Trump And The Age Of Magical Thinking

Tyler Durden's picture

Authored by Christopher Whalen via The Institutional Risk Analyst blog,

“Anyone taken as an individual is tolerably sensible and reasonable – as a member of a crowd, he at once becomes a blockhead.”


Friederich von Schiller, quoted by Bernard Baruch

The term "magical thinking" refers to how children believe that their thoughts have a direct effect on the rest of the world.  So last week we learned that the Trump Bump is not real. Lower taxes, increased spending, these were never really serious goals, but merely political talking points.

Charles Gasparino and Brian Schwartz of FoxBusiness also suggested that the proposed cut in corporate taxes would instead mutate into a repatriation scheme a la Argentina and Italy.  Corporate tax cuts are dead, but "a percentage of the money returning to the U.S. would be used to finance an infrastructure fund to build the roads and bridges that President Trump has recently been touting,” they report.

This is bad news for Wall Street, where lower corporate taxes have been a key underpinning for the recent exuberance.  As the Don mutates before our very eyes, his promise of big things and thus the outsized impact of same on financial markets will also change – and dramatically.

President Trump’s change of mind on corporate tax cuts certainly goes against the happy consensus view.  The move in the stock market from the latter part of last October to the beginning of March 2017 can only be described as a speculative episode, to paraphrase John Kenneth Galbraith. As he wrote in A Short History of Financial Euphoria:

“Regulation and more orthodox economic knowledge are not what protect the individual and the financial institution when euphoria drives up prices, and to the eventual crash and its sullen and painful aftermath. There is protection only in a clear perception of the characteristics common to these flights of what must conservatively be described as mass insanity.  Only then is the investor warned and saved.  There are, however, few matters on which such a warning is less welcomed.”

Indeed, while the raging bulls raised up Bank of America nearly 60% in four months and pushed the yield on the S&P 500 below 2%, the reality of the Trump Administration and its truly conventional nature was becoming apparent.  The big statements and big ideas are abandoned without remorse as the President seeks leverage, to paraphrase our friend Jim Rickards.

A key takeaway from earnings so far is that we have confirmation of a slow-down in lending and a related slowing of the economy.  Retail is also in a downward phase, although the stalwart optimists in the crowd believe that the numbers will improve later in the year.  And Chinese GDP beats expectations. 

The other obvious takeaway from earnings is that we’re pretty deep into the current credit cycle.  If anything, the Fed should be thinking about mild easing.  But instead Janet Yellen & Co are trying to “normalize” rates as the economy slows.

The chart below shows yield on the 10-year Treasury bond less the yield on the 2-year Treasury note.  Not only are interest rates falling rather than going up, but the yield curve is also flattening as the difference between long and short interest rates is squeezed.  This is not a bullish chart needless to say.

But even less encouraging is the juxtaposition of real GDP and the federal funds rate, an important chart that reorients your thinking about just where we are in relative economic terms and in particular the definition of “normal.”  The chart below shows these two relationships and suggests to us that getting short-term rates to 3% is going to be a near impossible task. 

We are waiting to hear from BAC this week to see just how our favorite zombie girl justifies those impressive forward estimates for revenue and earnings growth.  More than any of the top banks, BAC has reduced operating costs and positioned the bank for growth – this after years of bloody, slow-motion restructuring.  But rising interest rates will not help bank earnings, especially when interest rates are going down.

Readers of The IRA will recall that we took the view after 2008 that BAC should have put the parent holding company through a Ch 11 bankruptcy to accelerate the restructuring process.  But today, fact is, the bank’s selling, general and administrative expenses start with a “5” as in $54 billion rather than a “7” as in $72 billion in 2014.

With a 16% estimate for 2017 earnings and 21% for 2018, its does not take a lot of imagination to see why BAC moved as far and as fast as it did, but that’s all over now as the song says. The promises by Donald Trump during  the 2016 election have been replaced by conventional thinking and even more conventional people to think them. 

