If I were a government employee ensconced deep in the bowels of the Interior Department, FBI or The IRS, I’d be embarrassed. It has only been a little over three weeks since Inauguration Day and the new POTUS (a.k.a. The Donald) has accomplished more than many Washington DC 9-to-5’ers did in all of 2016.

But is all the hype being matched with reality? In the new world of Presidential conduct, nobody wants to incur the wrath of a Trump Tweet. There is a clear incentive for business to at least give the appearance that the Trump rally is genuine.

Corporations like General Motors to General Electric are busy making splashy headlines about manufacturing projects that will create US jobs. Even House Speaker Paul Ryan seems to be falling into line. The new administration got off to a rousting start, but Washington is a muddy swamp that is hard to drain.

Mr. President is out to embarrass every politician since BT Barnum by actually living up to his campaign promises. Democrats may roll there eyes when ever the Trump name is mentioned, but you got to respect any politician who seeks to tell the truth and deliver on their promises. But can he do it?

As a lifelong Republican, I hate to acknowledge, the odds are stacked against it. All the evidence suggests lower taxes will stimulate the economy but do little for the staggering $20 trillion (and growing) national debt.

The United States has enjoyed an extended period of very low inflation. Bringing jobs back to the US where wages are 10-20 times higher than in places like India will bring with it sizable inflationary pressures. Then there is that sticky issue of getting Congress to fall in line with hostile trade legislation.

Considering how unorthodox and even scary Trump’s campaign promises were, it is amazing how the financial markets have reacted. Just look at US stocks. Since Election Day, the NASDAQ is up over 15%, and the S&P 500 by nearly 13%. The bellwether Dow Jones recently closed above 20,611 marking an all time high.

The often ignored CBOE Volatility Index (VIX) fell like a stone from over 22 back in November to just a smidge over 10. Translating this into English, the market psychology went from OMG (Oh My Gosh!) to OMG (Oh My Goodness). This single measure tells the whole story about investor expectations.

The last few months market appreciation has been 50% greater than a full year average. And, it has occurred in the face the Fed raising interest rates in December and the yield on the 10 year Treasury Note increasing an astonishing 44% hitting 2.6% before retreating slightly.

Putting this into perspective, raising stock prices of this magnitude accompanied by rising interest rates of that magnitude has simply never happened before.

Here is an important distinction between a stock market rally and true economic reality. Mr. POTUS’s growth rate target contained in his campaign and one that this stock market rally leans on is 4%. This is a long way from fourth quarter 2016 GDP growth of only 1.9% and 1.6% for all of 2016.

The New York Times called the 4% target, . . .”audacious at best and fanciful at worst especially given the 2% rate or so growth that has prevailed since the current recovery began in 2009.”

Granted one would expect the New York Times to be the loudest naysayer. Nevertheless, many economists share this point of view. They argue with some authority that demographics and stagnating productivity make the 4% target a higher wall to climb than the one Mexico is going to pay for.

With such a gap between current and projected economic growth, with multiple interest rate increases very likely in 2017, it would be reasonable to expect investor psychology to be brimming with angst. Instead the VIX around 10 suggests just the opposite.

The current trailing 12-month value on the S&P 500 is 26.31 times earnings. This is the third highest valuation going all the way back to 1880. About the only time valuations were so inflated was in 2000 during the dot COM bubble. We know how that turned out.

It would be unfair to end here without giving credit to the list of business friendly plans President Trump is likely to get through Congress. If his ambitious agenda is only half successful, “America Will Be Great Again”. That is why the years ahead are exciting. This is why the market will draw investment capital.

The reality today is a more somber story. It is just a matter of time before this reality sets in, probably before Melania and Baron move into the White House. So keep your seat belts on and your buy tickets ready.

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