I'm one of those people who pay attention to what Nouriel Roubini writes. He predicted the 2008 meltdown long before it happened. And, these days, he's not happy with what he sees:
Mr. Trump is now the Dr. Strangelove of financial markets. Like the paranoid madman in Stanley Kubrick’s classic film, he is flirting with mutually assured economic destruction. Now that markets see the danger, the risk of a financial crisis and global recession has grown.
As always, his evidence is exhaustive. But he particularly focuses on what Trump has done in the last three months:
More than anything else, though, the sharp fall in U.S. and global equities during the past quarter is a response to Mr. Trump’s own utterances and actions. Even worse than the heightened risk of a full-scale trade war with China (despite the recent “truce” agreed with Chinese President Xi Jinping) are Mr. Trump’s public attacks on the Fed, which began as early as the spring of 2018, when the U.S. economy was growing at more than 4 per cent.
As matters stand, the risk of a full-scale geopolitical conflagration with China cannot be ruled out. A new cold war would effectively lead to deglobalization, disrupting supply chains everywhere, but particularly in the tech sector, as the recent ZTE and Huawei cases signal. At the same time, Mr. Trump seems to be hell-bent on undermining the cohesion of the European Union and NATO at a time when Europe is economically and politically fragile. And special counsel Robert Mueller’s investigation into Mr. Trump’s 2016 election campaign’s ties to Russia hangs like a Sword of Damocles over his presidency.
There were some who foolishly took comfort in the fact that there were adults in Trump's Oval Office. But anyone who knows anything about Trump's rakish career knows that he fiercely rejects adult supervision:
For one thing, until now, investors had bought into the argument that Mr. Trump is all bark and no bite. They were willing to give him the benefit of the doubt as long as he pursued tax cuts, deregulation and other policies beneficial to the corporate sector and shareholders. And many trusted that, at the end of the day, the “adults in the room” would restrain Mr. Trump and ensure that the U.S. administration’s policies didn’t jump the guardrails of orthodoxy.
But things changed radically in 2018, especially in the past few months. Despite corporate earnings growing by more than 20 per cent (thanks to the tax cuts), U.S. equity markets moved sideways for most of the year, and have now taken a sharp turn south. At this point, broad indices are in correction territory (meaning a 10-per-cent drop from the recent peak), and indices of tech stocks, such as the Nasdaq, are in bear-market territory (a drop of 20 per cent or more).
The baby has overturned his bassinet. It's going to be quite a new year.
Image: NJ.com