Witness reports from Politico that President Trump is expected to nominate former Treasury undersecretary Randy Quarles as the Federal Reserve's top bank regulator. Quarles is a big time members of the establishment, a veteran of the George W. Bush administration and is a managing partner at equity investment firm The Cynosure Group.   

“I don't think the folks who voted for Trump thought they were voting for Randy Quarles, although I like the Dickensian name,” notes one DC insider.  “Quarles is a Bushie and could be weaker than Tarullo."

CompassPointLLC opines  politely that “Our sense is that Mr. Quarles will be viewed as a pragmatic deregulatory force.”  But Washington’s premier investment bank avers that “tax reform expectations in D.C. continue to temper. Our view remains that political and policy realities will slowly grind broad tax reform efforts into a narrower tax relief package with corporate rates of 25-28%.”

So the good news and the bad news rolled up together is that the Trump Revolution is over.  All of the talk of change, tax cuts and new policies is rapidly giving way to a very conventional Republican Administration populated by bankers from Goldman Sachs.  To get a good bearing on President Trump, think of the first term of President William McKinley combined with the latter years of Ulysses Grant.

For Wall Street, the end of the Trump Revolution portends a return to the October 2016 status quo ante, with all of the attendant difficulties and discomfiture.  We can’t say for sure that BAC will go all the way back to $16 per share, where it started its remarkable journey last October. But even at the $22 close on Thursday, BAC was still trading below book value, a remarkable, even magical commentary in these increasingly conventional times.

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nuubee's picture

Haven't we been in the age of magical thinking since Nixon?

quebecgold's picture

Since the creation of the FED in 1913.

Lonesome Crow's picture

-Haven't we been in the age of magical thinking since Nixon?-


The_Juggernaut's picture

It's amazing how quickly ZH turned on Trump once he bitchslapped Putin.

beemasters's picture

Once he waged an illegal war, I believe. He hasn't "bitchslapped Putin" yet.
Maybe you're an exception, but everybody is tired of being lied to again and again.

max2205's picture

Sears went from 6 to 14 so what's the big deal.....

tmosley's picture

>waged an illegal war

Where's the war? Looks to me like they just shot a bunch of (dud?) cruise missiles into an airfeild after warning the Russians who natrually warned the Syrians. If anyone actually died, I suspect it was people that Assad wanted dead.

Scott Adams put it succinctly: "It was a fake retaliation for a fake attack."

I still suspect interference from the Saudis via Abdullah II, but it seems like what he did either was enough to satisfy them. For now, at least. Certainly I don't appreciate being lied to, but it is in such an obvious manner that it actually seems forgivable. Almost like a wink and a nudge. This interpretation seems to be confirmed by his tweet RE Russia coming around at the right time.

Ozymango's picture

So it was fake retaliation for a fake attack that was obvious to Adams, and apparently it was also obviously a fake relatiation to smart people everywhere, I guess, which is why Trump did it, so that only the leaders of other countries (who are, as we all know, a bunch of easily persuaded dimbulbs) would think it was real. Am I close? Trump is pulling whatever fake stuff he can, in order to persuade people who can see through his fakeness, that all this fakeness is in support of some real goal? Or is everything fake so we don't even have to concern ourselves with making a big mess of things we don't even begin to really understand, but that still doesn't matter because we're all part of a simulated universe, which is was Scott Adams seems to believe.

I don't really mind that it's all fake, but if you're gonna fake all this stuff, why not make it at least a bit entertaining as opposed to the cheap stuff they're trying to sell?

Joe A's picture


"It was a fake retaliation for a fake attack."

So it was not an act of war that can be justified but even an illegal act.

tmosley's picture

Beware when you start a reply with the word "so". It usually means you are suffering from cognitive dissonance.

It was an act undertaken as theater, with the full understanding of the Russians. Syria bends the knee to said Russians. As such, no-one was really harmed, aside from a few who died that may have been sent to their deaths by Assad himself.

Hyjinx's picture

One crappy missile strike isn't a war. Do you need a paper bag to regulate your breathing?

TuPhat's picture

You won't have to wait long for more war.  If you don't recognize war from the body count then what is it?

