Trump Tariff--Obama Bull Market Terminator
Market Parallel
In November last year, IBD published an interesting article : The Case for Trump Bull Market. The article compared current market with Reagan's Bull Market after Stagflation 1970s. To accurately interpret which stage is current bull market--starting on March 9, 2009 right after Obama went to White House,
Reaganomics
In January 1981, Ronald Reagan became US president after beating incumbent president Jimmy Carter by landslide through the following six-plank creeds of Reaganomics:
- Reduce personal income tax rates;
- Eliminate inflation and restore a strong dollar;
- Downsize the government and balance the budget;
- Deregulate key industries like energy, financial services, and transportation;
- Expand free trade and embrace globalization;
- Win the Cold War by rebuilding the military.
Except for failing to balance the budget, Reagan almost accomplished every agenda in his 8 year of tenure. Notably he succeeded to warm up Gorbachev to sign up Intermediate Nuclear Forces Treaty, paving the way to democratize the ex-Soviet Union and ending the Cold War.
During the past 100 years of market history, every major bull market happened in the time of peace and low inflation as Jeffrey Hirsch evidences in his masterpiece of Super Boom. By ending the Cold War and eliminating high inflation, Reagan created a benign geopolitical environment for the bull market to continue without perma bears in next 10 years. However the real catalysts to drive the Reagan bull market were free trade and tax cut, which energized USA economy.
Laffer Curve
If tax cut happens within a country, free trade is another tax cut between countries. In 1974 Arthur Laffer created the concept of Laffer Curve which is coined by Jude Wanniski. It says for each tax revenue, there are two tax rates to achieve it; In many cases, the lower the tax rate, the high the revenue, which is counterintuitive and bothers so many policy-makers before JFK who was the pioneering president to implement tax
Free trade and tax cut are two key pillars of Reaganomics. Which is more crucial to the growth of economy: free trade or tax cut?
During Clinton era, tax were raised but free trade kept, economy still grew solidly. Therefore we can at least say free trade seems to be more crucial than tax cut. So how free trade or trade tariff impacted economy and stock market?
Smoot-Hawley Tariff
According to Jude Wanniski research,
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On June 13,1930,the Senate voted , as the Times reported the following day:
Senate Passes Tariff Bill by 44 to 42; Europe Takes First Move in Reprisal;Germany and Belgium to Stop Buying Here. On this news, stock market dropped 14 points on the DJIA to 230.
On Monday, the stock market reacted to the loss of the last hope of tariff bill. The June 17 Times front page reported:
Break in Stock and Commodity Prices;Selling Swamps Exchanges; leading Issues Tumble as Wall Street Assails the New Tariff...
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Granted, lot of other reasons contributed to 1929 market crashed and afterward Great Depression,
Trump Economic Plan
Trump's economic plan are:
- Tax cut;
- Cut Government Spending;
- Deregulate financial industry, etc.
- Repeal Obamacare;
- Adopt Trade Tariff;
- Create Jobs;
- Reduce debt and Seek Strong Dollar;
- Send Illegal Immigrants Back;
- Enhance Military capability .
Comparing Reaganomics with Trumpnomics, we can find there are lot similarities. No wonder some people think Trump will be next Reagan.
But a major difference exists: Reagan promoted free trade and initiated
Marketwise, Reagan's bull market started after sluggish stock markets in previous decade; while Trump market begins after 8 years of Obama bull markets. Historically margin positive impact or even slight negative impact may upend bull market.In other words, any material negative catalyst may drive market players to take profit after long bull markets.
As the above evidenced, Trump Trade Tariff may highly likely hammer the US economy and send global stock market into a bear market or correction. After Reagan
So far market seems to confuse with the fact that
As an old saying puts: if Santa Clause cannot call, bear will come to Broad and Wall. This time the market moved weirdly during the first 3 days of Santa Clause. maybe the markets know some painful uncertainties ahead: trade war, interest rate hiking, Brexit, elections in French and Germany, and unpredictable Trump's economic policy.
If
Happy New Year to All
Gunning Ju
A Market Analyst
Reference:
1. The new American Economy( 2009)--Bruce Bartlett;
2. Clintonnomics (2009)---Jack Godwin;
3. Super Boom(2011)--Jeffrey Hirsch
4. The Reagan Years( 2000)---Darv Johnson;
5. JFK and Reagan Revolution(2016)---Lawrence Kudlow,etc;
6. The End of Prosperity(2008)--- Arthur Laffer, etc.;
7.It is the Time to Get Tough(2016)--Donald Trump;
7.It is the Time to Get Tough(2016)--Donald Trump;
7. The Way the World Works(1978)---Jude Wanniski.
