Stockman: Forget Trump, The Real "Dopes & Idiots" Are On Wall Street

Authored by David Stockman via Contra Corner blog,

Suddenly it's all Fire And Fury, and according to its author, Michael Wolff, no less than 100% of his sources in the White House told him the Donald is a "dope" or an "idiot" and is a "child" who has tantrums if he doesn't get what he wants and get it right now.

We are pretty sure Mr. Wolff exaggerates. After all, Ivanka is apparently still trundling around 1600 Pennsylvania Avenue, yet how would she know?

More to the point, the Donald doesn't have the Deep State and its collaborators in the media and among the Dems and establishment Republicans lathered-up in a Salem-style witch-hunt hysteria because he's stupid. What he is is reckless, impetuous, undisciplined, glandular, petty, megalomaniacal, mendacious and uninformed-----and also in so deep over his head that even his signature orange comb-over will soon be fading from sight.

Yet there is something about Michael Wolff's tirade that deeply resonates, albeit on the other end of the Acela Corridor.

We are referring, of course, to the "idiots" who are buying the S&P 500 at 2735 and earnestly debating the pros and cons of bitcoin at $16,000; and to the "boys and girls" (nee "children") on Wall Street who have a hissy fit every time Washington---either via its central banking branch or statutory and fiscal tools----even vaguely mutters about financial discipline or eventually cutting off all the fiscal and monetary free-stuff.

This morning, in fact, we heard one of the street's permabulls describing the current madness as a state of stock market "nirvana" that will carry the S&P average to 3,100 in the near future.

That's right. While that particular figure would equate to 29X LTM earnings for the S&P 500 and about 150X for the Russell 2000, it makes no never mind.

That's because we have reached the ultra-FOMO (fear of missing out) stage of the bubble mania, where the only thing that matters is the price action. That is, what is being bought in the casino is what is going up, and for the sole reason that it is going up.

All else is just after the fact rationalization, such as the meme-of-the-moment holding that the US economy is "strong" and the global economy is being powered by "synchronized growth"; or it constitutes studied insouciance, such as the flippant dismissal of the unprecedented crisis of governance shaping up in Washington as being essentially irrelevant to the outlook for the economy and financial markets.

As to the studied insouciance part and the unfolding collapse of governance in the Imperial City and meltdown in the Oval Office, we can only profess utter amazement. During exactly 50 years of closely observing the beasts of the beltway, we have seen nothing remotely like Wolff's expose----exaggerated or not---of the sheer dysfunction, incompetence, intrigue, fratricidal conflict and egomaniacal impetuousness that pervades the Trump White House.

We actually had a window into the Nixon White House back in the day, and it amounted to a Sunday school picnic by comparison to the Wolff narrative.

Indeed, there is absolutely no doubt that the Donald is sui generis, and not in a good way as it bears upon the stock market outlook. In fact, he is not simply the Great Disrupter; Trump may eventually prove to be the Terminal Disrupter.

Under the Donald's watch, the Imperial City is being turned into one giant kick-the-can-alley. And that includes the asinine tax bill the Hill Republicans passed---- sight-unseen and with fiscal recklessness aforethought.

Its Christmas Eve passage was not an act of governance at all; it was a desperate political maneuver designed to distance Congressional Republicans from Trump and to establish the predicate for a 2018 campaign pitch touting the GOP majority's accomplishments on Capitol Hill----Donald Trump to the contrary notwithstanding.

Yet this reckless tax bill gambit is only going to turn the existing fiscal vice into a virtual legislative torture rack. As we have explained, staring Washington in the face at the next CR deadline on January 19th is upwards of $500 billion of add-on spending for FY 2018-2019.

Needless to say, there is absolutely no consensus within the GOP, virtually no route to bipartisan resolution, and therefore no way foreword except for stop-gaps and temporary patches that will soon have Congress tied in knots and pulsating with bitter partisan and factional conflict.

