Fed To Trump: It’s Our Stock Market Bubble, Not Yours

President Trump continues to exuberantly promote the “unprecedented” stock market rally since his election…

It would be really nice if the Fake News Media would report the virtually unprecedented Stock Market growth since the election.Need tax cuts

— Donald J. Trump (@realDonaldTrump) October 11, 2017

But just how ‘unprecedented’ is it?

The answer is not simple.

For the ‘Never-Trump’ers – always looking for a ‘lie’… President Trump’s post-election stock market gain does not make the Top 5.

As Bloomberg reports, going by the pace of gains, the 19 percent increase in the S&P 500 since Trump’s victory trails Franklin Roosevelt, Bill Clinton, Herbert Hoover, George H. W. Bush and John F. Kennedy.

However.

For the #MAGA crowd – cheering Trump on… Global equity markets have gained over $22.5 trillion since President Trump was elected.

This is by far the greatest absolute gain in equity market value for a President’s first 11 months… and even global bonds rallied $750 billion!

And all it took was a $2.1 trillion surge in the value of G3 Central Bank balance sheets, levered into a record speculative short VIX position.

*  *  *

However, a new study by The Fed suggests he may want to thank the U.S. central bank.

As Bloomberg reports, tax cuts were bad news for the stock market in the three-decade era ushered in by then-Fed Chairman Paul Volcker, who took office in 1979. That’s because they tended to raise anticipation that Fed officials would offset them with interest-rate increases, according to the paper.

Its authors concluded that one of the reasons stocks have rallied this time around may be that U.S. central bankers have adopted greater caution toward tightening in the wake of the 2008 financial crisis and subsequent slow economic recovery.

Fed economist Anthony Diercks and William Waller of Carnegie Mellon University showed that from 1980 to 2008, increases in discount rates associated with news about tax cuts swamped the positive effects of cash flow that tax cuts would have on stock prices. Moreover, the higher interest rates would have had the effect of slowing economic activity, reducing the positive cash flow generated by the tax cuts in the first place.

“The recent experience could be due to a few issues:

(1) there are additional factors at play such as changes in regulation, government spending, and repatriation that may be important,

(2) because of the proximity to the zero lower bound monetary policy may not be acting as aggressively as it did in previous post-1980 tightening cycles, and

(3) investors are unusually optimistic.”

In other words – “it’s our bubble, not yours Mr. Trump!”

But President Trump was not taking that lying down…

• *TRUMP SAYS REGULATION CUTS REASON STOCK MARKET AT ALL TIME HIGH

But The Fed had the final word… (for now)…

• *FISCHER: I WORRY ABOUT DEREGULATION AT THIS STAGE

We have one simple question though – is there a market anymore if these two entities are fighting over who is actually responsible for the gains?