Will a recession come in time for Democrats?

     "The stock market plunged on news the earth would be utterly destroyed by a giant asteroid next week, but rebounded on news of a Federal Reserve rate cut."

                            New Yorker cartoon caption.

There are two ways to look at lower interest rates. One of them is that future returns will be puny.

CLICK: Beth Levin at Vanity Fair

Recession storm clouds everywhere. 

Trump need not fear "woke" Democrats. He needs to fear a recession. Democrats may get one just in time.

Trump has taken credit for the economic recovery. As this blog as noted repeatedly, the recovery is in fact an extension of the recovery starting in 2009 in Obama's first year as president, but that is not how it is perceived for political purposes. In 2016 Democrats and Republicans both recognized economic distress still existed, so they spoke of problems not recovery.  Obama owned the problems politically.

The day following Trump's surprise election the stock market soared and continued soaring. Investors guessed that Trump would be business-friendly on corporate taxes, regulations generally, environmental constraints, employment rights, etc.--and they were right.

The Trump/GOP tax plan bent toward helping the wealthy and corporations, and the primary response by corporations was to buy back stock, which increased asset prices. It was good for owners of stock, so prices went up.

More important, Trump was both skilled and shameless in how he defined events. Two months after saying the economy was terrible and that Obama's unemployment numbers of 4.3% were complete lies, he reversed course and said that his similar unemployment numbers were spot on. He said it was now the Trump economy and it was great!.

CLICK: Bloomberg.

Democratic candidates point out problems with the economy. 
Many people are left out. 
Democrats cite the statistic that half of all Americans are one paycheck--or $400, or $500--away from economic disaster. They speak of young people frustrated by student debt and the high price of homes in relation to incomes. They observe that the rich have gotten richer, but the poor and middle class have not.

Recession fears.

There are always problems to worry about, but the investment chatter about them has grown substantially. There is a new mood of foreboding.

Some of the worry is the world economy generally and some of it is Trump, personally. At the time of his election, he was seen as a positive: lower taxes, less regulation, more business-friendly courts.

Now he is perceived as a bumbler and loose cannon on board a ship in a storm--still a Republican who will lower taxes and resist regulation, but also an ignorant, impetuous man who does not himself understand the economy and is incapable of 
learning.

He doesn't just say that our tariffs are paid by the Chinese--convenient, shameless political eyewash--he actually seems to believe it, and that worries investment professionals. 

The investment community understands that lower interest rates are generally good for asset prices, although it squeezes margins for banks, but they are uncomfortable with Trump's open politicization of the Fed. A Fed bending to politics is supposed to be subtle, and under Trump it is not.

They really don't want a trade war and Trump is disrupting complicated supply chains and markets that took years and sometimes decades to develop.

The bond market is flashing all the signals of a slowdown. Long term interest rates are low and dropping. Sometimes that’s a positive because businesses can invest in growth less expensively. But now the sentiment has switched to a negative, now redefining the drop in interest rates to be caused by poor future prospects.

If the future is grim there is no use paying high prices to buy things.

Click: Bloomberg

"Bonds surging" means that interest rates are dropping, so interest rates locked in last month and last year look more attractive in the current lower price environment. Short term rates are higher than long term rates, a situation that is widely understood to be ominous--but of course, not conclusive--portending a recession. Watch out.

CLICK: Reuters

At a time of optimism, cheap money fuels the optimism. But at a time when sentiment changes, then cheap stops being a good sign. Now it is worrisome. After all, if the future is being given away so cheaply then it must not be any good.

Democrats must not say aloud that they welcome a recession. It would be safe to say that Trump's economic policies will cause one, and indeed they need to do that. Blame it on Trump. Wall Street would not disagree.

Besides, if a recession comes, Trump will blame it on Democrats.

But one lives by the sword and dies by the sword. Trump took credit for the economy and he put it out there that it was a Trump economy.

 It had better look good on election day, and it looks more likely that it will not.