For instance, the GOP hawks (that's most of them) are insisting on a $120-$160 billion add-on for defense during the next two years. At the same time, the Dems and the RINOs (Republicans in name only), who control a veto bloc within the tenuous GOP majority in both houses, are demanding "parity" for domestic add-ons above the sequester ceilings (i.e. above the levels the GOP forced down Obama's throat to rebuke his horrible fiscal profligacy).

That adds up to about $300 billion over two years and it may well finally get there, but only after several more temporary CRs or other legislative slights-of-hand (such as putting baseline defense and domestic spending in the so-called "Overseas Contingency" which is exempt from the ceilings).

And then you have to toss into the red ink pool another $100 billion for disaster aid, $20 billion plus per annum for the ObamaCare insurance bailouts and state high cost patient pools, compromise money for border control/Wall and a lot more interest expense than currently projected. The latter will be far more than considerable when you recall that the revenue loss from the tax bill in FY 2018 and FY 2019 alone amounts to $416 billion.

Stated differently, the debt ceiling is now frozen again at $20.456 trillion and the Treasury's cash drawer has only a few weeks of reserves. What that means is that when you add the two year impact of the tax bill and the GOP's spending spree to the baseline deficits, it appears that to get through FY 2019 the debt ceiling will have to be raised to upwards of $22.5 trillion.

Needless to say, it's not going to happen---at least on a calm, workmanlike Friday afternoon. A raucous, continuing battle over temporary debt ceiling suspensions of a few weeks or months, or small increases that only kick the can a few quarters down the road, is now guaranteed to be the order of the day. And that will be happening---even as the Fed begins to drain cash out of Wall Street at a $600 billion rate next October and as the expected German successor to Draghi says "nichts" on any further extension of QE next fall.

Indeed, the QT (quantitative tightening) pivot is already ramping up in the here and now. During the current quarter ECB bond and other securities purchases will drop from EUR 60 billion per month to just EUR 30 billion, while the Fed's bond dumping rate will rise from $10 billion to $20 billion per month (on the way to $50 billion per month in October).

In all, a $46 billion swing toward monetary stringency is commencing this month-----or to drive the point home, a nearly $500 billion annualized reduction in the monetary free stuff being injected into the casinos.

In this context, we are hard pressed to understand how the Wolffian White House will cope with the Washington political mayhem and the bond market crunch heading straight down the pike. And its going to get worse, not better.

That's because Trump and the House GOP conservatives have finally screwed up there backbones in the face of the RussiaGate hysteria and our opening up investigations of the Clinton Foundation pay-to-play scandal and the egregious political abuse at the top of the Justice Department, FBI and CIA/DNI that launched the whole bogus Russian meddling and collusion story in the first place.

Folks, our Madisonian forefathers were no admires of big government and its purported good works; and had a deep skepticism about democracy in the raw.

So they designed a government contraption riddled with checks, balances and stalemates in order to throttle any tendency toward tyranny; and to insure that even under ideal conditions the Federal government would only function slowly and in the fits and starts inherent in clearing all the decision hurdles that were hard-wired at the Philadelphia convention.

In that context, we are more than willing to believe that Donald Trump will indeed prove to be the Terminal Disrupter. But even if you have considerably more confidence than your editor---and perhaps less cynicism, too---there is no way that the coming fiscal and political conflagrations are going to leave Wall Street unscathed in its splendid insouciance of the current moment.

The proverbial Swan is coming, and in the wake of the Wolff Affair and all it portends, we are pretty sure that this time it will be an Orange one.

And that gets us to the stupid part. That is, the silly claim that the US economy is somehow reaching escape velocity and cruising into a sustain period of 3.0% or better growth and that the combined boost from accelerating growth and the tax bill will send earnings soaring----as high as $170 per share on the S&P by the lights of Wall Street more enthusiastic hockey stick jockeys.

But here's the thing. The US economy is not strong; it's stuttering-----starting and stopping under the weight of $67 trillion of public and private debt; and fatally impaired by a financial bubble induced speculative mania that has turned the C-suites of corporate America into financial engineering joints dedicated to cycling most available cash and debt capacity, not into long-term investment and productivity, but into the near-term goosing of stock prices via buybacks, excessive dividends and unproductive M&A empire building.

