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The number of the beast!

February 5, 2018

The DOW fell 666 points on Friday.

It was not Trump’s fault.

But neither is the generally good economy the year previous to Trump’s credit. It has been a continuation of the economic expansion of the last eight years, similar to them in GDP growth (shown left), unemployment trends, and other aggregate measures. Trump’s rise to power did not cause any kind of economic course change that affected his first year. When you hear anyone say otherwise, ask them to show you which measures have changed, and ask them to stop drinking the koolaid.

Someone wanting to argue that the stock plunge was Trump’s fault might do so by pointing out that the tax reform significantly increases the deficit, at a time of economic growth, which causes the bond market to anticipate inflation, and that it was bonds that pulled stocks lower. As a prediction, that’s quite plausible. Let’s wait a bit, and see where the markets go.

I’m more concerned with what Trump’s policies are doing to trade than I am with the ballooning deficit. Except for the rise of deficit spending, it is too early to see economic trends that can be tied definitely to Trump. You might as well read some meaning into the fact that the Dow’s drop Friday was the number of the beast.

That said, Trump and his rise present significant tail risk. Not just financially. As people adjust to that, it will bring more pressure to bear on Trump and increase the risk that he does something foolish with catastrophic consequence. The markets shrugged off that risk in his first year.

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