Trump parallels with Iraq

16 January 2017 5:05 pm

Anyone trying to make sense of the markets now should go back to 2003 when the US invaded Iraq.

The markets expected a decisive victory. During the days and weeks when American troops advanced on Baghdad, the market climbed. As they entered Baghdad and marched on the center of the city, the market traded higher and higher. Share prices were just going through the roof.

But after the Americans fastened a rope around the neck of Saddam Hussein’s statue and attached the other end to a tank, and then toppled the statue, stocks started to fall. By the end of the New York trading day, the Standard & Poor’s 500 index had slumped 1.4 per cent.

Why did this happen? Because the market had expected the US would win the war quickly and decisively. The market was buying on that rumour.

But shares started being sold on the news that the war was not simple. And 14 years since, we can see it’s been anything but.

There is a similar pattern with Donald Trump. When he won the November election shares, boomed on the rumour that he would bring in tax cuts, and spend heavily on infrastructure. Donald Trump will be inheriting the second longest bull run on the markets with the US stock market now sitting at a record $US26 trillion. The Dow Jones has been up 8.9 per cent since election day, indicating investors’ expectations of tax cuts and infrastructure spending under Trump.

But Trump has failed to spell that out. And like the war, the Trump presidency will be far messier than the markets expected.

The market is looking forward to a combination of corporate tax cuts, a reduction in individual tax rates, fiscal stimulus and deregulation,” Russ Koesterich, co-manager of investment giant BlackRock’s $41 billion Global Allocation Fund told the Los Angeles Times. “But this is a lot, probably more than any administration can realistically achieve in one year.”

Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch, is forecasting a 2017 market “melt-up”, saying the jump in US stocks after the election reflects the “Icarus Effect” referring to the Greek mythical character who flew close to the sun on wings of wax and feathers.

He said market melt-ups are followed by market meltdowns as occurred in October 1987.

What we're likely to see is a Trump slump.

So the moral in this story: buy on the rumour and sell on the news.

2017

October

22 Oct 2017 - Trump vow to declassify Kennedy files is a distraction

07 Oct 2017 - What’s ahead for the Minerals Council of Australia?

September

16 Sep 2017 - Australia’s energy crisis shows the stupidity of privatisation

09 Sep 2017 - Why climate change will devastate Florida

July

16 Jul 2017 - Laws of mathematics don’t apply to Australia: Malcolm Turnbull

June

17 Jun 2017 - Political backlash over the Grenfell fire

11 Jun 2017 - A win for Macron is a lesson for Theresa May

04 Jun 2017 - Attacks in London could change the election

May

28 May 2017 - Why Donald Trump will survive and be re-elected in 2020

20 May 2017 - Will the Mueller probe examine Trump’s Russian business ties?

13 May 2017 - Hypocrisy over Chloe Shorten’s necklace

06 May 2017 - Macron vs Le Pen: France is no longer one country

April

29 Apr 2017 - Turnbull government attacks banks over Adani

23 Apr 2017 - Why the French election is important

08 Apr 2017 - Russian navy moves in

01 Apr 2017 - Australia is one of the world’s worst money laundering property markets

March

19 Mar 2017 - Peter Dutton goes poofter bashing

04 Mar 2017 - Trump will take the market to a fiscal bloodbath

February

26 Feb 2017 - Trump’s mental condition

18 Feb 2017 - Adani’s results tell us the company will not develop in Australia

11 Feb 2017 - Why the Coalition’s “clean coal” plan is crap

04 Feb 2017 - It’s Trump versus the courts

January

27 Jan 2017 - The cost of Trump's wall on consumers

21 Jan 2017 - A look at Europe's future

20 Jan 2017 - Can Trump make America great again?

16 Jan 2017 - Trump parallels with Iraq


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