Donald Trump’s prediction of a market crash if he were to be impeached drives even his bizarre presidency into the unknown.
His White House repeatedly has trespassed into forbidden territory with commentary on the dollar, interest rates and share prices.
In the US, where share ownership is much more broadly spread than in Britain, presidents often see Wall Street as a barometer of how they are doing. But few leaders are unhinged enough to publicly equate their own fortunes with something that has historically been so volatile.
Reality is that the current bull market in America is starting to get long in the tooth.
Donald Trump’s contribution to the present bull market has been a tax cut package which has produced an absolute bonanza for company profits
Amid all the drama around Trump lawyer Michael Cohen’s conviction this week another landmark went almost unnoticed.
On August 22 the bull market in shares became the longest ever at 3,453 days as measured by the S&P 500 index.
The rise is dated from March 2009 when it reached a nadir of 666 as the impact of the great financial crisis crushed the real economy of output and jobs.
Trump obviously would like to take credit for this share bonanza which has increased the wealth of every American with shares, mutual funds or a 401K tax advantaged pension plan. Seeds of the equity recovery were sown long before Trump started to plot his stock market narrative.
Former Federal Reserve chairman Ben Bernanke, a scholar of the Great Depression, drew upon all his knowledge in late 2008 and flooded the markets with cash, rescued most of the banking system (and non-banking system including GE’s financial arm) and only now is the era of loose money coming to an end.
The much disparaged former president George W Bush put in place a payroll tax cut, which helped hold up employment, and an infrastructure plan embraced by successor Barack Obama.
Trump’s contribution to the present bull market has been a tax cut package which has produced an absolute bonanza for company profits.
The belief was that this would be recycled through higher wages and benefits for workforces. Predictably too much has gone into share buybacks which are very attractive to executives because it boosts the value of bonus packages.
The digital revolution has been another feature of the current bull market as it was also the case between 1990 and 2000.
It is no accident that as the current bull market outpaced all others, the star of the tech firmament Apple became the first ever corporation to be valued at $1 trillion.
The big question is how much more life the current bear market has left?
It has shown the capacity to correct (a fall of more than 10 per cent) without tipping into bear territory.
The biggest shock came in early 2016 when the Chinese market went into meltdown and the Beijing authorities struggled to cope.
Wall Street bounced back and has also shown resilience in the face of Trump’s brinkmanship over trade.
A change of direction on financial markets normally is caused by a change in credit conditions.
This is almost certainly why Trump and White House advisers have turned fire on Jerome Powell, the tame Republican lawyer and former investment banker, who it was assumed would be less trouble that his predecessor, Democrat Janet Yellen.
Powell has drunk the Fed wisdom and continues with the process, shrinking the size of the Fed’s balance sheet (swollen by taking on market securities during the crisis) and gradually normalising interest.
That should place some sand in the wheels, especially if as we are seeing from Venezuela to Turkey emerging market investment fleeing back to the US.
Does this have much relevance to Britain? There is less correlation than in the past. First, the UK bull market has been anaemic compared with the US, where valuations based on the ratio of price-to-earnings are lower.
Second, Brexit disruption is as big a fear as anything else.
One reason to support the Bank of England’s quarter of a percentage point rate rise in August to 0.75 per cent, and perhaps another before we leave the EU on March 29, 2019, is to give governor Mark Carney wiggle room before he does his own Brexit in June.
Carney thinks he made all the difference after the shock referendum win for Leave, and kept growth, employment and investment alive. He might fancy pulling off the same act again.