacky election, and there are some unusual winners and losers.
 
Winners.  Among the least obvious, but most important winners are liberal Democrats.  The middle-of-the-road, milk-the-liberals-for-votes-and-then-abandon-them strategy of Bill and Hillary Clinton is definitively dead, with a stake driven through its heart.  Bernie Sanders is a major victor from yesterday's election, as he now has a chance, along with Elizabeth Warren, to reshape the Democratic Party.  The Clintons' decades old strategy of cozying up to Wall Street and other obscenely rich donors while talking but not walking like progressives blinded them to the prairie fire boiling up from people who work hard but for not a lot of money.  Sanders and Warren, who may be the most influential Senators today, won't make that mistake.  They will reach out and try to help the people who are driving politics today.  Politics is ultimately about the flow of crowds, and you can't capture the energy of insurgents by condemning them as deplorable. 

Another major winner is the FBI.  Had Hillary Clinton been elected, the specter of possibly wholesale "personnel changes," shall we say, might have hung over the FBI, crippling its ability to function in numerous crucially important arenas.  Donald Trump and whoever he appoints as Attorney General would be wise to leave the FBI unconstrained to conduct business regular way, with no hint of a political agenda.  Everyone benefits when law enforcement is evenhanded. 

And, of course, another winner is that . . . what's his name?  Oh, yes, Trump.  That Trump fellow will find out that running for President is a whole lot easier than being President.  It's one thing to make speeches.  It's another altogether to make things happen.  Even though the Republicans control both the House and the Senate, that doesn't mean Trump will have a successful Presidency.  Barack Obama had the advantage of a Democratically-controlled Congress at the beginning of his first term, and his approval ratings have fallen dramatically since then.  Donald Trump will have to find a way to work with all kinds of people, and lashing out at them isn't likely to be productive.

Losers.  One of the biggest losers is the Establishment.  Both the Democratic and Republican establishments got their heads handed to them yesterday.  An outside observer can readily tell that it's time for change.  But people holding power rarely give it up without a struggle.  George Washington set a noble example when he refused to run for a third term as President and returned to Mount Vernon.  Try to find someone as noble as that in today's political establishment and you'll have more luck seeking the Seven Cities of Cibola.  Things are likely to get ugly as both parties struggle to change. 

Big Money Donors got hammered in this election.  They bet on Hillary Clinton and a platoon of mainstream Republican primary candidates, and wound up only with much smaller bank accounts.  It turns out that, in democratic politics, money isn't everything.

The Democratic Message was lost.  In fact, perhaps the most important reason Hillary Clinton lost was she had no message.  All she seemingly did was attack Trump and proclaim, ad nauseum, that she wasn't Trump.  Trump had a message, a message of hope for working people who usually have only stagnation and despair.  This was not a message that Clinton or the elitist mainstream press clearly discerned.  But Trump got through loud and clear to his supporters.  Nothing drives voters as much as hope.  Trump instilled hope in his constituents.  Clinton didn't seem to have hardly anything positive to say about the future, and her potential constituents lacked the most powerful motivation in politics to vote.

Of course, there is Hillary Clinton.  Bill and Hillary's time in politics is over.  One wonders if they know it and will be able to step aside graciously.  The successful resurrection of the Democratic Party depends on the establishment of new leadership.  But the tremendous cash flow the Clintons have enjoyed since Bill left the White House appears closely linked to their power in the Democratic Party.  If they give up the power, the cash is likely to flow to the new power players.  Since Bill and Hillary have an obvious love of money, the struggle to rebuild the Democratic Party could be grisly. The Clintons, now more than ever, need to think about their legacy.  They already have more than enough money to live in luxury for the rest of their lives.  But, given their baggage that was recounted ad infinitum during the campaign, their legacy needs a lot of work.  Graciousness would be a very valuable first step.
 

Brexit and the Globalization Bubble

The stock market has returned to pre-Brexit levels.  So the crisis is over and everything is fine.  After all, if you're not losing money, what's the problem?  Let's think about what craft beer to try next.

Actually, Brexit is still very much affecting the financial markets.  The British pound is moribund.  The Euro isn't looking pretty.  And the Yen is strong, much to the unhappiness of the Japanese, who want a weak currency that gives them an advantage in exporting.  The bond market continues to show a flood of financial refugees into U.S. Treasury securities.  The crisis isn't over.

The volatility in stocks was more about short term speculation over the outcome of the Brexit vote, than about Brexit itself.  Shortly before the vote, much of the fast money crowd had placed large bets on the UK voting to remain.  When the vote went the other way, the speculators had to unwind their now stinky positions muy pronto.  But this volatility didn't reflect the impact of Brexit itself.  Brexit will take years, and its impact is largely unknowable at this time since we don't yet know the terms of the UK's decampment.