The 3.0% growth meme is just a risible canard.  Two quarters of 3.0% annualized, seasonally maladjusted real GDP growth are hardly worth the paper they are printed on in the context of today's structurally impaired economy. Indeed, we had two back-to-back 4.0% plus growth quarters back in 2014 and they promptly disappeared from sight as the Red Ponzi induced commodity mini-boom rapidly cooled sharply in 2015-2016.

The chart below strains out the inventory stocking/destocking noise implicit in today's credit driven global economy, and shows that the current expansion rate of real final sales is 2.39% on an LTM basis. Yet that's exactly the same 2.39% rate of gain posted 22 quarters ago in Q1 2012.

In the interim, of course, the US economy's path undulated more or less in line with global credit, commodity and trade impulses. Yet during the five quarters of 2014-15 when real final sales growth exceeded 3.0%, the Wall Street bulls were noisily pronouncing that "escape velocity" had been obtained and that the economy was off to the races.

Not by a long shot. By early 2016 the growth rate dipped under 2.0% and has been struggling to rise materially above that level ever since.


So  the real question is not why this time is any different. The obvious reality is that it is just another cycle of the same. That is, the 19th Party Congress is over, and Mr. Xi has been coronated as the absolute ruler of the Red Ponzi.

Accordingly, even he recognizes that now is the time to wrestle down China's tottering $40 trillion house of debt cards before the whole scheme comes crashing down on Beijing's ruling elites. As shown in the chart below, the rate of China's credit growth has already come to a near standstill, and with the usual 6-month lag it will be cascading through world trade and production in short order.

So much for "synchronized growth".



Alas, the orange bars above are not fixing to erupt above the 3.0% line, but are being pulled downward by the global mini-cycle, and the sheer old-age of a business expansion that will soon equal the 119 month record posted during the far more beneficent conditions of the 1990s.

In the meanwhile, LTM S&P 500 earning stand at $107 pre share. That's the same level as three years ago in September 2014, and represents a mere 2.0% annual growth rate since the last cyclical peak 10 years ago.

It appears that Michael Wolff has a talent for exposing idiots and dopes. So we think he might well write his next book without leaving his Manhattan airy---save for an occasional Uber to Wall Street.

In the canyons down there he will find plenty of material.


silverer The_Juggernaut Sat, 01/06/2018 - 13:10 Permalink

A bull run totally based on fake basics. But yes, a bull run. Which brings us to a reality about predictions. It's more important to call the timing than just about anything else, and it will work for anybody. It even worked for Adolph Hitler, who, during WWI, heard a voice in his head telling him to "get up and walk over there". Seconds after he did so, a shell landed where he had just been, killing the others he was sitting next to. But who's "head voice" do you choose for the market call? I sure don't know, even though many of them make sense. The big call that matters is not "if", but "when".

In reply to by The_Juggernaut

ReturnOfDaMac The_Juggernaut Sat, 01/06/2018 - 13:32 Permalink

So true Juggernaut, so true.  The even bigger idiots are the guys who listen to these doomers.  Man, have they cost their "investors" a fortune these last 8 years.  Sure a crash is coming, a crash is always coming. The question is when?  The answer is: "not today".  My god have they lost out, will likely never recover from missing an 8 year rally.  They will finally capitulate just before the crash.  Treat these guys like Gartman and you will make a fortune!

In reply to by The_Juggernaut

lew1024 ReturnOfDaMac Sat, 01/06/2018 - 14:39 Permalink

That was a lot more genuine, and context appropriate, so maybe you aren't a chatbot.

Unless Doug was also, of course.

I just read Christian's "The Most Human Human" again recently, am perhaps overly sensitive to comments that aren't right. The two-comments in a row pattern is standard for the 'bots, 3 would have been unusual. Probably I guessed wrong.

