Trump And The Markets The Next Four Years
President-elect Donald Trump’s White House victory was a surprise, and so is the ripping sell-off in global bond markets, which has quickly driven US interest rates to the highest levels in a year. The rout has wiped out an estimated $1 trillion from global bond markets
By Darryl Robert Schoon
The election of Donald Trump has put added pressure upon already pressured markets. The next four months are going to be extremely consequential. But the next four years are going to be even more so, i.e. the cataclysmic resolution of capitalism’s end game is now in sight.
In free markets, the most important dynamic is supply and demand. In capital markets, the most important factor is the cost of credit; and in capitalism’s end game, the cost of credit is even more important because it’s the cost of credit that determines when the end game will end—and, today, the cost of credit, i.e. the interest rate, is now moving higher, a trend exacerbated by Trump’s recent victory which threatens market stability.
In a 2012, I discussed the significance of higher interest rates, bond markets and the end game in my article, Gold Versus Bonds:
THE END GAME AND THE COMING PANIC IN THE BOND MARKETS
We are moving into the end game, the grand denouement of credit and debt-based markets, the grand finale of the debt super-cycle, the crack-up boom, the blow-off Ludwig von Mises predicted would happen as a result of constantly expanding credit.
David Stockman, author of The Emperor is Naked and Reagan’s former budget director, is an outstanding observer of America’s problems in the end game. Recently, Stockman was asked by the editors of The Gold Report, what catalyst could bring the end game to a final resolution.
The Gold Report: If we are in the final innings of a debt super-cycle, what is the catalyst that will end the game?
David Stockman: I think the likely catalyst is a breakdown of the U.S. government bond market. It is the heart of the fixed income market and, therefore, the world’s financial market.
Because of Fed management and interest-rate pegging, the market is artificially medicated. All of the rates and spreads are unreal. The yield curve is not market driven. Supply and demand for savings and investment, future inflation risk discounts by investors—none of these free market forces matter. The price of money is dictated by the Fed, and Wall Street merely attempts to front-run its next move.
As long as the hedge fund traders and fast-money boys believe the Fed can keep everything pegged, we may limp along. The minute they lose confidence, they will unwind their trades.
On the margin, nobody owns the Treasury bond; you rent it. Trillions of treasury paper is funded on repo: You buy $100 million (M) in Treasuries and immediately put them up as collateral for overnight borrowings of $98M. Traders can capture the spread as long as the price of the bond is stable or rising, as it has been for the last year or two. If the bond drops 2% [i.e. when rates rise], the spread has been wiped out.
If that happens, the massive repo structures—that is, debt owned by still more debt—will start to unwind and create a panic in the Treasury market. People will realize the emperor is naked. [bold, mine]
Unlike bonds, bank stocks moved higher along with interest rates after Donald Trump’s victory. In the two-days after the election, the financial sector surged 7.9 %, its biggest two-day gain in five years.
Banks earn bigger profits when rates rise [as] they can take a wider margin [i.e. spread] on their loans to customers and earn more on their mammoth cash reserves.
Bloomberg, Banking on Trump, November 9, 2016
Higher longer-term interest rates can boost bank profits, as they increase the spread between what banks earn by funding longer-term assets, such as loans, with shorter-term liabilities.
Yahoo Finance, November 14, 2016
BANKERS: WE MAKE MONEY ON THE SPREAD
DRSchoon cartoon, Time of the Vulture, 2007
Those hoping Trump’s victory would end the bankers’ control over America will find their hopes as futile as those who hoped Obama’s 2008 election would put bankers behind bars for fraud and violations of the RICO Act (as per the RICO Act, banks are continuing criminal enterprises) during the 2008 financial crisis and housing collapse.
The recent October 2016 WikiLeaks email dump revealed that on October 6th2008, one month before the 2008 election, Citigroup banker Michael Froman submitted a list to Obama, recommending cabinet-level appointees in Obama’s administration (The list was sent from Froman’s email address at Citigroup, [email protected]).
On that list was Eric Holder, a former judicial appointee by Ronald Reagan and an attorney at Covington & Burling, a powerful Washington DC law firm that represented the biggest banks on Wall Street, widely known for defending rich and well-connected white-collar criminals, i.e. bankers, politicians, etc.
Our team includes form senior SEC officials, a former Secretary of Homeland Security, three former heads of the Justice Department’s Criminal Division, former federal judges, numbers former federal prosecutors with extensive criminal trial experience, as well as former senior Treasury Department, State Department, and EU officials.
Covington & Burling LLP, White Collar Defense and Investigations
As per Froman’s recommendation, Eric Holder was appointed US Attorney General whose tenure was remarkable for his non-pursuit of Wall Street bankers and white collar criminals (Martha Stewart should have been so lucky). Froman’s recommended appointees also included Hillary Clinton (who became Secretary of State), Janet Napolitano (who became Secretary of Homeland Security), Robert Gates (who became Secretary of Defense), Rahm Emanuel (who became Obama’s chief of staff), Peter Orszag (who headed the Office of Management and Budget), Arne Duncan (who became Secretary of Education), Eric Shineski (who became Secretary of Veterans Affairs) and Kathleen Sebelius (who became Secretary of Health and Human Services), etc.