The EU is talking tough about the terms of divorce.  That's perhaps an understandable emotional reaction.  After all, the EU is afraid that the insurgents in other member nations will engineer more exits.  Taking a tough line, it apparently thinks, discourages further desertions. 

But the EU is missing the point.  What impelled a majority of British voters to choose exfiltration was that globalization and the benefits of the EU were oversold.  Britons were promised a glowing future if they cozied up to continental Europeans, who they haven't really trusted since before the Hundred Years War.  EU membership may have boosted British GDP, but there was a problem with most of the boost going to a small number of people who were doing pretty well to begin with.  And there was a perception that the EU's open borders policy allowed immigration that took jobs away from native-born Britons.  All this occurred under a legal regime in which many Britons felt they had no voice.  They apparently felt that, contrary to the principles of democracy, they, although voters, were being ruled instead of ruling. 

By playing tough with the terms of Britain's exit, the EU fails to address the real, legitimate grievances leading to Britain's vote.  The truth is that globalization is an oversold political bubble and the bubble is bursting.  Those with grievances aren't confined to the UK; they can be found throughout the other 27 member nations.  A punitive approach to the terms of Brexit could leave both the UK and the EU poorer, while the forces of insurgency would continue unabated.

The distribution of wealth isn't merely something for social scientists to study.  It really matters--politically and economically.  The elites who have led the way toward globalization must find ways to improve the lives and fortunes of all, or face much bigger problems than Brexit. 

This is true in America as well as across the pond.  Donald Trump hopes to emulate the Leave campaign.  Hillary Clinton has gotten a certain amount of mileage  from running as not-Donald-Trump.  But she is one of the elites who has pushed globalization.  She now purports to have changed her mind, but only after severe pressure exerted by Bernie Sanders.  It's not hard to wonder if she's really changed her stripes.  The widespread perception of her untrustworthiness will hinder her ability to convince the blue collar voters in swing states that she's really on their side.  She doesn't inspire or excite hardly anyone.  If she doesn't acknowledge the overselling of globalization in a clear and convincing way, and offer real relief for the distressed, Trump may yet strut to the tune of Hail to the Chief.

Big Trouble For the Establishment

America's political Establishment is in big trouble.  The Democratic Establishment candidate, Hillary Clinton, is steadily sinking in the polls compared to Donald Trump, and is now barely ahead of him, after many months of double digit leads, (see http://www.cnbc.com/2016/05/22/clintons-lead-over-trump-shrinks-to-3-points-new-nbc-newswsj-poll.html).  Or else, she marginally trails Trump (see http://www.cnn.com/2016/05/22/politics/hillary-clinton-donald-trump-polls/index.html).  At the same time, Bernie Sanders has a clear lead over Trump (see the NBC/WSJ poll).  Because of the Clinton power politics machine, Hillary will almost surely be nominated.  The Democratic Establishment apparently cannot believe that an insurgent like Trump could defeat Hillary.  But an insurgent Democrat did beat her in 2008, and another insurgent Democrat has come darn close in 2016 (and isn't entirely out of the picture yet).  Even worse, polls now indicate the insurgent on the Republican side may defeat her.  If she loses, which seems a possibility, the Democratic Establishment will have undermined itself by supporting her.

The Republican Establishment is faced with a different, but also existential, challenge.  Donald Trump isn't an Establishment guy.  If he wins in November, the Republican Party's power structure will be recreated as he dictates.  Trump skeptics and professional scoffers who have pooh-poohed his candidacy may hear Trump's memorable words, "You're fired."  While many in the Republican power structure are now negotiating with Trump for some kind of entente, there are probably not a small number who won't support The Donald.   

The political Establishment in both parties wins if Clinton wins.  They both lose if Trump wins.  With the polls moving toward a dead heat between Clinton and Trump, one wonders whether some establishment Republicans might not find quiet ways to support Hillary.  With a Republican controlled House (and maybe Senate), she couldn't change things much--and that's what the Establishment wants.  But if Trump wins, a lot of things could change (although many would say not in a good way). 

If Bernie Sanders improbably gets the Democratic nomination, he might well defeat Trump and the Democratic Party would have to change.  But that would be in ways that he's already begun forcing it to change.  Bernie, however, isn't an Establishment guy, and the Democratic power brokers have moved to repel his assault on their ramparts.  We have an odd election cycle--the Democrats indulge in machine politics, where might makes right.  The Republicans, much to their consternation, have become democratic, with voters imposing their will on the power structure.  The establishments of both parties should be reflecting on their shortcomings.  But don't expect them to instigate change on their own.  That will have to be forced on them by the electorate.

In Choosing Clinton, Will the Democrats Take the Harder Road?

