Peter Schiff: Political Rhetoric Vs. Economic Reality

Friday, February 9, 2018
By Paul Martin

Fri, 02/09/2018

Just over a week ago, President Trump delivered the State of the Union speech. The president gave a speech with a decidedly optimistic tone. This was certainly welcome with the increasingly fractured and divided American political landscape. But it’s important to focus beyond the political theater and take a hard look at where the US economy really is and where it is heading. Unfortunately, the political rhetoric doesn’t always line up with economic reality.

As Peter Schiff has said on numerous occasions, President Trump has taken full ownership of the current bubble economy. In doing so, he’s setting himself up as the fall-guy when things turn sour. Peter put it in pretty stark terms during an interview with Stock Pulse at the Vancouver Resouce Investment Conference.

He is so caught up in this bubble now in the stock market. He’s branded it … The stock market has a big ‘T’ on it for Trump, like one of his buildings.”

So, how exactly does the political rhetoric coming out of the Oval Office stack up against the current economic realities?

Dan Kurz at DK Analytics provided a pretty good breakdown of some key issues where the positive talk doesn’t line up with what’s actually going on.

1. What used to be an ugly stock market bubble that would be pricked by higher interest rates, according to candidate Trump, is now proof that president Trump is doing a great job. Yet, the S&P 500 is currently trading nearly 25x EPS, the broader Wilshire 5000 Index has rocketed higher, and margin debt is nearly $600 billion – a record.

2. In the interim, a recession, which is way overdue, will crush earnings; US aggregate debt rises between $1 trillion and $2 trillion a year; and interest rates are rising smartly, which will pummel valuations if it continues, especially with a recessionary EPS downdraft of 50% plus being likely in the near future based on precedents. (We review such a scenario in some detail in posts #25 and #24, wherein we quantify the rising interest rate impact on the S&P 500’s NPV and wherein we remind investors that markets are “reversion beyond the mean” machines, respectively.)

3. What used to be a fake unemployment rate when Trump was a candidate is now lauded as the “real deal,” even as the civilian labor force participation rate of 62.7% hovers near four-decade lows and two or three low-paying, no-benefit part-time jobs swell the employed ranks while full-time positions continue to be culled. This is insincere.

4. During the address, Trump also stated, “Under my administration, wealth is starting to return to America instead of leaving it.” Mr. President, sadly the opposite has been happening, at least so far, as evidenced by a continued rise in the US trade deficit, a substantial portion of which is due to rising oil import prices (and no, Donald Trump, we are not energy self-sufficient. We remain net importers of oil, and our gap could expand as the fracking bubble collapses). Once again, the president’s claims here are misleading at best.

5. President Trump talks a lot about regulatory reform liberating businesses to hire and invest. According to the American Action Forum outfit, regulatory relief of $560 million p.a. from Executive Order 13,771 (two struck for every new regulation or “reg”) can be expected. While praiseworthy, this is but a rounding error compared to an estimated $2 trillion-plus in annual regulatory compliance costs for US economy. While a sharp reduction in federal register pages (where federal rules and regs are published) from Obama’s “out the door” bloat looks promising, we wonder how any true or lasting reforms can be achieved until regulatory agencies are shut down and statist/leftist bureaucrats are fired, esp. given the risk that the GOP control of the fed government could prove only temporary — which Trump himself recently warned about.

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