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Trump’s Rookie Mistake

Thursday, February 16, 2017 15:48
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Submitted by Kevin Muir via The Macro Tourist blog,

The last couple of weeks have been wild. Egged on by Trump’s talk of “yuuugeeee” tax cuts, the stock market has propelled upwards in an unrelenting march to record highs.

Zerohedge did a great job highlighting Trump’s “talking up” of the upcoming tax cuts:

Trump did it again: one week after he promised to unveil “phenomenal” tax cuts, moments ago in his meeting with retail CEOs, who are meeting with the president to get him to kill the border adjustment tax idea, he pulled another OPEC, using the precise word the algos were looking for, and this time said that “tax reform is one of the best opportunities to really impact our economy,” Trump said. “So we’re doing a massive tax plan that’s coming along really well.”

He also said that there will be a “much, much simpler tax code” that will lower rates for everybody in every bracket. He added that “other than H & R Block, people are going to love it.”

Of course, people would love to know when it is coming, to which Trump had no explicit answer, instead saying the “tax plan will be submitted in not so distant future”

Trump’s rhetoric about “phenomenal” tax cuts is like throwing raw meat into a cage full of starving lions. Stock market investors see nothing but dollar signs and quickly put away the pink tickets for fistful of blues.

I don’t want to argue about Trump’s policies.

But I want to remind you that there is a reason the best CEOs underpromise and over deliver. The CEOs that over hype their company’s prospects face a stock price destined to disappoint. Even when they meet expectations, their stock price often falls because it is “fully baked in.”

Trump is making a rookie mistake. He is setting up the stock market to be disappointed regardless of the tax cut he manages to pass.

I don’t know when this rally will end, but I know it will come before the actual tax cut news. Trump has set expectations unrealistically high. Trump (and investors) will have to learn that it is better to dampen down expectations ahead of the actual announcement.

Be careful buying stocks up here on Trump’s tax cut news. The closer we get to an actual announcement, the more dangerous it becomes…


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