‘The stock market, stupid’ — Trump’s claim is looking hollow 

Donald Trump might argue that Wall Street is worried about the prospect of Joe Biden being elected president by the end of next week. (AP Photo)
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Updated 29 October 2020

‘The stock market, stupid’ — Trump’s claim is looking hollow 

  • The timing of the Wall Street downturn is the worst possible for the incumbent, who has declared every new peak in the S&P as a personal victory throughout his presidency
  • The likes of Apple, Amazon, Alphabet and Facebook are due to declare their earnings for the third quarter, and how those numbers are received could give the indices a boost

Before the US election of 1992, candidate Bill Clinton summed up what he saw as the reason he would become president: “It’s the economy, stupid.” He was proved right as voters disowned the economic policies of President George H.W. Bush in their droves to elect Clinton. 

Until the COVID-19 pandemic began to ravage the US economy in March, President Donald Trump would have been able to make the same claim. For the four years of his presidency, the US economy had continued the progress initiated by his predecessor to recover from the 2009 global financial crisis.

By most measures — growth, employment, inflation — the Trump years had been good, and those on the top of the pile had even more reason to be grateful thanks to the big tax cuts he had made a flagship policy.

The pandemic changed all that in the space of a few weeks as lockdown measures shocked the economy. Jobless claims soared to all-time records, bankruptcies and closures affected large swathes of American business, and gross domestic product collapsed. The International Monetary Fund forecasts that the American economy will shrink by 4.3 percent this year.

But Trump could still claim instead that “it’s the stock market, stupid” as a reason he could be re-elected. Mainly because of the trillions of dollars injected into the economy in the form of fiscal stimulus, US share indices had swum against the economic tide.

The S&P 500 index hit an all-time high in September, allowing Trump to boast that under his administration, investors and the millions of people whose livelihoods depended on the financial industry had never had it so good.

Now, it looks as though even that final claim is looking more fragile. For the past couple of days, US and European stock markets have gone into reverse as investors took fright at the rising number of COVID-19 cases and the re-imposition of economic lockdowns in many countries.

Trump might argue, with a little justification, that Wall Street is worried about the prospect of Joe Biden being elected president by the end of next week. Certainly the contender, by definition, is something of an unknown quantity in terms of economic policy.

He is also known to favor some policies — such as tighter regulation on environmental sectors, more spending on health care, and higher taxes for federal services and projects — that have traditionally been regarded as contrary to the philosophy of “free market” America.

In particular, the energy industry is worried about possible restrictions on shale oil and gas production that Biden and his “green” team are believed to favor. However, it should be pointed out that the Democratic candidate has specifically said he will not ban shale fracking, as some environmentalists want.

In any interesting side-story, the state of Texas — one of the biggest in terms of electoral college votes — would seem to have more to lose than any other if the energy scare stories about Biden were true. Yet the contest there between Democrats and Republicans is the closest it has been for decades, according to opinion polls.

The timing of the Wall Street downturn is the worst possible for the incumbent, who has declared every new peak in the S&P as a personal victory throughout his presidency and a sign of his deal-doing prowess. If even this claim is denied to him in the final week of campaigning, it would make the uphill battle against the polls even more difficult.

There is a chance that Big Tech might offer some relief. The likes of Apple, Amazon, Alphabet and Facebook are due to declare their earnings for the third quarter, and how those numbers are received could give the indices a boost, given that they were the ones largely responsible for the big market gains earlier in the year.

But for Trump, any such respite might be too little, too late. It looks as though Wall Street and Main Street are finally catching up in their gloom, and there is nothing the president can do about it.


Wary Turks aren’t buying Erdogan’s economic promise yet

Updated 1 min 59 sec ago

Wary Turks aren’t buying Erdogan’s economic promise yet

  • Turks have faced mostly double-digit unemployment and inflation for four years

ISTANBUL: Turkish President Recep Tayyip Erdogan’s promise of a new economic era triggered a foreign-driven rally in the lira, but local investors have yet to be persuaded that policies they say have dragged on economic prospects for years will be reversed.

Interviews with local portfolio managers, gold sellers and business owners suggest Erdogan’s biggest challenge will be convincing Turkish individuals and companies he can turn last month’s rhetoric of market-friendly reforms into reality.

“There is a protective reflex,” built up after years of lira depreciation, said Baris Hocaoglu, general manager of Istanbul Portfoy, which manages 7 billion lira ($900 million) of assets and recommends a “cautious stance” to clients.

“Until the trust and stability are established, especially individual investors’ interest in gold and foreign exchange (FX) will continue.”

Local wariness also reflects other risks, including the resurgent coronavirus pandemic and signs of friction within Erdogan’s government that could worsen.

Turks have faced mostly double-digit unemployment and inflation for four years. Twice since mid-2018 the economy has sharply contracted while half the lira’s value has evaporated, setting both back compared with peers.

Early last month, convinced by allies his economic policies were failing, Erdogan installed a new central bank chief who hiked interest rates to 15 percent to boost the record-low currency.

Foreign investors, who hold only 5 percent of Turkish bonds, then chased some of the highest yields in emerging markets, pushing the lira 12 percent higher. That rally was partially reversed by Turks, who still face negligible deposit rates, buying $4 billion of gold and foreign exchange in two weeks.

Locals could warm to the lira if deposit rates are pulled higher by further monetary tightening, analysts say.

But for now they remain cool. Bankers say that for the first time in five years some Turkish energy importers are requesting market quotes for dollars and euros, while at Istanbul’s Grand Bazaar gold coins and jewelry are selling at $3 above international prices.

Mehmet Ali Yildirimturk, deputy head of a city gold shops association who operates at the Bazaar, said only “concrete actions” from the government will win trust. “Until then the local investor is still interested in physical gold,” he said.

A growing reason for caution is the coronavirus surge that has closed the doors to restaurants and schools, leaving people out of work as they were in a spring lockdown.

On Monday, Erdogan announced curfews and said the government is taking careful steps to avoid “a full-blown economic and social crisis.” Yet some in the vast small-business services sector see more signs of mismanagement.

“We are facing unjust competition and don’t have the big budgets like supermarkets Metro, Migros, Carrefour,” said Oktay Dagasan, 42, who runs a small Istanbul liquor shop that must now close early.

“We are finished economically, and are buried under credit card and loan debt,” he said. The government should give tax and rent support and “come out among the people and see what it is like,” he added.

In an interview, Numan Kurtulmus, deputy chair of Erdogan’s ruling AK Party (AKP), said high unemployment and current account deficits will be solved as part of the new approach but it would take time.

“We will have a difficult period ahead of us, especially because of the pandemic,” he said last week.

The AKP has slipped in opinion polls and one of its founding members resigned from a key post at the presidency last month after his calls for judicial reform were rejected by Erdogan and the leader of his nationalist coalition partner.

Some analysts say risks of an early election have risen along with prospects of economic sanctions, given a row with the EU over territorial waters and expectations of tougher US bilateral ties under a Joe Biden White House.

“The public closely follows the ongoing political conflict in Ankara, and senses that the end might be an early election or a costly conflict with the West,” said Atilla Yesilada, analyst at GlobalSource Partners.