Joe A's picture

9/11 could be considered a crappy missile strike using airplanes to attack buildings, yet America went to war over it. And it went to war over false claims of genocide (Yugoslavia, 1999) and WMD (Iraq, 2003). And with Lybia over ....well.....over what exactly?

The recipient of a "crappy missile strike" might perceive that act differently then the one sending it.

nmewn's picture

And Antifa got their asses beat in the middle of the Berkeley of all places...lmao!

BadDog's picture

What's amazing is how a supposedly right thinking candidate, who didn't believe in foreign interventions decided to unilaterally attack a sovereign nation overnight, based on no substantive evidence.  The only thing that is going to stop this madness is for this country to get a bloody nose.  As the Donald would's sad.  Pass the chocolate cake.

tmosley's picture

He has yet to start an actual war.

nmewn's picture

Don't burden them with facts. 

Libya is now a failed state because of Obama. Millions of Arabs are now running around in Europe because of Obama & Hillary running guns into Syria. Jimmy Carter "fixed" the North Korea issue of having nukes by..."negotiating" two graphite nuke plants. These idiots aren't interested in facts. 


ObamaBots, reveal yourselves.



Still nuffin and still fucking cowards.

Just checkin! 


Heh...and you still think "voting" matters? I just said is verifiable & true (well, maybe outside of Jimmy Carter actually fixing any-fucking-thing, but he builds houses for the poor, so thats good!) and yet, you still wish to perpetuate the lie, a false narrative.

"In a time of universal deceit, telling the truth is a revolutionary act.". ;-)

VIS MAIOR's picture

whole BRICS and europeans .. )) trumptardiants will beaten to death if they will want..  just show how much are you thirst for the blood of other innocent people in the world.. "hitler two scenario will repeat.

je suis Russians....

junction's picture

Coming soon: "The Search For Trump's Brain"  

1980XLS's picture

And just think. All after we finally rid ourselves from the Magic Negro.

WhackoWarner's picture

Been on the edge of brainwashed idiocy for decades. The fruition of this mind fuck of propaganda..this dumbing down AND  denial of of all education.This complete slavery of the population .


Even the idiots that graudaute from 'ivy' LEAGUE SCHOOLS can barely spell or add.


This was not an accident/

popcorn's picture

We have two distinct systems in the brain that process information: the classical neuroaxonal network and the quantum-level microtubular network. The neuroaxonal network gives us the "perceptual-cognitive-symbolic" mode of perceiving the world , and the microtubular network offers a "direct-intuituve-nonlocal" mode. The perceptual-cognitive-symbolic mode dominates consciousness in the modern world ; information processed in the direct-intuitive-nonlocal mode is mostly filtered out. 


So what are these two parts of the brain interacting with? You may ask. The information that we receive in the dimension of our senses (perceptual-cognitive-symbolic) is in the form of wave propagations in the electromagnetic spectrum and in the air. The information we receive in the underlying dimension (which is more fundamental) are propagations from the quantum level. 


Have you ever been standing in a window hidden far above someone watching them as they are walking along the road and they suddenly look up at you after possibly feeling a chill? Or have you been the one looking up? You were interacting with the direct-intuitive-nonlocal dimension at the quantum level. 


p.p1 {margin: 0.0px 0.0px 0.0px 0.0px; font: 12.0px 'Helvetica Neue'; color: #454545} p.p2 {margin: 0.0px 0.0px 0.0px 0.0px; font: 12.0px 'Helvetica Neue'; color: #454545; min-height: 14.0px}

So what am I? You can say : I, a conscious human being, am not limited to my body. I am a matter-like system in the manifest dimension of the world, and a mind-like system in the deeper dimension. As a matter-like system I am my body, and I am ephemeral. But as a mind-like system I am my consciousness, and am part of the world's deep dimension. I am omnipresent and immortal, a nonlocal part of the infinite wholeness of the cosmos. 

Consuelo's picture



So back in the day, we would respond to such resplendent intellectuality with:


'Oh wow man...' 

TheLastTrump's picture

I totally heard Cheech? Marin say that.

