The Two Janets and the Perfect Storm Ahead

By David Stockman

The Bloomberg news crawler this morning is heralding the heart of our thesis: Namely, that “flush with cash from the tax cut”, US companies are heading for a “stock buyback binge of historic proportions”.

This isn’t a “told you so” point. It’s dramatic proof that corporate America has been absolutely corrupted by the Fed’s long-running regime of Bubble Finance. Undoubtedly, the C-suites view the asinine Trump/GOP tax cut not as a green light to invest and build for the long haul, but as manna from heaven to pump their faltering share prices in the here and now.

And we do mean a gift just in the nick of time. The giant Bernanke/Yellen financial bubble is finally springing cracks everywhere, putting corporate share prices and executive stock option packages squarely in harms’ way.

So what could be more timely and efficacious than an enhanced, government debt-financed wave of stock buybacks to rejuvenate the speculative juices on Wall Street and embolden the robo-machines and punters for another round of buy-the-dip?

Indeed, corporate stock buying is now cranking at a $1 trillion annual rate or nearly double the rate of the last several years. That huge inflow of cash and encouragement to Wall Street will undoubtedly break the market’s fall in the short-run; and over the next several quarters, perhaps, enable an extended stop-and-start stepwise decline rather than a sudden sharp plunge as in the fall-winter of 2008-09.

It also underscores why the Paul Ryan school of conservative policy wonks got it so wrong on the corporate rate cut. They still dwell in a pari passu world where higher after-tax rates of return would, in fact, stimulate increased investment, growth, employment and income. But they utterly fail to recognize that the Fed destroyed that world long ago, and that the current noxious regime of Keynesian monetary central planning is the deadly enemy of both economic prosperity and traditional free market-oriented conservative policy.

That is to say, the giant growth retardant in today’s economy is resident in the Eccles Building, not the US Treasury. Yet by slashing the corporate tax rate without off-setting spending cuts, and before first fixing the central bank problem, they have produced an epic mess.

And it is this mess—which we have described as a thundering monetary/fiscal collision—that will finally cancel-out the interim prop to the market from the corporate buyback binge. Moreover, on top of that we now have the Donald truly off the deep end with the launch of his one-man world trade wrecking show.

We describe it that way because when it comes to big picture policy impacts there is almost nothing the President can do on a unilateral basis to move the needle. Thus, he got nowhere on ObamaCare “repeal and replace” because there was no functioning majority on Capitol Hill; and he lucked out completely on his ballyhooed tax cut.

To wit, it happened only because the Congressional GOP was desperate to post a legislative success–any success–that it could use during the 2018 campaign as a reason to retain a Republican Congress. And that legislative trophy will come in especially handy if it becomes necessary as a matter of political survival to figuratively extend the mile-long trek from Capitol Hill down to the Trump White House by a considerable multiple of the same.

But trade is the one policy arena where the Donald can go completely rogue owing to the insidious section 232 of the 1962 trade act. The latter literally gives the President open-ended powers to impose tariffs and other trade protections in behalf of any industry deemed essential to “national defense” that is purportedly being injured by foreign competition.

Needless to say, the Donald’s un-varnished, un-vetted and un-shackled thoughts whims on most any topic are a thing of considerable disruptive potential. But when it comes to trade, his mind beats to the sound of a drummer not from this world or even possibly the next.

In follow-up to yesterday’s flying projectiles of steel and aluminum tariffs, Trump was all-in this AM on his twitter account, and what he had to say needs exactly no exegesis:

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