With Ted Cruz dropping out of the Republican primaries after losing in Indiana, it really does matter whether the Democrats nominate Hillary Clinton or Bernie Sanders.  A recent Reuters poll shows Clinton leading Trump by almost 9%:  http://polling.reuters.com/#!poll/TM651Y15_13.  However, in another Reuters poll, Sanders leads Trump by 16%:  http://polling.reuters.com/#!poll/TM651Y15_14. Polls taken two months ago show that Sanders was comparably stronger against Trump than Clinton:  http://blogger.uncleleosden.com/2016/03/bernie-sanders-is-most-electable.html.

Donald Trump will now surely be the Republican nominee.  He has displayed remarkable political talent, and has blasted his way through a vast field of experienced, well-funded and strongly supported career Republican politicians.  Hillary Clinton's negatives and baggage offer Trump big, fat, juicy targets.  With his skill at handling the media, he may well close the 8-9% gap between himself and Clinton and force her into an extremely tight race.  Bernie Sanders, by contrast, with his humble background, modest finances, and rumpled clothes, presents a harder target to hit.  There aren't that many cheap shots Trump could take at him.  Trump would have to attack Sanders' policy proposals and platform--and that's exactly where Sanders would like the debate to be.  By relentlessly pushing his ideas, Sanders closed an enormous gap between himself and Clinton.  He's won with his ideas and his victory today in Indiana shows his continued appeal to voters.

Contrary to what many self-satisfied Democratic insiders believed this morning, the Republicans will not tear their party apart.  Trump has the rest of the Spring and the Summer to stitch together a united Republican front.  Sanders, having just won Indiana and likely to win more upcoming primaries, isn't stepping out of the race.  The Democrats face a dilemma:  whether to nominate Clinton, the candidate with the most power within the party, or nominate Sanders, the candidate most likely to beat Trump.  Power politics will probably prevail.  But in choosing Clinton, the Democrats may be taking the harder road to the White House.

A Generation of Stagnation; Retirement Walks the Plank

We are now looking at a generation of stagnation.  The recovery from the 2008 financial crisis still wobbles like a drunk.  Even though we now have full employment, wages barely keep up with inflation (if at all).  And recent statistics indicate that inflation is growing as fast as a parched lawn.

Regardless of what this Federal Reserve official or that says, the central bank will raise rates as often as humans walk on Mars.  If you're wondering when rates will return to historical norms, the answer is never.  At least, this is the only rational assumption you can make.  With Asia's growth slowing, Europe's growth nonexistent, South America in free fall, Russia going negative in numerous ways, and the Middle East becoming more unstable with each passing day, and no drivers of growth in America except the Fed money printing presses running 24/7, the only future forecast that seems sensible is to expect stagnation for--well, the rest of your life.

With stagnation instead of brisk economic growth, the government's ability to support retirees will be limited.  While Social Security and Medicare won't disappear, they will likely be parsimonious.  If you drop your porridge bowl, they won't refill it.  And pension fund and personal investment returns are being decimated by low interest rates on bonds and bank accounts.  Your retirement is starting to walk the plank.  What to do, then, about your future?

Spend less, save more.  This is a no brainer.  It's not what the Fed wants, because hesitant consumer demand constrains economic growth.  But the Fed be damned.  Your long term well-being requires the thriftiness of Ben Franklin, and if that results in lower economic growth that makes the Fed look bad, well who cares?  (Or, you can substitute more lively terminology if you wish).  With interest rates so low, you can't use the financial magic of compounding to build much of a retirement (see http://blogger.uncleleosden.com/2009/09/if-you-love-compounding-compounding.html). You have to set aside more principal, and hope that the few crumbs of interest income you get will elevate your retirement diet above dog food.

Put some money in stocks.  The inequality of wealth in America has increased because the Fed's easy money policies tend to inflate asset values.  Since the rich own most assets, their wealth  has increased disproportionately from central bank policies.  Realistically, with stagnant wages and a Republican controlled Congress, you can't expect the inequality of wealth to diminish.  (Maybe things would be different if Bernie Sanders is elected President, but both the Democratic and Republican establishments are using all their smoke-filled back room influence and power to prevent that.)  So you might as well join 'em if you can't beat 'em.  Owning stocks can be gut wrenching in times of market turmoil.  But so is a retirement spent eating dog food.  Learn to live with the market's turbulence, and collect the rates of return that the 1% are getting from equities.

Work longer.  This increases your lifetime earnings, which allows you to save more and build up your Social Security benefits.  If you're lucky enough to have a pension, it will likely increase your pension benefits.  Okay, so working longer means a shorter retirement.  But, like we said, retirement is walking the plank.  Just try to avoid having to live in a cardboard box on the sidewalk with a couple of cans of cat food in your raggedy backpack.