In reply to by ReturnOfDaMac

Endgame Napoleon The_Juggernaut Sat, 01/06/2018 - 14:26 Permalink

Please, DS is one of the smartest people represented here on ZH. 

Wonder if the tell-all writer/exaggerator will take Stockman’s suggestion to be the real [Wolff] of Wall Street, writing a book that exposes the Red-White-and-Blue Ponzi. 

If Wolff had covered a Wall Street character, It would have been less distracting to the Deplorable agenda, which I have given up on seeing enacted. 

What Deplorables wanted would help alleviate the stunning $67 trillion in public / private debt that threatens to topple the country. 

Why is this debt-laden and underemployed country spending $116 billion per year on free stuff just for the illegal immigrants, with that [EITC] refundable (child tax credit) welfare likely not even included in that figure? 

Why is this underemployed country importing 1 million legal immigrants each year who send $46 billion out of this economy every year in remittances?  

They are working overtime to figure out how to get some of the $500 billion in worldwide remittance money into the cryptos, but what is leaving the USA constitutes a large chunk of that remittance money. 

It is a giant transfer of wealth to Third World countries, compliments of the DC Swamp.

People talk about foreign aid being a pittance in the budget, but if you count all of that $46 billion in remittance money, leaving the country instead of bolstering businesses in the USA, which, in turn, generates tax revenue, it is not a mere pittance.

In reply to by The_Juggernaut

zvzzt The_Juggernaut Sat, 01/06/2018 - 14:34 Permalink

Seeing/pretending doom and avoiding long exposure is part of trading and/or sensible mony management. He's not actively suggesting shorting the market. Not everything that goes up is positive or worth buying.


If we follow your rationale, i.e. missing out on bull runs, I dare you entering long on a couple of these items: HK housing market, US housing market, bitcoins, palladium, copper, short-VIX (reverse uptrend, right?), short US2yr, JGB10s etc. 


Of course you won't (and neither will I).

In reply to by The_Juggernaut

Vlad the Inhaler The_Juggernaut Sat, 01/06/2018 - 16:38 Permalink

You can be bearish and still go long, just have a good exit plan.  The real idiots are the longs who think it will go up forever and have no hedge or contingency.  If you bought the Dow in 1929 and held, you didn't get back to even until 1959.  If you bought the Dow in 1965 and held, you didn't get back to even until 1995.  Inflation adjusted.  

In reply to by The_Juggernaut

idontcare Vlad the Inhaler Sat, 01/06/2018 - 20:24 Permalink

Bingo.  Active investors (who know what they are doing) don't get killed.  The "retirement fund" crowd who sit & let someone else make the decisions will always be in the wrong place @ the wrong time.  There will be another correction, but there won't be a total Mad Max style economic collapse.  The object is to have enough will & skill to profitably play this ride down once things begin getting ugly & enough patience and dry powder to pounce on the next "bottom".  Are we going up from here - yep.   For how long?  I'd bet as far as early March 1 (then ask me again).  Am I all long - hell no!  Am I all in solely in US stocks - double hell no!  Is there an entire world of "assets" to invest in outside of the US equity markets - yep.   If the Dow, S&P, & Nasdaq were halved tomorrow the world doesn't come to an end except for those perpetually long US equities who need the $$$ stuck in positions which they failed to sell or hedge ahead of the downturn.  For everyone else, it's just another day full of money making opportunities.  One thing I'm sure of, in 20 years, everything will be much higher from where it is now.

In reply to by Vlad the Inhaler

Endgame Napoleon Negative Interest Sat, 01/06/2018 - 14:47 Permalink

That sounds like a bunch of gossip, so is it really surprising that the MSM is covering it 24/7? Gossip is their specialty. Hardly any of them spend 5 minutes reporting on the policy stuff discussed regularly here on ZH.

It is not like they use gossip to spice up their so-called news product occasionally. Gossip is their reason d'être. Today’s MSM are like the yellow journalists of the 19th century. So many things are parallel with that era, anyway, including mass waves of immigration, underemployment of US citizens and Gilded Age excess. We may as well have the yellow journalism, too.

