{"id":115709,"date":"2017-10-31T10:37:16","date_gmt":"2017-10-31T14:37:16","guid":{"rendered":"http:\/\/countingpips.com\/?p=115709"},"modified":"2018-06-01T15:53:34","modified_gmt":"2018-06-01T15:53:34","slug":"trick-or-trump-do-stock-market-gains-offset-the-national-debt","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2017\/10\/trick-or-trump-do-stock-market-gains-offset-the-national-debt\/","title":{"rendered":"Trick or Trump: Do Stock Market Gains Offset the National Debt?"},"content":{"rendered":"
October 31, 2017<\/div>
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By WallStreetDaily.com<\/u><\/a> \"Trick<\/p>\n

\"LouisPresident Trump just made a rather interesting, borderline-odd claim.<\/p>\n

I realize that Mr. Trump making outrageous claims is nothing especially newsworthy.<\/p>\n

But this one is such an original thought that it warrants our attention.<\/p>\n

The president said that the recent stock market gains offset the national debt:<\/p>\n

\n

As you know, the last eight years, [the federal government] borrowed more than it did in the whole history of our country\u2026 They borrowed more than $10 trillion, right? And yet we picked up $5.2 trillion just in the stock market. Possibly picked up the whole thing in terms of the first nine months in terms of value.<\/em><\/p>\n<\/blockquote>\n

Many fear that America\u2019s $20.4 trillion debt crisis is more worrisome than ever.<\/p>

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So is Trump\u2019s claim a trick\u2026 or a treat?<\/p>\n

Here\u2019s what you need to know now.<\/p>\n

Gambling in a Dangerous Game<\/h2>\n

\"MartinPresident Trump\u2019s claim has all the solidity of a financing plan from an Atlantic City casino.<\/p>\n

At the current point in the cycle, with unemployment close to 4%, the U.S. budget should be in surplus<\/em>.<\/p>\n

In reality, however, the budget deficit for the year to September 2017 was $666 billion.<\/p>\n

And Trump\u2019s own tax plan is expected to blow out the deficit by an additional $1.5 trillion over the next 10 years.<\/p>\n

And simply cheerleading about all the additional growth we\u2019re going to get won\u2019t help. For the last two quarters, we have been at the 3% growth President Trump promised. Yet the deficit is some $200 billion higher than originally projected.<\/p>\n

So on the debt side, that $20 trillion in debt Lou mentioned above is projected to grow by close to $1 trillion a year \u2014 every year to infinity.<\/p>\n

That figure will get worse with the baby boomers now retiring in droves since Social Security and Medicare run ever-increasing deficits. Not to mention the next economic downturn, which \u2014 with present policies \u2014 will blow the deficit out to $2 trillion a year.<\/p>\n

In other words, the national debt isn\u2019t something we should easily dismiss. Ignoring it certainly won\u2019t solve the problem. And the stock market won\u2019t either\u2026<\/p>\n

On the equity side, Trump likes to trumpet about the increase in stock values since he took office.<\/p>\n

The problem is, stocks were already overvalued by historical standards in November 2016. So the current rise is just setting us up for a bigger crash when the inevitable correction comes.<\/p>\n

Most of these issues aren\u2019t President Trump\u2019s fault. They\u2019re the result of two decades of foolish policies.<\/p>\n

But either way, when it comes to Trump\u2019s outlandish claims, it\u2019s trick \u2014 not treat!<\/p>\n

It Goes Both Ways\u2026<\/h2>\n

\"JonathanFirst, let\u2019s tackle the debt side of the equation here\u2026<\/p>\n

America\u2019s $20 trillion debt load is a big deal.<\/p>\n

But even factoring in silly political posturing in Washington, we\u2019re in no real danger of default anytime soon.<\/p>\n

Granted, the U.S. currently owns a debt-to-GDP ratio of 104%, just shy of an all-time high. But China \u2014 one of the world\u2019s fastest-growing large nations \u2014 sports a debt-to-GDP of more than 300%.<\/p>\n

In other words, a credit crisis is more likely to occur overseas than here in the States.<\/p>\n

And as Hutch mentioned above, the president loves to take credit for the \u201cbigly\u201d post-election stock market gains.<\/p>\n

But things were already looking up for equities before Trump\u2019s election.<\/p>\n

Indeed, American companies experienced five consecutive quarters of earnings declines from 2015\u201316. Yet in the third quarter of 2016 \u2014 just before the presidential election \u2014 earnings broke out of their slump to the upside.<\/p>\n

Investors were also comfortable with the Federal Reserve\u2019s slow path of small interest rate hikes \u2014 a key point of uncertainty over the last few years.<\/p>\n

With that said, the market did price in a lot of hype based on Trump legislative initiatives. I\u2019m talking about tax reform, infrastructure spending and a massive defense-spending package.<\/p>\n

But a stock\u2019s price follows the direction of its earnings growth \u2014 with few exceptions. As long as earnings are growing, the stock market will rise.<\/p>\n

So President Trump can take credit for some of the market\u2019s price action, but not all of the momentum is his doing.<\/p>\n

Besides, here\u2019s the catch with taking credit for the market\u2019s rise\u2026<\/p>\n

If the big-ticket legislative items don\u2019t get passed in Congress, stocks will surely sink in the short term.<\/p>\n

Ultimately, Trump will have to own those losses, too.<\/p>\n

Verdict: Trick!<\/p>\n

A Word of Advice<\/h2>\n

\"LouisPresident Trump \u2014 and for that matter most politicians \u2014 would be wise to follow the wisdom of the late President Ronald Reagan: \u201cThere is no limit to the amount of good you can do if you don\u2019t care who gets the credit.\u201d<\/p>\n

We need less bragging and more action in Washington, D.C.<\/p>\n

Period!<\/p>\n

Without it, our national debt promises to keep ballooning higher and higher.<\/p>\n

Of course, we live in a debt-addicted world, so it\u2019s all relative. As Jonathan pointed out, as long as our debt-to-GDP ratio comes in lower than other major economic powers, all is well in the short to intermediate term.<\/p>\n

At some point, though, all the debt will come back to haunt the world\u2019s superpowers.<\/p>\n

As for divining that day \u2014 along with the exact hour that the stock markets collapse as a result of all the debt \u2014 I\u2019ll let the doom-and-gloomers keep trying to guess. It\u2019s a fool\u2019s errand.<\/p>\n

Our time will be much better spent identifying and filling our portfolios with individual companies with strong and growing earnings.<\/p>\n

Ahead of the tape,<\/p>\n

Louis Basenese
\nChief Investment Strategist, Wall Street Daily<\/em><\/p>\n

The post Trick or Trump: Do Stock Market Gains Offset the National Debt?<\/a> appeared first on Wall Street Daily<\/a>.<\/p>\n

 <\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

By WallStreetDaily.com President Trump just made a rather interesting, borderline-odd claim. I realize that Mr. Trump making outrageous claims is nothing especially newsworthy. But this one is such an original thought that it warrants our attention. The president said that the recent stock market gains offset the national debt: As you know, the last eight […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-115709","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/115709","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=115709"}],"version-history":[{"count":2,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/115709\/revisions"}],"predecessor-version":[{"id":115738,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/115709\/revisions\/115738"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=115709"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=115709"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=115709"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}