John_Coltrane's picture

Thanks for including your font information-so few commenters do that!

I don't think you need to use so many words to convey such little information though.

How about something more pithy like, "I think therefore I am" with a nice nod to Descarte.

Joe A's picture

I always hide my font information. I don't understand why others are so careless with that. "If you have nothing to hide you have nothing to fear", people say. Well, "they" already know enough about me. They don't need to know my font information.

runnymede's picture

Thank you for sharing. Went to UC Davis, I see.....

willspeaks's picture

Oh yeah, What am I thinking right now?

Insurrector's picture

That the popcorn was burnt in the microwave?

popcorn's picture

(as in author is a materialist jew) 

Yen Cross's picture


      Trump is Quimsical

Swampthedrain's picture

Notice how the MSM is now more on board with Trump since he seems to be going along with the Deep State's hegemony schemes?  They are even trying to claim there is no erosion of his support base even as he has gotten zip of his promises done, flip flops daily and has turned into a war monger.

TheLastTrump's picture

They're still attacking all the time, they've just been dialing it down. It's more of a shiv to the liver while shaking hands then a Louisville Slugger to the teeth.


It started well before the Syrian missiles, I pointed it out on this board a dozen times.


The alt reich "base" that is so concerned about Syria is small. White middle class working men & women are Trump's base. The Christians alone are likely over 50% of it. I wouldn't be too concerned, Trump has quite a while to pull things together before the mid terms.

biker's picture
biker (not verified) Apr 17, 2017 6:34 PM

new type of yellow cake

mcl2177's picture

They're going to lower the Corporate rate, get rid of FICA payroll taxes, implement a VAT tax and label Social Security a welfare program which will allow them to means test.

Pinefox's picture

Trump is doing exactly what he said he would do.  He wants to get rid of the bad guys in the Middle East and do it quickly. He said that in his campaign so why is anyone surprised at his use of force? How else would he do it? He is doing what Obama was unwilling to do.  After 8 years of ineffectiveness, indecision, deception and weakness, we have action.  I think Trump is of the mind "let's get it over with".  Already the deck chairs are being rearranged.  He manipulated China into helping deal with North Korea. Good. It will take at least a year for the world to realign.  Time will tell.

Bret Bear's picture

You are right. Zerohedge continues to produce some great work. But there has been an obvious influence of libtards on here. They need to go.

IdioTsincracY's picture

Nope, you're both wrong.

However the influx of Libtards was necessary to balance

the presence of Repugturds.

Insurrector's picture

Trump's candidacy has energized the vox populi and politics are discussed in every home.

Let's see what happens in Georgia in the runoff to replace Price.

IdioTsincracY's picture

No, he is not!

He is doing the OPPOSITE of what he said and WROTE during his campaign.

The Fat-Ass Agent Orange has removed his program from his presidential site,

however use the Wayback Machine, retrieve, read it, and meditate on it.

>>> LINK

This is what he promised ... LOL:

End the current strategy of nation-building and regime change.

Joe A's picture

"Change you can believe in" and "draining the swamp": Both magical thinking that the American electorate believed in. The spewers of that magical thinking (that has a direct effect on the world) were not children: The electorate that believed it are. They are the ones believing that magical thinking. They believe in unicorns.

galant's picture

The bullying bluster by the United States towards North Korea is a distraction from what is really worrying the US Administration.

  Russia, a serious nuclear power, has refused to reinstate the Memorandum of Understanding on Deconfliction in Syria after the US strike on a government airfield.

 Russia now refuses to speak at the regional level to U.S. military counterparts to avert clashes on the ground and in the air, the safety channel when both sides were allegedly fighting ISIS, and the way that the US averted Russian retaliation for its policy change signaled at Khan Shaykhun.

Tillerman was trying to re-establish this communication in Moscow and he returned home empty-handed.

Russia has made it clear that it considers further US aggression against it ally Syria non-negotiable.

Another blunder by the US like at Khan Shaykhun could trigger an all-out confrontation with Russia and worldwide nuclear conflagration.