Trump tailwind: a strong economy

Trump could well win re-election.

  

 "Wages rise, more than they have for a long, long time. Wages are going up for the first time in many years. The economy is very, very strong. If you look at the stock market over the past few months has been great, and since my election has been up 50%."   

            Donald Trump, explaining on CNBC why he is going to win re-election.

The economic numbers looks strong. Unemployment is down, wages are moving up for people at the bottom.  Even some bull market skeptics are throwing in the towel.

Trump is taking full credit. He says it is due to him and only him.

Click: CNBC

Of course, there are economic problems. Young people are saddled by college debt. Home affordability is miserable in the places where new jobs are being created, i.e. the urban centers on the coasts where a diverse, educated work force congregates. Many people still lack reliable access to affordable health care. Employers are using part time labor which worsens the precariousness of the gig economy. The reality is that work near minimum wage means one is deep into poverty.

America is a tough place to be young and poor.

Still, Democrats have a problem. Objectively, the economy is strong.

There are help wanted signs everywhere. Most of the jobs being advertised don't pay very much, but the tight labor market is drawing people back into the labor market. A person who wants to work can find a job. Here in cannabis country, a person with no technical skills can find work, above or below the table, that pays $15 an hour, and more.  It creates a mood of prosperity.

The stock market creates a mood, too, for the investor class. Their 401k accounts are up. They feel like their retirements are on track. Whew.

Home prices are up. Almost everyone who bought a home can sell the home for what they bought it for, or more, and more than the mortgage. The misery and worry of 2008-2011 is long past.  Houses are too expensive in relation to incomes so it is a miserable situation for new young home buyers, but it is great for the vast majority of home owners. Most voters already own a home.

The people who are hurting in America are the low-turnout people: the poor, the people who relocate frequently, the young. The people who actually turn out to vote are people who are older and who own homes and who are prosperous: the winners in the current economic environment.

Isn't this just an economic house of cards? Isn't it all built on twin pillars of irresponsibility?  

Yes. But it is OK for right now. 

Fiscal Spendthrift. Trump and the Republican Congress passed a tax cut which increased the deficit at a time of an economic boom. This put more money into the system at a time when there was little slack, which inflates asset prices and creates problems down the road. It is the opposite of fiscal prudence--but it feels great in the present. We are living on borrowed money. Fun!

Monetary Easing: The Federal Reserve backed off of normalizing interest rates, and indeed are suggesting they might lower them again. It exacerbates the problems building up: lowered bank and corporate loan quality, narrowed spreads between junk bonds and treasuries, and a desperate search for yield by investors who need income.

The winners in this bit of irresponsibility don't complain. It is understood to be foolish, but convenient. The GOP fiscal hawks figure that we will get back to prudence when Democrats are in the White House. It is cynical but smart, in the short run. So far, so good.

Even the usual suspects of bearish worriers about the extended bull market in stocks market admit that, for now, the mood is euphoric, so don't fight the trend. Click: Hussman

Click: Bloomberg

The fact that some people express worry is actually a good sign. It means that the euphoria is not universal. Trends continue when there is worry. When everyone agrees, the party is over.

It isn't over yet.

In fact, the economy continued the trend established by Obama, but Trump defined the economy as "carnage" at the moment of his inauguration, but then wonderful two months later, and no one called him on it.

Bottom line:  Trump is now campaigning on his being the architect and steward of a strong economy. 

It's the economy, stupid.