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The Trump Rally, A Psychic Shift

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The stock market rally has to end sometime. If we only knew the answer to when and how it will end, we could make a fortune. Unfortunately, we don’t. We could turn to the reams of statistical data the highly paid Wall Street economists and market strategist use to forecast the future. There is only one problem with this approach. It isn’t working.

Let’s be clear, we are not dishing out investment advice we’re talking about a cosmic shift, a perceived change in the winds. Some things are based in facts; this is about emotion and what that involves.

Generally speaking, economists agree that the data is flashing warning signs. In response they shrug their collective shoulders and note how hard facts don’t matter, the market keeps going up.

In the guide to stupid sayings, the four most dangerous words are: this time it’s different. When pretty much normal, sane, rational people with knowledge and experience look at any set of facts and conclude: this time it’s different, huge red flags appear.

Similar red flags appeared during the dot COM bubble when people were really partying because it was 1999. (Thank you Prince). The tech laden Nasdaq shot from 4000 to 5000 in a matter of a few weeks. That’s a 25% move in no time. Back then there were lots of pundits waiving green flags claiming, this time it’s different.

The post election euphoria is starting to give way to cold reality. As hard willed and stubborn the President may be to keep all of his campaign promises, it isn’t going to happen. As exuberant as the investment and business community was just after the election, reality is setting in.

When President Trump recently said, “Who knew healthcare could be so complicated”, he could have applied the same logic to Washington in general. At the time of the election, who knew that a Republican majority in both houses of Congress could be so complicated? Congressional Republicans are no more a unified team than last year’s edition of the Cleveland Browns. That spells trouble of President Trump’s legislative agenda.

Here are a few points to consider. According to former White House budget director David Stockman, the budget deficit has accelerated dramatically since the first of the New Year. Not Donald Trumps fault but still a problem. Stockman estimates the cash on the Treasury Department balance sheet will run out this month. Maybe not the end of the world, Congress can approve a new debt ceiling. But this is not good for stock market psychology. Remember, positive psychology is about the only thing holding the market up.

Wall Street lemmings are finally beginning to raise concerns. The news media is the Presidents biggest enemy so any Wall Street criticism will get prominent coverage in The New York Times and elsewhere. Case in point is a headline in CNBC that appeared this week: “Economists think Trump is wrong on budget, trade, Obamacare and immigration.”   That is pretty much Trump’s entire platform except for energy. That is practically an indictment from one of the most pro business outfits this side of the Hudson River.

The interest rate situation doesn’t make the sock market predicament any easier. Many Fed watchers expect a rate increase shortly when the FOMC meets on March 15th. This might not be the only increase this year according to those people who spend their nights and weekends watching Janet Yellen speeches on YouTube.

Stock market investors have never been comfortable with rising interest rates. The “it’s different this time” crowd will point out that rates are way below normal and a few ticks up won’t matter that much. Others disagree. There is a school of thought that much of the global economy remains weak and that any boost in US interest will send the value of the dollar higher and disrupt global trade.

The future is quickly approaching and we will all find out if, “this time it’s different”.

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