Have Trump Tweets Replaced Fed Speak?
Another day, another Tweet from President-elect Trump has moved the market.
Lockheed Martin shares have taken a tumble following Trump highlighting the obvious on Twitter — the F-35 is an expensive boondoggle. This follows shares of Boeing dropping last week following a social media outburst criticizing the costs of a new Air Force One (the stock bounced back following the Obama Administration’s assurance there was nothing to see here), as well as a number of pharmaceutical companies seeing their stock impacted following criticism of drug prices in America. Meanwhile shares of Sprint benefited after Trump held an impromptu press conference with Masayoshi Son, CEO of SoftBank which owns the US-based cellular provider.
Last week Kellyanne Conway appeared on CNBC’s Squawk Box and was asked about the power of the soon-to-be POTUS’s social media. Her response signaled that the Trump team understands the influence he wields on the market and plans to continue using it:
President-elect Trump sees that he has this massive online platform, he says about 35 million on Twitter and Facebook combined. ... And he sees an opportunity to communicate right to people by cutting through the noise or the silence, whatever the case may be, through social media platforms. But you see that through tweets now he can affect industry, he affected the stock market yesterday, frankly, and he did it twice.
While some are rightfully horrified at the idea of bulls and bears being unleashed via Twitter, this is essentially a blunter version of the “forward guidance” policy of Ben Bernanke. While a tweet from @RealDonaldTrump is far more entertaining than an John Hilsenrath article explaining what a Fed press release REALLY means, the end result is the same: the market being steered purely based on the words of a prominent government official (or a soon to be one.)
It will be interesting to see to what extent Trump’s actions match his tweets. After all, Janet Yellen was forced to recently admit to Congress that the Fed’s forward guidance had lost its potency after they continued to signal rate increases that never happened. Even Yellen’s attempt to move away from Bernanke’s preference of steering via vague wording to a more data-driven approach couldn’t revive trust in the Fed that cried wolf.
Whether it be via tweet or press release, the idea of having our economy guided via messaging is inherently absurd. This is the unfortunate product of an economy totally detached from real market prices, one where even the most cautious investors are forced out of traditional safe investments and into frothy markets, desperately following momentum to get real returns on their savings.
If President Trump is the conclusion of decades of botched economic policy enriching the financial elite at the expense of the rest of society, then financial managers investing based on exclamation point-saturated Trump tweets is the perfect illustration of just how absurd the whole game has become.
Though it will offend the sensibilities of those in the financial media that have enjoyed casting central bankers as heroic figures following the financial crisis, their track record has shown that a building full of PhD’s is no better equipped to pick winners and losers in the economy than a former reality star sitting in his luxurious Trump Tower suite.
Of course Trump has more weapons at his disposal than those at the Fed, a reason why his tweets carry so much weight.
Next month he will inheritt the most powerful executive branch in history, thanks to decades of consolidating power in the executive branch. His army of regulators and bureaucrats can ruin the lives of any business owner, or have his favor be their greatest asset. And this is precisely the problem.
We need to end the era of personality-driven policy, and return to an economy based on rewarding real production and the creation of value. This can only come by decoupling the economy from politics, which requires: massive deregulation, the abolishment of programs designed to subsidize both markets and individual businesses (such as the housing GSEs or the Ex-Im Bank), and a return to sound money beyond the manipulation of policy makers — such as the gold standard.
This may sound like a broken record for anyone who listened to Ron Paul over the years, but that’s because these principles are timeless. Markets know better than anyone in New York City, regardless of their address.
The fact American policymakers still think otherwise is, as Trump may Tweet, “Sad!”