Signaling he has no plans to end the China Trade War, 73-year-old President Donald Trump showed he’s the great impresario when it comes to the U.S. economy. With growing numbers of economists predicting a slowdown or recession in 2020, Trump’s doing everything possible to avoid that scenario. Trump knows he needs a strong economy for reelection, when mainstream voters chose a president Nov. 4, 2020. Wall Street nosedived nearly 400 points, it the biggest one-day loss in months, dragging the Dow Jones Industrial Average down 279 points to 27,503, only 500 points off its record high. Wall Street scratched back 120 points, losing only 1.02% for the current session. More importantly, the recovery shows there’s still bottom-feeder buyers looking for bargains after a sell-off. Wall Street periodically sells of when price-to-earnings multiple get too high.
Inflated share prices usually result in profit-taking, keeping stock averages more attractive to investors. When the market gets frothy, making new market highs, major funds typically take profits, making stocks more affordable. If the market rockets up without any sell-offs, it would cause a major sell-off, maybe leading to recession. Bond traders like billionaire Jeffrey Gundlach always warn about market sell-offs and possible recession. But unlike other predictions, Gundlach lowered his probability of recession from 75%.to 40%, a good sign for equity investors. While Gundlach expects to buy-and-sell more bonds, currently trading about $150 billion for DoubleLine Capital, he also downplays the likelihood of a slowdown or recession in 2020. Gundlach thinks a strong economy in an election years would practically guarantee Trump four more years, looking at what he sees as a lackluster Democrat field.
Delaying a China Trade Deal gives the economy the best chance at recovery. Showing how Wall Street’s easily manipulated, Trump signaled he had no interest in forging a trade deal before year’s end. Delaying the China trade deal keeps markets guessing, with fund traders likely to sell off. “In some ways, I like the idea of waiting until after the election for a China deal, but they want to make a deal now and we will see whether or not the deal is going to be right,” Trump told Reuters. Trump’s remarks caused the Dow to drop 1.02%, with the tech-rich Nadaq dropping only 47 points to 8, 520 or 0.55%, a lower-than-expected drop. With the Dow losing twice the percentage as the more volatile Nasdaq, it shows that traders aren’t serious about a prolonged sell-off. Trump’s decision of hold off on a trade deal with China speaks volumes about what he wants the Federal Reserve Board to do.
Federal Reserve Board Chairman Jerome Powell has already cut interest rates three timea in 2019, going in the opposite direction as 2018 when he hiked rates three times. Trump blamed Powell for sabotaging 2018 Gross Domestic Product [GDP] hiking rates in the 2018. When you consider that no China deal could creates more selling, it looks like Trump wants Powell to continue cutting rates into 2020. If Trump gets Wall Street to sell-off due to the China trade deal or whatever, he’ll provide more monetary stimulus heading into the Election Year. “It’s all about the economy. And I think that if the economy holds together—and it just might—into the election, I think Trump’s going to win,” said Gundlach. Gundlach sees Trump delaying the China trade deal to push the Fed into cutting rates again in 2020. Periodic profit-taking helps Walls Street prolong its bull market.
Gundlach sees Trump ‘s moves with China as political, hoping Wall Street sells-off, giving Powell the best excuse to slash rates. Lowering his prediction of recession from 75% to 40%, Gundlach sees the economy as doing well enough to avoid recession in 2020. When you get bears like Gundlach to up his view of the economy, it’s a positive sign heading into 2020. Whatever happens in Europe or Asia, the U.S. seems uniquely poised to ride out global economy problems. When you consider that Democrat presidential candidate, California Atty. Gen. Kamala Harris, dropped out today, it tells Gundlach that none of the remaining Democrat candidates have the staying power to beat Trump. Once considered a Democrat favorite, Harris’s fall from grace shows that the current Democrat impeachment strategy could backfire, giving Trump a real advantage heading into 2020.
Trump’s strategy of delaying a China trade deal indicates that he’s laser-focused on getting more help from the Fed. Trump wants to see GDP at 4% something currently running at under 2%. Delaying a China Trade deal gives markets more time to sell-off, creating more incentive for Powell to cut rates in 2020. If Trump signaled he’d complete a China Trade Deal, markets would rally but only briefly. Keeping periodic profit-taking on Wall Street, Trump gives himself the best chance of getting more rate cuts. Cyclical profit-taking, as much as 15%, helps keeps share prices from getting overly inflated, unattractive to investors. “So the Fed’s cut rates three times. Maybe that lag will be enough to keep the economy going into the election. He also has those tariffs on, which he can remove,” Gundlach said, exposing Trump’s economic strategy of keeping the economy strong into 2020.
