Now Comes the “Trump Slump"

Posted On Feb 23, 2017 By Dave Gonigam

  • All talk, no action: Market starts to see through the tax-cut talk
  • Stockman on why Trump can’t repeat the “Reagan revolution”
  • The Dallas pension crisis… coming to a town near you
  • Bureaucrats gone wild: Job-killing tax increases, First Amendment violations
  • Why cops’ jobs are secure even when marijuana’s legalized

If we had to mark it on a calendar… we’d venture that today’s the day Wall Street started to realize the Trump economic agenda is much like Gertrude Stein’s description of Oakland: “There is no there there.”

Before the market open, Treasury Secretary Steve Mnuchin went on CNBC and pledged the Trump administration’s commitment to getting tax reform done before Congress heads back home for its late-summer break.

“We want to get this done by the August recess,” he said. “We’ve been working closely with the leadership in the House and the Senate, and we’re looking at a combined plan.”

Sounds great! What are the details, sir?

Sorry, no dice. “Look, as I’ve said before, we’re primarily focused on a middle-income tax cut and simplification for business.”

No numbers, no discussion of what rules might be axed. Just more of the same feel-good pablum.

The August timeline isn’t something Mnuchin just pulled out of his posterior because it sounded good.

He knows too well that Wall Street has constructed a fantasy in its collective mind about the Trump administration as a “Morning in America” rerun of the Reagan administration.

Reagan was inaugurated on Jan. 20, 1981; the Kemp-Roth tax cut passed both houses of Congress by Aug. 4.

That was a significant feat on its own. But the Trump administration has set the bar far higher… because the White House and Congress have agreed that Obamacare reform is supposed to get done before the tax bill.

If Mnuchin had said something, anything, specific… the major U.S. stock indexes would be screaming still higher into record territory today.

Indeed, they’re all in the red as we write, the Dow off a tenth of a percent at 20,752. The small-cap Russell 2000 is off more than 1% at 1,388; that’s the sound of traders hitting the “sell” button as they realize the next catalyst for growth in small stocks won’t be coming from a tax cut.

“It won’t be long until the impending collapse of the post-election Trump-O-Mania frenzy in the stock market,” says our David Stockman.

David’s been saying since early December that the Trump agenda is doomed and Wall Street’s expectations will be dashed. He says so with the authority that comes from being “present at the creation” of the Reagan tax cut in 1981 — when he was White House budget director.

We forgot all about it till today… but if you look on YouTube for “A Day With President Reagan,” you’ll find an NBC News special from Feb. 13, 1981; MSNBC reran it late the night of Reagan’s funeral in 2004. Midway through, there’s a four-minute section with David drawing detailed strokes of a budget plan for Reagan’s Cabinet, in office barely three weeks.

1981: A man with a plan [NBC News screengrab]

It’s striking to watch now… because it reminds us we’ve seen nothing approaching those specifics coming from Team Trump. Heck, it wasn’t till seven days ago that the Senate confirmed the current budget director, Mick Mulvaney.

“There is not a snowball’s chance in the hot place that the frail GOP majorities on Capitol Hill will pass a giant Reaganesque tax cut financed with red ink,” says David now.

“Washington is at a fiscal dead end with a $20 trillion public debt already in place and $30 trillion baked into the cake by the middle of the next decade. And that’s under existing policy, before even a single dime of the Trump tax cuts or infrastructure stimulus is added to the equation.

“The ranks of tea party Republicans and Freedom Caucus fiscal conservatives simply will not walk the plank for a 10-year budget resolution that would result in a Greek-style public debt at 140% of projected GDP…

“Without a FY 2018 budget resolution, there will be no ‘reconciliation instructions’ on tax reform. Without the latter, the Senate will become a 60-vote, filibuster-driven killing field for tax reform.”

That’s serious enough… but in addition, “the Trump White House is already on the verge of a terminal political crisis,” David declares.

“After the travel ban fiasco, the Flynn resignation imbroglio, the massive anti-Trump leaks coming from the bowels of a hostile national security establishment and the renewed media campaign to re-litigate the 2016 elections over the Russian meddling canard, the incipient Trump administration is already mortally wounded.

“The ruling elites are determined to take The Donald down, and whether they succeed or not, it is extremely probable that Washington will grind to a halt — Watergate-era style — by early spring. There will be no giant tax cut, but there will be a news flash at some point soon crystalizing that very fact.

“Then the meltdown will begin, and the stock market will be bidless because all the robo-machines will be selling the news of breakdown, dysfunction, fracture and crisis in the Imperial City, not Donald Trump’s ‘hopium’ tweets.”

[Ed. note: With 40 years of experience both in Washington and on Wall Street, David knows exactly what Trump is up against — and that people are out to get him.

It’s still not too late, but time’s running out. In his latest book, Trumped!, David explains how Trump needs to “make 10 great deals” to take back America from the swamp critters. Only then can American democracy be restored.

You can get a copy of Trumped! FREE. We urge you to act before March 15 — when the national debt ceiling comes back into force, all of the GOP’s divisions will be laid bare and the fireworks are set to explode. Click here to claim your copy.]

