Economists and artists will tell you – there is no overlap between their disciplines. Tax policy, government oversight, and Trump’s heavy pressure on China to “straighten up and fly right” on trade – has nothing to do with impressionist art. Truth is, they are right – and wrong. Here is why.
Bold strokes can define a picture, and also an economy. President Trump is about bold strokes. His brush is reshaping the entire canvas. The 2018 tax cuts put confidence in sails of businesses large and small, new money in the pockets of consumers – who do, after all, pull a country out of slow growth by spending. Obama gave us eight years of creeping, look-hard-or-you-won’t-see-it “recovery,” while Trump flipped the table, rewrote the tax code, and turned expectations bullish.
To this, add the next bold stroke. Trump’s pressure on major US trading partners, from China and Mexico to allies in Europe – another taboo broken. He told them to play fairly, or expect us to upset their returns. He imposed and threatened major tariffs, refocusing the global “big dollar” players.
Mexico has renegotiated NATFA, with terms more favorable to US workers, and started talking about a free trade zone on its border. That’s before “The Wall,” new pressure to crack down on economic freeloaders, pressuring Central Americans at Mexico’s southern border, Mexico broadly granting refugee status, now helping prevent entrance into the United States.
Europe – for the first time in 30 years – has ponied up more of their fair share for common defense. And as the March 1 deadline looms with China – and ominous tariffs lie in the offing – the Chinese are suddenly changing their colors. Discussion abounds of more open Chinese markets, less forced transfer of intellectual property, an improved trade balance, fairness at the World Trade Organization, and last week – a promise to buy five million metric tons of American soybeans daily. Imagine that! Now a summit with China’s President Xi looks likely – in February – after a second summit with a North Korea which has stopped both nuclear testing and missile launches. Bold strokes.
Then we have Trump’s unorthodox public discussion of companies by name, when they serve consumers and workers well, and when they do not. We have rising wages, persistently low inflation, rising profits, and resurgent signs of a longer bull market run.
Despite volatility in late 2018 as investors processed a divided government – with Democrats threatening obstructionist, socialist politics – the President stayed an unswerving course. Early 2019 suggests that bold stroke, too – was appreciated.
“What?” you ask. There was a partial government shutdown! Well, yes, and it did nothing adverse to the economy. In fact, the Wall Street Journal reported on February 1, that “banks and smaller companies propelled stocks to their best January in 30 years, a sign that investors are favoring sectors tied to the US economy.” Curious, isn’t it – that bold strokes have staying power?
But there is more good news, and it is worth recording, since the mainstream media seems forlorn at all this good data. The Dow and S&P 500 closed with highest gains in more than three years, while the blue chip’s more than seven percent rise was the best since 1987. Financials soared, with some gaining as much as 24 percent.
Why? Because – a reflection of wisdom to which President Trump gave voice – the Federal Reserve is backing off aggressive interest rate increases in 2019, perhaps assessing that a new neutral rate –balance between sustained growth and minimal inflation – may be right about where we are. Meantime, America’s industrial and energy sectors took off; the so-called yield curve suggested a jump in investor confidence, while commodity prices rose. Demand is not falling; recession is not calling.
A stronger than expected fourth quarter earnings, is flummoxing the hang-dog media, who cannot understand it. And to top the whole thing, last week’s jobs report, expected to be roughly 165,000 new jobs – popped a rivet, announcing 304,000 jobs.
In short, the bold strokes painted by this President are not missed by average Americans, consumers and investors, workers and small employers. They believe what they see – and what they see is a bright economy ahead, flush with confidence, commitment, and color. The brightest color politically may be red, but the brightest color in the market is green. Call it the art of a good economy, or if you wish call it the art of the deal!
