In a weekend tweet, the president of the United States of America made a stock market forecast.

He said that prices will go up ‘dramatically’ as he brings his Art of the Deal methods to international trade negotiations.

Never before in the history of the nation has a president — aided, abetted, and advised by thousands of the smartest people on the planet…with almost unlimited research budgets…tracking every detail and recording every conversation — offered stock market forecasts.

Move over, Jim Cramer. And who needs Warren Buffett? And you can forget Ben Graham and Charles Dow, too. If POTUS doesn’t know, who does?

He went to the formerly prestigious Wharton School of Business…and is ‘like, a really smart person.’

Never before have Americans had such a stark and simple choice.

Right-thinking patriots now know what to do: buy, buy, buy. This sucker is going up! As for the rest of us, we hedge our bets.

 

‘In the 5s’

But what has been most delicious in the feast of news over the last couple of days is the remarkable optimism…the untethered positivism…the unabashed, can-do spirit of America’s ‘numero uno.’

Some will say the president is a liar. Others will say he is a fool. What staggers us is his imagination.

On Tuesday, President Trump offered an economic prediction to go with his market forecast. He said that GDP growth was accelerating and ‘could be in the 5s’ for this quarter.

From the Associated Press:

‘Trump also hailed his own economic and trade policies, saying he is ‘‘taking our economy to incredible new heights’’ in spite of fears of damage from the escalating trade disputes he has provoked.’

‘You’re gonna see some really super growth,’ he promised.

Holy, schmoly. We need sunglasses; we can’t remember the last time so many rosy scenarios all blinded us at the same time.

Better trade deals…soaring stock prices…growth over 5% (it has averaged only about 2% for the last 10 years)…record unemployment with more people working two jobs than ever before…

Even our Doom Index is looking less ‘doomy’. Our head of research, Joe Withrow, reports:

‘The Doom Index ‘‘cooled’’ back down to a 6 this quarter — our ‘‘soft warning’’ level. We are still seeing a tale of two worlds in that our financial metrics are flashing warning signs…but our ‘’real’’ economy metrics remain relatively robust.

‘We once again saw more corporate bond downgrades than upgrades this quarter…and that’s been the case for 11 of the past 12 quarters. That tells you that serious cracks are forming in the credit markets.

‘And speaking of US stocks…traditional valuation metrics are still higher than they were in 2007. That hasn’t changed…and, of course, remains a major warning sign.

‘I attended a talk given by hedge fund manager Mark Yusko in New York last month, and he basically said the same thing we have been saying for a while now: Stock market returns are likely to be awful over the next decade. He thinks we can expect -4% to 0% returns over the next 10 years…

‘Putting it all together, the Doom Index is issuing a soft warning this quarter. It’s probably not going to be smooth sailing in the stock market…But it doesn’t look like the bottom is about to fall out, either.

 

Sufficient revenue

But wait, there’s more…Mr Trump says the national debt is going down, too — thanks to his tariffs.

The New York Times has the story:

‘President Trump has a new plan for how to pay down the national debt: Taxing American consumers and businesses when they buy certain goods from countries subject to his tariffs. […]

‘Mr. Trump contended over the weekend that the tariffs his administration has imposed on steel, aluminum and a variety of imported Chinese goods will soon begin to generate sufficient revenue to reduce the federal debt.’

And here we see the delightful quality of Donald J Trump’s imagination. He’s proposing to turn an $800 billion trade deficit into a tariff-fuelled fiscal surplus.

Of course, that is never going to happen. But it reveals Mr Trump as an economic genius…or a hopeless dreamer…or an imbecile. We will deconstruct his weekend tweets; we leave you to decide (emphasis is ours):

‘Every country on Earth wants to take wealth out of the U.S., always to our detriment. I say, as they come, tax them. If they don’t want to be taxed, let them make or build the product in the U.S. In either event, it means jobs and great wealth.

‘Because of tariffs we will be able to start paying down large amounts of the $21 trillion in debt that has been accumulated, much by the Obama administration, while at the same time reducing taxes for our people.’

The suggestion that countries take wealth out of the US is curious. People trade with each other, and all want to come out ahead. Governments get in the way.

As of today, for example, we are told that we may no longer buy Persian carpets…because Mr Trump has some grudge against Iran’s government. (We presume he has nothing against its carpet makers.)

But how do the foreigners ‘take wealth out’?

When Japanese manufacturers send TVs or cars…they do so in exchange for mere electronic notations — aka ‘dollars’.

Buyers and sellers are presumably happy with the deals or they wouldn’t make them. Who puts in wealth? Who takes it out? How is that to our ‘detriment’? We don’t know.

 

Genius hypothesis

Then, the proposed solution: tax imports.

Let’s see, Americans will pay higher prices. Consumers will have fewer options…and less money. Where does the ‘great wealth’ come from?

Proponents of the ‘genius hypothesis’ for Mr Trump will say that his negotiations will lead to freer trade. But that is not at all what the ‘tax it or build it here’ threat implies. It proposes limiting trade.

And then, there is the claim that these taxes on imports will reduce the federal debt.

Hmm…Here, the president really has let himself run away with his mythomaniac tendencies. The federal debt is not going to be reduced by tariffs. Not even close.

Obama ran big deficits. Trump has caused even bigger ones. If you were to lower the national debt, you’d first have to bring the deficits down to zero.

There’s a trillion-dollar gap that needs to be filled. Total imports in the US are about $2.3 trillion. You’d need to tax the whole kit and caboodle — raising the cost on a vast range of consumer items in America — by about 40%.

Is that going to happen?

Of course not.

Would it help the economy or make Americans wealthier?

Of course not.

What will happen?

We don’t know. And we can hold out hope that Mr Trump and his fans are right. But our guess: The good news and fantasies will continue until they come to an abrupt stop.

Then, the 5s will become 0s.

 

Regards,
Bill Bonner