At least, back then, we needed the immigrants to work as child laborers in factories and on farms. And back then, the country did not pay immigrants with layer after layer of monthly welfare and child-tax-credit welfare, helping to undermine underemployed citizens in the labor market.

Immigrants in that era also were urged to assimilate, whereas today we have the multiculturalist ethos. Trump has disrupted that a lot, but it is very disappointing when he abandons Deplorables First / America First positions, including on economic issues, like putting Americans First on the issue of jobs. That type of policy-related thing is the only legitimate criticism of this administration or any administration.

I refuse to be manipulated by this attempt to crucify people via armchair personality assessments. Judge them on policy and holding to the Deplorable Agenda. Let’s submit the MSM to the scrutiny of a panel of disinterested psychiatrists. The MSM say the same thing over and over again more than any group of people I have ever heard. Are they doing it on purpose? Is this involuntary repetitiveness that could indicate some kind of psychological malady? If so, are they really qualified to be a watchdog on power? I would rather have DS than the MSM. He is more professional and does not appear to suffer from the MSM’s Tourette's syndrome.


In reply to by Negative Interest

Deep Snorkeler Sat, 01/06/2018 - 12:36 Permalink

The Trumpian Era

Giant predator corporations

regulation-free and politically charged,

workers degraded and made powerless,

the soil and the oceans destroyed.

The political-economy fully invested in fraud.

lew1024 Deep Snorkeler Sat, 01/06/2018 - 14:50 Permalink

I hope it doesn't shock you to be told that many Trumpians agree with you  on all points.

We merely disagree whether it would be worse under Hillary or not. Many of us disagree on whether Trump is making good moves or not.

But on the question of the last election, Trump vs Hillary, who will be worse for us, so far we don't have reason to change our minds.

In reply to by Deep Snorkeler

nakedhedgehog Deep Snorkeler Sat, 01/06/2018 - 15:30 Permalink

So who was it that signed the Commodities Modernization Act? Oh Yeah, Billy boy. The Trump Era my ass. America was corrupt from the day the constitutional convention was convened under lies so as to destroy the revolution and create a financial elite...

Read Historian Charles Beard

Read A People's History of the United States

This nation was founded on lies, murder, slavery and propaganda from the start.

In reply to by Deep Snorkeler

nakedhedgehog nakedhedgehog Sat, 01/06/2018 - 19:07 Permalink

it was with grief they saw that prosperity mixed, even in the blossom, with the germ of corruption. Monopolies of every kind marked your administration almost in the moment of its commencement. The lands obtained by the revolution were lavished upon partizans; the interest of the disbanded soldier was sold to the speculator; in∣justice was acted under the pretence of faith; and the chief of the army became the patron of the fraud. From such a beginning what could be expected, but what has happened? A mean and servile submission to the insults of one nation, treachery and ingratitude to another.

In reply to by nakedhedgehog

Stud Duck Deep Snorkeler Sat, 01/06/2018 - 21:29 Permalink

If you only knew how bad this countries fertility of the soil has been fucked up with the "green revolution" which was nothing more than discovering how to make ammonia nitrate out of natural gas cheaply. The results were dramatic world wide in production of food. The result has been the total destruction of the fertility of the soil by the use of a petroleum based product on the soil. Would you pour gasoline on your garden?? The additional depletion of trace mineral at a rate of 300 lbs per acre per year and the resulting deficiency in the food product nutrition. Scientist have dung 5 ft deep in the delta of India and found no active living bacteria. The soil is fucking dead there and here in the good old USA I dare anyone to walk over a thousand acres of farm land and dig up a earth worm!.Food shortages soon will be the final collapse causation, the rest can be papered over for eternity. 