While stocks are stumbling today, gold is rallying on dollar weakness — the bid approaching $1,250 for the first time since the post-election dump…

If it can happen in Dallas, it can happen anywhere — including your town.

This week, Texas lawmakers are pulling together a rescue plan for the Dallas Police and Fire Pension, which is $5 billion in the red and on the brink of collapse. The retirement age would be raised from 55 to 58. Cost-of-living adjustments would go bye-bye. But Dallas taxpayers would take some of the bullet, too: The city would have to up its annual contribution to the fund from 27% of payroll to 34.5%.

Back in December, we told you how the fund suspended lump-sum withdrawals, seeing as it would go broke otherwise. At the time, we were assuming the fund’s managers had fallen victim to something we call “the 8% illusion” — the assumption that 8% average annual returns the last 25 years will continue for another 25.

Turns out it’s even worse — 8.5%! At a time when bond investments yield precious little (a 10-year T-bill is 2.4% this morning), it takes some mighty hefty stock-market returns to make up for that. Thus, the fund has registered an average 1.5% loss over the last five years.

Here’s the point we can’t make often enough: If a pension fund in prosperous Dallas can get into deep trouble, nowhere is safe.

We’re not talking about, say, Detroit — which went into Chapter 9 bankruptcy in mid-2013. The auto industry was hollowed out. The population was shrinking, but pension costs were growing.

Dallas’ population has tripled over the same 60-year span that Detroit lost a million people, points out Eric Boehm at Reason. “The mismanagement of public retirement programs can wreck a city,” he writes, “even in places that aren’t already suffering from larger budgetary issues that go beyond their pension funds.”

States and cities can’t print money… and borrowing only goes so far. Either services have to be cut or “new taxes and weird fees” come into force. It might not be headline news in your neighborhood yet… but eventually it will. Count on it.

From our Bureaucrats Gone Wild department, we see a big-city soda pop tax is both cratering the city budget… and killing jobs.

Two months ago, Philadelphia imposed a 1.5-cent-per-ounce tax on both sugary and sugar-free beverages to fund schools and parks. Now supermarkets are reporting a drop in sales of up to 50% as city shoppers venture into the suburbs. The city expected to generate $7.6 million a month with the tax, but January’s take is only $2.3 million. (Of course, the “new” money for the schools and parks is already spent.)

Now comes word one of the city’s largest beverage distributors will cut 20% of its workforce next month. And one of the big grocery chains will drop 300 jobs.

Mayor Jim Kenney says the tax was a monumental mistake, and he’ll push the city council to repeal it as quickly as possible.

Just kidding… He’s blaming business for his predicament. “I didn’t think it was possible for the soda industry to be any greedier,” he tells The Philadelphia Inquirer. “They are so committed to stopping this tax from spreading to other cities that they are not only passing the tax they should be paying onto their customer, they are actually willing to threaten working men and women’s jobs rather than marginally reduce their seven-figure bonuses.”

From our Bureaucrats Gone Wild (But Restrained by the Courts) department, a federal judge has blocked a California law that tries to bar the website IMDb from including ages in its profiles of actors.

We’ve been following the fates and fortunes of this preposterous legislation ever since Gov. Jerry Brown signed it in September. Under the law, actors could ask IMDb or similar sites to delete their birth dates and ages.

“U.S. District Court Judge Vince Chhabria ruled Wednesday that the California law likely violates the First Amendment and appears poorly tailored to proponents’ stated goal of preventing age discrimination in Hollywood,” reports Politico.

The story’s not over… but the judge says IMDb stands a good chance of prevailing in its lawsuit against the state, so he’s ordered the state not to enforce the law for the time being.

“The reduction in pot arrests probably will not be the windfall yesterday’s reader is anticipating for governments in pro-pot states,” writes a reader about revenue from legalized marijuana.

“Marijuana arrests are used by police agencies to pad their arrest numbers, generate revenue and justify high officer head counts. If the pot busts disappear, police layoffs are sure to follow, unless these jurisdictions use some of their newfound wealth to subsidize their police populations.

“The fact that public-employee unions provide a large percentage of the contributions that fund local political campaigns makes that more likely than it may appear at first glance.”

The 5: You’re underestimating the creativity of the bureaucratic class.

After all, “reefer madness” didn’t get cranked up until the mid-to-late 1930s. That was just a few years after Prohibition was repealed, and that was no coincidence. You think the massive apparatus that enforced Prohibition was just going to close up shop? J. Edgar Hoover was many things, but he was no fool.

And so it goes today. Marijuana is becoming legal in more and more places… but lawmakers and the media are trying to scare us all over something called “kratom.” Google it if you’re not familiar. Bans are coming into force in many cities and states.

Besides, if the cops really do run out of things to do, they can always be deputized into Trump’s federal deportation force. The private prison companies have been rallying hard since the election, with CoreCivic (CXW, formerly Corrections Corp. of America) more than doubling. They’re not worried about cutbacks in marijuana enforcement….

Best regards,

Dave Gonigam
The 5 Min. Forecast

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