Avoid debt.  You can't go bankrupt if you don't borrow.  If you do borrow, some of your future income will go to banks and other lenders in the form of interest payments, instead of enhancing your future lifestyle.  Granted, you may need to borrow for big ticket items like college, cars and a house.  But otherwise, avoid debt.  And pay down the debt you have as you approach retirement.  Especially, lose the mortgage.  Financial advisers may tell you it's okay to have a mortgage in retirement.  But guess what?  If you have a mortgage, that means you may have more financial assets to invest in ways that pay fees and commissions to the financial advisers.  Meanwhile, you have to pay interest on the mortgage debt.  Who's better off?

For more on ways to yank your retirement back off the plank, read http://blogger.uncleleosden.com/2009/11/techniques-for-retirement-saving.html, http://blogger.uncleleosden.com/2009/07/simplest-financial-plan-of-all.html, and http://blogger.uncleleosden.com/2011/01/hope-for-financially-lost.html.  Good luck.

Bernie Sanders is the Most Electable Candidate for President

The latest CNN/ORC poll shows that Bernie Sanders is the most electable candidate for President.  He would beat Trump (55% to 43%), Cruz (57% to 40%) and Rubio (53% to 45%).  By contrast, Hillary Clinton would beat Trump (52% to 44%), but would trail Cruz (48% to 49%) and Rubio (47% to 50%).  In other words, Sanders is the candidate most likely to win the Presidency in the general election, should he become the Democratic nominee.  Clinton's well-known negatives continue to dog her.

Clinton is supposed to be more electable than Sanders, but the latest poll negates that notion.  While Clinton has numerous advantages that give her the lead in the primaries for the Democratic nomination, she appears more likely to lead the party to defeat in the fall.  Sanders faces a difficult, uphill path in the primaries.  But if he succeeds in getting the nomination, he may well be the next President of the United States.

So if you're voting Democratic, and want to increase the chances for a Democratic President for the next four years, choose Bernie Sanders.  You can find the new CNN/ORC poll here: http://www.cnn.com/2016/03/01/politics/donald-trump-hillary-clinton-bernie-sanders-poll/index.html.

Hillary's Obama Gambit

Hillary Clinton has embraced Barack Obama's policies and legacy, and has promised to continue them if she is elected President.  This has helped her draw the support of African-American voters, who she desperately needs to counteract Bernie Sanders' appeal to the young and the independent.  It's helping her now, in South Carolina and other Southern states.  But she will pay a price if she becomes the Democratic nominee.

The key to the general election will be the ability to attract the support of independents.  The Republican and Democratic nominees, whoever they may be this year, will have the support of the conservative right and liberal left, respectively.  The winning candidate will be the one to whom independents flock.  Independents, to be sure, aren't always the same as moderates or middle of the road voters.  They are often beyond classification, very conservative on some issues while simultaneously very liberal on others.  But if you try to paint them as libertarians, they will turn out to be staunch supporters of big government safety net programs like Social Security and Medicare.  These are the disaffected drawn to Donald Trump and Bernie Sanders.  They often don't like Barack Obama or Hillary Clinton.  And they are likely to dislike Clinton even more for embracing Obama's legacy.  By positioning herself as Barack Obama's ideological successor, Clinton makes herself less attractive as a candidate to a large group of voters who are likely to be crucial to victory. 

Barack Obama had an almost unique ability to draw the support of traditional Democratic constituencies and independents.  Hillary Clinton doesn't have that ability.  By promising to take up Obama's mantle, she has made herself into a target which, in the general election, the vast right wing conspiracy will bombard with Super PAC funded ads highlighting her sworn fealty Obama.  Many of the Obama haters will turn against her, and vote for the other candidate.  Traditional Democratic constituencies may not be enough to elect her.  She's gained a short term advantage, but a long term problem.

Bernie Sanders' Appeal

Bernie Sanders is now running neck and neck with Hillary Clinton in the first two primary states, Iowa and New Hampshire.  How is it possible that a first term senator, an avowed Socialist, from one of the smallest states, a virtual unknown a year ago, could challenged the mighty Clinton political machine?

In a word, because he cares.  Bernie Sanders is a throwback to the 1960s, a let's-change-the-world type who, after fifty-five years, seems still to be responding to John F. Kennedy's challenge:  "ask what you can do for your country."  His campaign is about helping others and improving their lives.  His rumpled sartorial disarray is vivid evidence that he doesn't obsess over himself.

By contrast, Hillary Clinton continues to run a perfectly coiffed, highly calculated, endlessly scripted campaign focused on burnishing her image, protecting her from attack, and saying what the pollsters tell her voters want to hear.  It's hard to avoid the feeling that she's in it for herself, that this is all about Hillary. 

Voters respond favorably to candidates who care about them.  That's Politics 101, but not every politician seems to get it.  Bernie Sanders does.  Even though he still faces a very steep climb to get the Democratic nomination, his chances are growing.  Eight years ago, a first time senator from Illinois convinced voters that he cared about them, and beat Hillary Clinton for the Democratic nomination.  It could happen again.