THE ZEITGEIST: February 2, 2017
TRUMP PUSHES THE PACE
Some players like to stand back, be cagey, and wait patiently for the other player to make a mistake. President Obama was one of those, enjoying what his staff liked to call “the long game.”
Other players can’t wait to confront the other side, taking risks and possibly rattling the opponent. Think of the tennis pro who rushes the net, the chess master who exchanges queens on move ten, or the NFL coach who blitzes safeties on the first play of the game. President Trump is one of these. In case you didn’t know before, the last several days have confirmed it: Trump loves to push the pace. The offensive (in both senses of the word) and the deliberately rude are all part of his game plan.
During his first two weeks in office, Trump has piled it on like no incoming President in living memory. Abortion, regulations, TPP, TTIP, Mexican wall, Muslim ban, Keystone, Obamacare, Supremes, tariff scare: Check, check, check, and check. The overall strategy is to shock and awe—and deliberately step on your opponents’ toes. Pundits everywhere are unearthing game-theoretical reasons why Trump wants to come across as berserker crazy. (See Bret Stephens’ column in the Wall Street Journal or this excellent note by Hedgeye guest Richard Peterson.)
Trump’s behavior has consequences for the market. I believe it reflects his intuitive perception that he faces a bimodal outcome distribution: He will succeed economically and therefore politically if things go very well or very poorly for him early on—but he could well fail if he gets stranded in the middle. Let me explain.
Ever since the election, the market has been pricing in a major and timely stimulus package, consisting of big tax cuts, big outlay hikes (for defense and infrastructure), and big regulatory rollbacks. Over the last couple of weeks, however, the odds have been rising that this stimulus may be neither major nor timely.
At the GOP retreat in Philadelphia last week, House Speaker Paul Ryan led a chorus of fiscal hawks in insisting, one after the other, that all of their budget actions will be “deficit neutral.” Oops, there goes that expectation. And no one—not even the export business lobby—is very fond of House Ways and Means Chairman Kevin Brady’s corporate tax reform plan. And most GOP leaders don’t even expect any major budget measure to pass until August. And that assumes that the GOP ever dig themselves out of their repeal-and-replace mess. And, oh yeah, the newly invigorated Democrats just might be less than cooperative along the way. (This is my polite way of referring to the Democrats’ emerging “scorched earth” strategy of opposing, delaying, or obstructing whatever Trump wants to do.) Oops, oops, oops, and oops.
The gradual decline in the dollar and in long-term real yields since New Year’s shows that the expectational air is already starting to hiss out of Trump's tires. Long USD and short TIP are the most direct plays on whether Trump’s deficit, tax reform, and border adjustment initiatives soon become law—since this policy package will surely do both even if it fails to do anything else (for example, boost inflation or real GDP growth).
Trump has a choice. On the one hand, he can respond by trying to be conciliatory. And this would gain him nothing. Not only would the Democrats do everything they can to oppose him anyway, but even the GOP leaders would stiffen their resistance to what they consider to be Trump’s zany populist agenda—not just Muslim bans and tariffs but also the whole big deficit-and-infrastructure package. With little likely to happen on the stimulus front, the Trumptrade would dissipate. Maybe total capitulation to the GOP leaders by a weakened Trump would gain a bit of tax reform and a bit of deregulation after a long delay. But that’s all.
OK, so much for playing nice. Trump can on the other hand respond by going a very different way—his way—and come out swinging at every opponent, Democrat or Republican, who stands in his path. As tempers rise along with polarizing insults, the GOP in Congress will then face an either-or situation: Either they side with Trump or they will roast alone as the most unpopular member of the Trump-GOP-Democrat troika. They can join the Trump steamroller or get rolled over themselves.
Clearly, this is already happening. As the spirit of outrage and resistance rises among the Democrats, their marches, boycotts, petitions, and law suits are being met by an increasingly hardline GOP response. Reacting to filibuster threats, for example, a growing number of GOP leaders are threatening, with Trump’s encouragement, to “go nuclear” in order to punch through all of Trump’s appointees and nominees in short order. And if you can nuke to do that, you can nuke to pass any other part of the Trump agenda without delay. Call this the “broken window” theory of political revolution. Once you break one window, it’s so much easier to break all the others.
The strategy may work. With open partisan hostility, GOP leaders may figure they have no other choice but to gather their wagon’s around the Trump Train and rush it to its destination, sirens blaring. Then again, the strategy is so risky it may crash and burn before it gets airborne. Investors worldwide may panic at the sight of Washington, DC, engaged in a sort of political civil war—and of Trump, in part just to provoke the opposition, playing double-dare with the likes of Iran, North Korea, and China. Markets may plunge.