Just seven days after Froman sent his Hillary and Holder recommendations to Obama in 2008, Citigroup received $25 billion in a bailout [from the Bush Administration]…[and] 19 days after Obama’s election..Citigroup received an additional infusion of $20 billion in equity from the government, assets guarantees on more than $300 billion of its toxic assets, and, it was secretly receiving billions of dollars in low-cost loans from the Federal Reserve – an amount that would cumulatively add up to $2.5 trillion from 2007 to 2010 [to keep Citigroup out of bankruptcy].
Pam Martens and Russ Martens, www.wallstreetonparade.com, October 21, 2016
In January 2009, Citigroup rewarded Michael Froman with a $2.25 million bonus, gratis of US taxpayers who had bailed out Citigroup. Today, “Ambassador” Michael Froman is the US trade representative promoting TTIP, the secretive and self-serving multinational corporate power play.
THE REVOLVING WHORES BETWEEN WALL STREET AND WASHINGTON DC
President-elect Donald Trump’s chief fundraiser is former Goldman Sachs’ vice-president and hedge fund manager, Steven Mnuchin. Mnuchin is now a leading candidate to be Trump’s Secretary of the Treasury. Trump’s first choice was banker JPMorgan Chase CEO Jamie Dimon who reportedly turned down the offer.
Mnuchin shares the same immoral provenance as does his Wall Street cohort (silent t, pronounce co-whore) Michael Froman. An article, The Worst of Wall Street: Meet Donald Trump’s Finance Chairman (May 10, 2016), warned about Mnuchin’s predatory behavior.
After the foreclosure crisis and collapse of Wall Street banks in 2008, Mnuchin and others bought a failed real estate lender, IndyMac, from the FDIC which had taken over the bankrupt mortgage bank after the housing market collapsed.
In an insiders’ sweetheart deal, the Mnuchin group paid pennies on the dollars for the insolvent bank with the FDIC agreeing to reimburse the group for losses associated with the foreclosures. Mnuchin renamed the bank, OneWest which had $16 billion in assets for which the bankers paid $1.5 billion.
In the first year, the bankers repaid themselves $1.57 billion with US taxpayers absorbing the losses; and their new bank, OneWest soon exhibited the same behavior now expected of bankers, carrion and thieves.
…in 2009, OneWest had the locks change on the home of a Minneapolis woman in the middle of a blizzard, even after the company sent her a letter stating “You expressed concern that at the end of the redemption period…you and your mother will be evicted from the property…Rest assured, that will not take place due to the rescission of the foreclosure sale.”
The Nation, The Worst of Wall Street: Meet Donald Trump’s Finance Chairman, May 10, 2016
In 2014, Mnuchin and his partners sold OneWest to the CIT Group, a bank holding company, for $3.4 billion. During the 2008 bank bailout, CIT received $2.3 billion of taxpayer money which it never paid back after declaring bankruptcy in 2009. The CEO of the CIT Group was John Thain, former chairman and CEO of Wall Street bank, Merrill Lynch. Mnuchin, currently a director of CIT and a member of its board, then became Trump’s chief fundraiser and advisor.
Steve Bannon, head of Trump’s presidential campaign and his newly appointed chief of staff, is also a Wall Street alumni. Like Mnuchin, Bannon worked for Goldman Sachs before forming his own investment bank, Bannon & Company.
Donald Trump’s closest political advisors are Wall Street bankers as were Barack Obama’s and Hillary Clinton’s. Expecting Donald Trump to “Make America Great Again” is like believing voting in an outsider to the Pharisees and Sadducees Roman Advisory Board in A.D. 1 would lighten the yoke of Roman oppression. Good luck.
TRUMP AND THE BANKERS
Trump needs the bankers. Without their loans, Trump’s real estate empire, built on an uneasy foundation of credit and debt, would crumble. Bank stocks skyrocketed after Trump’s victory, a sign that Wall Street banks expect to become even more powerful during Trump’s 4-year presidency.
Deutsche Bank, Donald Trump’s primary banker, is especially hopeful for favored treatment from the newly-elected president:
…Detusche Bank, in particular, could reach faster and cheaper settlements with the US Department of Justice once Trump is in office..Deutsche Bank was asked to pay $14 billion in fines by the US Dept of Justice over selling of mortgage-backed securities…
If, to avoid a conflict of interest, Donald Trump recused himself from the presidency during the Deutsche Bank litigation, the nation would be spared from what now confronts it, i.e. four years of chaos and bitter division. That, however, won’t happen.
Donald Trump is a political outlier which this nation sorely needed. What it didn’t need was a misogynist all too willing to inflame racial hatred, rage and fear to achieve his political ends. Donald Trump is both.
Illegal immigrants didn’t take away America’s jobs. To cut costs, US multinational corporations sent America’s jobs abroad and China willingly accepted them. Immigrants didn’t foreclose on America’s homes and indebt the nation. Wall Street bankers did. The powerless and those different, however, are always the easiest to blame; a time-worn phenomena which, in 2016, Donald Trump leveraged to become president of the United States of America.
When the bankers’ ponzi-scheme of credit and debt collapses, the bankers’ reign of debt slavery will end. Then and only then can America free itself from the bankers’ shackles imposed on the nation in 1913 with the passage of the Federal Reserve Act. Repeal the Federal Reserve Act and America will regain its freedoms.
Go easy on the immigrants. They were only looking for a better life. So are you.
Buy gold, buy silver, have faith.
Darryl Robert Schoon