Unhinged, Part 4: The Real Idiots Are On Wall Street


by David Stockman, via The Burning Platform:

Suddenly it’s all Fire And Fury, and according to its author, Michael Wolff, no less than 100% of his sources in the White House told him the Donald is a “dope” or an “idiot” and is a “child” who has tantrums if he doesn’t get what he wants and get it right now.

We are pretty sure Mr. Wolff exaggerates. After all, Ivanka is apparently still trundling around 1600 Pennsylvania Avenue, yet how would she know?

More to the point, the Donald doesn’t have the Deep State and its collaborators in the media and among the Dems and establishment Republicans lathered-up in a Salem-style witch-hunt hysteria because he’s stupid. What he is is reckless, impetuous, undisciplined, glandular, petty, megalomaniacal, mendacious and uninformed—–and also in so deep over his head that even his signature orange comb-over will soon be fading from sight.

Yet there is something about Michael Wolff’s tirade that deeply resonates, albeit on the other end of the Acela Corridor.


We are referring, of course, to the “idiots” who are buying the S&P 500 at 2735 and earnestly debating the pros and cons of bitcoin at $16,000; and to the “boys and girls” (nee “children”) on Wall Street who have a hissy fit every time Washington—either via its central banking branch or statutory and fiscal tools—-even vaguely mutters about financial discipline or eventually cutting off all the fiscal and monetary free-stuff.

This morning, in fact, we heard one of the street’s permabulls describing the current madness as a state of stock market “nirvana” that will carry the S&P average to 3,100 in the near future.

That’s right. While that particular figure would equate to 29X LTM earnings for the S&P 500 and about 150X for the Russell 2000, it makes no never mind.

That’s because we have reached the ultra-FOMO (fear of missing out) stage of the bubble mania, where the only thing that matters is the price action. That is, what is being bought in the casino is what is going up, and for the sole reason that it is going up.

All else is just after the fact rationalization, such as the meme-of-the-moment holding that the US economy is “strong” and the global economy is being powered by “synchronized growth”; or it constitutes studied insouciance, such as the flippant dismissal of the unprecedented crisis of governance shaping up in Washington as being essentially irrelevant to the outlook for the economy and financial markets.

As to the studied insouciance part and the unfolding collapse of governance in the Imperial City and meltdown in the Oval Office, we can only profess utter amazement. During exactly 50 years of closely observing the beasts of the beltway, we have seen nothing remotely like Wolff’s expose—-exaggerated or not—of the sheer dysfunction, incompetence, intrigue, fratricidal conflict and egomaniacal impetuousness that pervades the Trump White House.

We actually had a window into the Nixon White House back in the day, and it amounted to a Sunday school picnic by comparison to the Wolff narrative.

Indeed, there is absolutely no doubt that the Donald is sui generis, and not in a good way as it bears upon the stock market outlook. In fact, he is not simply the Great Disrupter; Trump may eventually prove to be the Terminal Disrupter.

Under the Donald’s watch, the Imperial City is being turned into one giant kick-the-can-alley. And that includes the asinine tax bill the Hill Republicans passed—- sight-unseen and with fiscal recklessness aforethought.

Its Christmas Eve passage was not an act of governance at all; it was a desperate political maneuver designed to distance Congressional Republicans from Trump and to establish the predicate for a 2018 campaign pitch touting the GOP majority’s accomplishments on Capitol Hill—-Donald Trump to the contrary notwithstanding.

Yet this reckless tax bill gambit is only going to turn the existing fiscal vice into a virtual legislative torture rack. As we have explained, staring Washington in the face at the next CR deadline on January 19th is upwards of $500 billion of add-on spending for FY 2018-2019.

Needless to say, there is absolutely no consensus within the GOP, virtually no route to bipartisan resolution, and therefore no way foreword except for stop-gaps and temporary patches that will soon have Congress tied in knots and pulsating with bitter partisan and factional conflict.

For instance, the GOP hawks (that’s most of them) are insisting on a $120-$160 billion add-on for defense during the next two years. At the same time, the Dems and the RINOs (Republicans in name only), who control a veto bloc within the tenuous GOP majority in both houses, are demanding “parity” for domestic add-ons above the sequester ceilings (i.e. above the levels the GOP forced down Obama’s throat to rebuke his horrible fiscal profligacy).

That adds up to about $300 billion over two years and it may well finally get there, but only after several more temporary CRs or other legislative slights-of-hand (such as putting baseline defense and domestic spending in the so-called “Overseas Contingency” which is exempt from the ceilings).

And then you have to toss into the red ink pool another $100 billionfor disaster aid, $20 billion plus per annum for the ObamaCare insurance bailouts and state high cost patient pools, compromise money for border control/Wall and a lot more interest expense than currently projected. The latter will be far more than considerable when you recall that the revenue loss from the tax bill in FY 2018 and FY 2019 alone amounts to $416 billion.

Stated differently, the debt ceiling is now frozen again at $20.456 trillion and the Treasury’s cash drawer has only a few weeks of reserves. What that means is that when you add the two year impact of the tax bill and the GOP’s spending spree to the baseline deficits, it appears that to get through FY 2019 the debt ceiling will have to be raised to upwards of $22.5 trillion.

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