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100% Chance Trump Faces Recession in 2017

Friday, November 18, 2016 15:27
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What does history predict for the Trump presidency?

A double-digit market correction. And a likely recession…

Every two-term president since the early 1970s ended up with a
double-digit market correction at the end of his watch. The
prosecution presents the following as proof thereof, courtesy of
Zero Hedge:

"https://dailyreckoning.com/wp-content/uploads/2016/11/ObamaChart-e1479505437988.png"
alt="Obama Chart" width="400" height="264" />

Obama’s a two-term president.

Note the top right arrow nosing earthward. It suggests Trump’s
facing a possible 50% correction in the near future.

But is a double-digit correction etched in granite?

No, not necessarily. Markets — the Fed, really — have worked a
schizophrenic break from reality since 2008. Maybe the rules have
changed. Maybe the Fed can juggle its way out of it this time.
Maybe, maybe, maybe. But if history doesn’t always repeat itself,
it does rhyme, as the saying has it.

And we’ve spotted a straw in the wind… a portent of weather
ahead…

Trump plans to open the national purse on infrastructure,
defense and other rich candy. And he’s pledged to cut taxes, to
boot. Out of this bowl of sweets could very well come
inflation.

That’s why yields on longer-term bonds such as the 30-year
Treasury have jumped post-election. If they’re going to keep their
bonds, investors demand more compensation to keep up with expected
inflation. Hence the spike in bond yields.

But it’s that spike in yields that’s got some hoisting a red
flag…

Russell Clark is a portfolio manager at Horseman Capital. Zero
Hedge notes Clark finds that “Sharp yield spikes have preceded
every major crisis in the past 20 years” (hint: that’s a financial
crisis). Here’s Clark himself:

The problem with sharply higher U.S. bond yield is that this
tightens financial conditions. We have often seen rises in yield
coincide with financial market crises.

Details, please?

A rise in yields preceded the
1987 market crash. A rise in yield in 1994 preceded the Tequila
crisis, when the Mexican peso devalued by half… Yields rose in
1996–67 before the Asian financial crisis, and yields again rose in
1999 before the dot-com crash…

More recently, bond yields rose
in 2006 before the global financial crisis, and again in 2010–2011
before the Euro crisis. There was also a rise in yields before the
crash in oil prices in 2014.

Is the spike in bond yields proof of impending correction? We
don’t know. But it’s sure something to keep on file.

OK… how about a recession?

Raoul Pal — no, not the drag queen — used to honcho one of the
largest hedge funds in the world. These days, he heads Global Macro
Investor, an independent research firm with oodles of heavy-hitting
fans.

And according to Mr. Pal, via a Yahoo Finance headline, “History
Shows There’s a 100% Chance of a Recession for Trump.”

Not 90%. Not 99%. But a 100% chance of recession. And like the
correction talk above, it also centers around two-term
presidencies. Two-term presidents do their successors an evil
service:

Since 1910, the U.S. economy is
either in recession or enters a recession within 12 months in every
single instance at the end of a two-term presidency… effecting a
100% chance of recession for the new president.

More:

Not every single election sees a
recession, only every two-term incumbent change… Only two
presidents in history did not see a recession, and they were
inaugurated after single-term presidents.

Pal can’t explain it for sure. But he thinks in some way the
political cycle drives recessions. Maybe it takes two terms for
presidential mischief to seep its way into the marrows. One-term
presidents just don’t have the time. Who knows? But his research
points him to one conclusion:

“It is not a coincidence.”

Add up the figures and Trump could be strutting into a whipsaw.
He is, after all, following a two-term president. History says a
thumping 50% market correction and/or a good stiff recession lie
ahead.

The assembled evidence against two-term presidencies has us
rethinking the 22nd Amendment to the United States Constitution.
The one limiting the president to two terms.

Our take: If it takes a president two terms to work up a good
recession, he should jolly well face the firing squad himself.
Don’t leave the next guy with your mess.

We’re not drummers for Trump… But if the president-elect gets
waylaid as history suggests, you can just bet we’ll be whistling
hard for an immediate repeal of the 22nd Amendment.

A fellow should reap what he sows. It’s only fair.

Regards,

"http://feeds.feedburner.com//https://dailyreckoning.com/author/bmaher/"
target="_blank">Brian Maher

Managing editor, "http://dailyreckoning.com/free-e-letters/" target="_blank">The
Daily Reckoning

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