In reply to by Deep Snorkeler

MusicIsYou Sat, 01/06/2018 - 12:46 Permalink

I can imagine that it's true that Kushner actually is a "suck up" to Trump. So I'm sure some of Wolff's tales are accurate. A real man can't stand suck-ups. In that suckups aren't real people because there's more honorable ways to the top than sucking someone's butt.

FlKeysFisherman Sat, 01/06/2018 - 12:49 Permalink

Why is Stockman always blaming ignorance for Wall Street crimes? These guys are not stupid. 15-20 years ago there was a lot of talk about "brain drain" from the sciences because all the really high IQ students (150+) were going into banking and not STEM careers.



zvzzt FlKeysFisherman Sat, 01/06/2018 - 14:45 Permalink

The new guys are not stupid, just ignorant. I guess it is the same everywhere: old guys who've seen it all are cynical to the bone (as an old timer in the business myself, I understand completely and have the same general semi-grim attitude towards the global 'Wallstreets'. Point is, we retire, fresh blood comes in and they are simply to arrogant (in that young, fresh, ignorant, happy-go-free kind of way we use to have ourselves). They won;t listen to the old hags.... those hags are part of the problem! 'We'll fix it and won't make those dumb obvious mistakes you hags made....". Of course not..... 

My 2 cents of course. The smarter the new guys, the more oblivious they are to their own errors/shortcomings. I'm guessing what Wallstreet needs is some very old, super cynical assholes to fix the problems. They won't care about personal feelings, corporate hierarchy, 'climbing up the corporate ladder'.... 

In reply to by FlKeysFisherman

Endgame Napoleon zvzzt Sat, 01/06/2018 - 15:38 Permalink

True, but they need to be disinterested and above corruption. You would think that some of the rich, older people would be rich enough to put the country ahead of making even more $$$$. Whatever happened to the concept of financial freedom, meaning the liberty to act according to principle or authenticity due to being above the dog-eat-dog fray? 

In reply to by zvzzt

Endgame Napoleon FlKeysFisherman Sat, 01/06/2018 - 15:05 Permalink

We need the mega-IQ [citizens] back in STEM and the other sciences. From reading this blog, I can see that many of these hedge fund-manager types are among the smartest people, but like Peter Thiel points out, it is real innovation that creates the kind of economic expansion that leads to a lifting of all boats. Because, when technology shoots forward bigly, as it did with the space program, there are a bunch of spin-off industries that do not just create low-wage jobs. They are not really doing front-line innovation anymore. But even if American scientists turn out first-rate stuff again, if most of the jobs are shipped overseas, filled by immigrants [or automated], it will not help American citizens. It will not strengthen the country. Many of us Deplorables will not pretend otherwise, no matter how the Fake Politicians try to spin it. 

In reply to by FlKeysFisherman

idontcare Sat, 01/06/2018 - 12:54 Permalink

OK, call me an idiot here, but this is what seems to be going on.  The old timers are all howling to the wind that we are in a period of irrational exuberance like no other and we will definitely have the mother of all pullbacks (crashes) which will devastate the investor class worse than ever before in history (& most are even expanding their analysis to say that the US if not the whole of all 1st world economies will be flushed down the toilet forever leaving what's left of humanity after any number of concomitant disasters stemming from the economic collapse to be living in a Mad Max meets the Road reality).   

Now, on the other hand, we have the kids (let's just say those predominately under 45 y/o) who think that pullbacks are natural occurrences in economic markets and given that the largest buyers in the markets are institutions (on behalf of such things as pension funds, insurance cos, etc) & sovereign influences (include the central banks in here), that within an investors lifetime, the stock markets always appreciate and that pullbacks are opportunities to BTFD.

So it comes down to do you believe society is ending soon or do you believe that over time there are economic hiccups which for those who persevere, great profits will be realized.

I'm not saying get in at this point since we are more than likely ready to have a "hiccup" but let's get real, this repeated mantra of Stockman's and others that "the world is coming to an end" and cats and dogs are sleeping together is getting as unbelievable as the ravings of that drunk on the street corner wearing the sandwich sign which reads "THE END IS NEAR".