But even if markets plunge, the strategy may not be as risky as it seems. As I’ve said many times, Donald Trump would glory in a bear market during his first year. He would tell America that this is the feeling of corruption leaving their nation. He would also tell them that of course he had no role in the two-party, do-nothing circus that brought us to this impasse. An urgent mood of crisis would enable him to create daylight between himself and the GOP leadership, who would no longer be able to withstand his bullying executive style. With every hundred points that the Dow declines, Trump’s debt-driven and Bannon-articulated populism will grow more appealing—and the GOP’s high-and-dry libertarianism will grow less appealing.
Many commentators have wondered why Trump’s inaugural address had to be so dark. The answer is obvious. If your purpose is to overhaul the system, you won’t get anywhere if you tell people, relax, the sun is shining. So you try dark words. And if those don’t work, you try dark events. As we pointed out in The Fourth Turning, magnifying—not minimizing—the magnitude of approaching challenges is the hallmark leadership style of America’s crisis eras.
So maybe Trump is playing a pretty cagey “long” game after all. Like Ronald Reagan (with his notorious firing of FAA strikers), Donald Trump is going out of his way to provoke the opposition and trigger uproar early on. Reagan didn’t mind spooking markets. And the timing of the bear market in 1981-82 worked well for him: It helped him push major bills through Congress in his first two years and set him up for an epic bull market in his last two years. Trump could do worse.
Memo to Trump: Over the last century, every two-term U.S. President has entered office immediately after or during a recession or depression—or has encountered one starting in the first year of his first term. Every one-term U.S. President (except one: Harry Truman) has failed to encounter an early recession. Hey, this may be just coincidence. But FYI.
During last year’s presidential campaign, I predicted that whichever side lost would feel that it is living in an occupied nation. Many anticipated such a reaction from red-zone America if, as expected, Clinton were to win. Market values in the gun and survival industries duly fell when investors learned of Trump’s victory. (See “I Will Survive.”) Yet hardly anyone anticipated a similar reaction from the blue-zone if Clinton lost. Now we are witnessing exactly this: Coastal progressives are darkening their rhetoric, martialing their resources, trying to learn from the enemy (New York Times op-ed: “To Stop Trump, Democrats Can Learn from the Tea Party”) and crafting their own brand of successionism (see California’s effort to declare itself a “sanctuary state”).
Last week, Former GOP House Speaker Newt Gingrich lauded an essay by conservative radio talk show host Dennis Prager entitled “America’s Second Civil War.” This week, liberal journalist Neal Gabler returned the favor by agreeing that the battle has been joined: “What Jan. 20 and Jan. 21 dramatized is a tale of two countries: Trump’s and the anti-Trump’s… These two Americas are now engaged in a civil war. Jan. 20 and Jan. 21 were each side’s declaration.”
Just more overheated rhetoric? Perhaps. But it’s the sort of exchange suggesting we have entered a new and more combustible mood zone. At the very least, anti-Trump America is beginning to find its own authentic “Alt-Left” voice.
THE GREAT MANIPULATOR?
Since the news these days seems to be wall-to-wall Trump, let me comment briefly on the Time Magazine cover story that appeared today on Steve Bannon—who is variously described as the President’s Svengali or Rasputin.
“Is Steven Bannon the Second-Most Powerful Man in the World?” the story asks. I have no idea. But I do know Steve fairly well and have worked with him on a number of film projects over the years. And I certainly recognize Steve’s voice in Trump’s rhetorical brand—for example, in his inaugural address. To answer the obvious question, yes, he is intimately familiar with our work and the thesis of The Fourth Turning. Without further comment, let me excerpt the relevant portion of the Time Story. (David Kaiser, quoted here, is a noted historian of U.S. foreign policy—and a friend of mine.)
Sometime in the early 2000s, Bannon was captivated by a book called The Fourth Turning by generational theorists William Strauss and Neil Howe. The book argues that American history can be described in a four-phase cycle, repeated again and again, in which successive generations have fallen into crisis, embraced institutions, rebelled against those institutions and forgotten the lessons of the past--which invites the next crisis. These cycles of roughly 80 years each took us from the revolution to the Civil War, and then to World War II, which Bannon might point out was taking shape 80 years ago. During the fourth turning of the phase, institutions are destroyed and rebuilt.
In an interview with TIME, author Howe recalled that Bannon contacted him more than a decade ago about making a film based on the book. That eventually led to Generation Zero, released in 2010, in which Bannon cast the 2008 financial crisis as a sign that the turning was upon us. Howe agrees with the analysis, in part. In each cycle, the postcrisis generation, in this case the baby boomers, eventually rises to "become the senior leaders who have no memory of the last crisis, and they are always the ones who push us into the next one," Howe said.
