Up until now, Donald Trump felt that he had a sure-fire way of deflecting criticisms of his performance as president. He would point to the record levels of the stock market as ‘proof’ that he was the greatest president ever, despite the fact that the markets have been steadily rising since April 2009, soon after Barack Obama became president and long before he took office in January 2017. Trump also found that he could boost stock prices by making promises about actions he would take concerning trade or China even if those actions did not materialize. These are his favorite tactics, combined with labeling any bad news as fake manufactured by an adversarial press, He gloated over the fact that the Dow Jones Industrial Average reached a record high of 29,568 just a month ago.
But he is finding that with the coronavirus situation, he is no longer dealing with people’s perceptions that can be manipulated but with a stubborn reality that he cannot bluff his way out of. People are getting sick, the numbers are rising, and there is no way that he can minimize the impact, whatever he says or does. What must sting is that the financial press, which has been cheering on the stock market’s rise, is now blaming him for the sharp downturn, and this article in Yahoo Finance says that the markets are giving him an F grade. That must sting.
President Trump learned a dangerous trick during his trade war with China: A few choice words can reassure financial markets and send stocks soaring.
Trump has tried to do the same thing amid the coronavirus outbreak, with disastrous results. First, Trump tried to downplay the crisis as cases mounted and businesses began canceling events. His top economic adviser, Larry Kudlow, even suggested people should buy stocks, as the virus was metastasizing. You’d be down nearly 20% in a mere three weeks if you took that terrible advice.
Trump tried to get serious on March 11, when he gave a prime-time TV address announcing a confusing ban on travel from Europe. The convoluted plan renewed an abrupt selloff in stocks, putting a stake in the bull market that began all the way back in 2009. The latest selloff began while Trump was still speaking, indicating a direct connection between Trump’s words and investor panic.
Trump doesn’t deserve blame for the virus. But he deserves all the blame for a halting U.S. reaction to it and the loss of confidence markets now reflect. Trump has minimized the impact of the virus, blamed the media and failed to explain why the government is so slow to ramp up testing. “Trump’s address to the nation was symptomatic of the lack of policy coordination,” Oxford Economics wrote in a note to clients. “Markets reacted negatively to what was perceived as a solemn but confused speech that… lacked in concrete fiscal and health measures to address economic and financial impact of the virus.”
Trump’s Europe travel ban was an immediate fiasco, promptly condemned by European leaders. Thousands of Americans in Europe panicked to get home before they got locked out. And Trump didn’t explain why he exempted Ireland and the U.K., leading to speculation that those two countries got special treatment because Trump owns golf courses there. Instead of a coherent travel policy coordinated among nations, Trump delivered a rash, standalone move that caught everybody off-guard.
If you are a brazen liar and consistent bluffer, there will come a time when you will need people to believe you and they won’t. For Trump, that moment of reckoning seems to have arrived.
Just today, the stock market started another deep slide and the Federal Reserve then stepped in and announced $500 billion in short-term bank funding that reversed the slide for all of 15 minutes before it started going down again. But how many such moves does the Fed have up its sleeve? [UPDATE: It appears that the amount being dumped into the economy is $1.5 trillion! No price is too high to pay when it comes to the stock market.]
The key number to watch is if the Dow Jones Industrial Average drops below 19,827. This was its value when Trump took office on January 20, 2017. If that happens, he will lose his mind since it will mean that, according to his shallow way of seeing the world, he has made the economy worse than what he inherited from his despised predecessor in office.