But Bannon, who once called himself the "patron saint of commoners," seemed to relish the opportunity to clean out the old order and build a new one in its place, casting the political events of the nation as moments of extreme historical urgency, pivot points for the world. Historian David Kaiser played a featured role in Generation Zero, and he recalls his filmed interview with Bannon as an engrossing and enjoyable experience.
And yet, he told TIME, he was taken aback when Bannon began to argue that the current phase of history foreshadowed a massive new war. "I remember him saying, 'Well, look, you have the American revolution, and then you have the Civil War, which was bigger than the revolution. And you have the Second World War, which was bigger than the Civil War,'" Kaiser said. "He even wanted me to say that on camera, and I was not willing."
Howe, too, was struck by what he calls Bannon's "rather severe outlook on what our nation is going through." Bannon noted repeatedly on his radio show that "we're at war" with radical jihadis in places around the world. This is "a global existential war" that likely will become "a major shooting war in the Middle East again." War with China may also be looming, he has said. This conviction is central to the Breitbart mission, he explained in November 2015: "Our big belief, one of our central organizing principles at the site, is that we're at war."
Given the Time essay, I’m sure our perspective on social change and history is going to get a lot more attention—and not all of it positive or discerning. See this early response on MarketWatch: “Steve Bannon's Obsession With One Book Should Worry Every Single American.”
NewsWire
- Experts warn that today’s smartphone-enabled baby monitors might create undue stress for new parents by causing false alarms leading to unnecessary hospital trips. This news, however, likely won’t stop risk-averse Millennials from doing everything they can to protect their precious Homelanders from harm. (Journal of the American Medical Association)
- A survey of Canadian Boomers found that 62% believe the amount of financial assistance that they give to their children and grandchildren is preventing them from saving enough for retirement. While Millennials have no problem relying on family in times of need, this habit can be detrimental to parents nearing retirement age. (TD Bank Group)
- Fully 42% of those interacting with a TV-related page on Facebook are Gen Xers, the highest share of any generation (40% are Millennials and 18% are Boomers). These findings don’t necessarily mean that Xers are social media addicts; rather, Millennials simply aren’t as attached to traditional TV. (Nielsen)
- A growing number of large employers and health care organizations are turning to “wellness coaches” to help people foster healthy habits. The move is part of a broader shift within the U.S. health care system toward preventative care as a means to curb overspending. (The Wall Street Journal)
- NASCAR announced a new system that divides races into three stages and awards points that are carried over through the playoffs. After years of falling ratings and increasingly empty stands, NASCAR executives are hoping a gamified format will bring in a younger audience. (The Charlotte Observer)
- Over the past two decades, the number of men taking paternity leave has more than tripled (from 5,800 a month to 22,000 a month). The reality is that employers are increasingly accommodating Millennial and Xer fathers, who want to spend more time with their kids. (American Journal of Public Health)
- In a long-awaited move, President Trump has officially withdrawn the United States from the Trans-Pacific Partnership. The trade deal was much maligned by politicians on both sides of the aisle for its potential to slash U.S. jobs and foment currency manipulation, making it an easy target for Trump’s chopping block. (The Wall Street Journal)
- Xer Tracey Ryniec argues that, after missing out on previous upswings, her generation may finally be poised to reap the benefits of a secular bull market. Of course, this is only true for the Xers with enough cash left to invest after having their savings wiped out by the Great Recession. (Zacks Investment Research)
- A federal judge has blocked the proposed megamerger between health care giants Anthem and Cigna on antitrust grounds. In today’s tumultuous health care landscape, bigger truly is better for providers—but not for consumers, at least in the eyes of regulators. (MediaPost)
- New data finds that Millennial car buyers want a new, eco-friendly vehicle with the latest tech features; Xers, on the other hand, prioritize price and reliability. While Millennials are focused on minimizing their eco footprint and maximizing their style points, pragmatic Xers want to make sure that their purchase will be money well spent. (Autolist)
Did You Know?
Caregivers in the Workplace Researchers at the Center of WorkLife Law at the University of California found that the number of caregiver-discrimination lawsuits has tripled over the past decade. And these lawsuits aren’t just restricted to pregnant women and new parents. In recent years, states and localities have increasingly passed laws against punishing workers who need accommodations to look after relatives of all ages—from grandchildren to grandparents. What’s happening? Generational change has expanded the traditional definition of family. As we’ve discussed before (see: “Unwrapping the ‘Sandwich Generation’”), a growing share of the workforce is made up of last-wave Boomers and first-wave Generation Xers who are looking after ill or aging relatives. At the same time, Gen-X parents are placing a special emphasis on spending more time with their kids (see: “So, Are You Mom Enough?”)—a trend that could even strengthen as Millennials start families of their own.
