This guest commentary was written by Mike O'Rourke of JonesTrading
The Trump train appears to be coming off the tracks as the President backpedals on a number of issues. After the initial attempt at health care reform failed to get to the House floor for a vote, the President announced he would move on to tax reform.
Yesterday the President announced that "We have to do health care first to pick up additional money so that we get great tax reform. So we’re going to have a phenomenal tax reform, but I have to do health care first.”
Needless to say, the timeline for the President’s agenda is slipping quickly. The initial optimistic hope was that Tax reform would be done by June, but it recently slipped to August and today the Press Secretary confirmed that the goal is for tax reform to be completed by the end of the year.
In the past, we have criticized the simplistic thinking that tax reform would boost S&P 500 earnings to $140 this year. In a world where price creates the narrative, almost any rationalization is entertained to justify expensive valuations but these latest developments should prompt those delusional hopes to finally fade.
The fact remains that for the Republicans, health care reform should be the least controversial legislation to pass. Tax reform and Infrastructure are going to be significantly harder. As his agenda wavers, the President has reversed course on a couple of other strongly held campaign views today. President Trump told the Wall Street Journal he would not name China as a currency manipulator. Ironically, in the same interview, he expressed his own view that the US Dollar was too strong.
The other notable shift was his opinion of Chair Yellen. During the campaign, President Trump made the follow comments about Chair Yellen. “Janet Yellen should have raised the rates. She’s not doing it because the Obama administration and the president doesn’t want her to.” As well as “They’re keeping the rates down so that everything else doesn’t go down. We have a very false economy,” and “At some point the rates are going to have to change. The only thing that is strong is the artificial stock market.”
Trump was clear when said “She’s keeping them artificially low to get Obama retired. Watch what is going to happen afterwards. It is a very serious problem. And I think it is very political. I think she is very political and to a certain extent, I think she should be ashamed of herself. But it is not supposed to be that way.”
As a real estate developer, Trump has always been a fan of low interest rates. Yesterday the President said the door is not shut on a Yellen reappointment and when specifically asked about Chair Yellen, he answered “I do like a low-interest rate policy, I must be honest with you.”
Interestingly, former Treasury Secretary Robert Rubin published an Op-Ed in the NY Times today titled “Don’t Politicize the Federal Reserve.” When the President reverses course so quickly and starts seeking the easy way out, it starts to smell like desperation.
EDITOR'S NOTE
This is a Hedgeye Guest Contributor research note written by Michael O'Rourke, Chief Market Strategist of JonesTrading, where he advises institutional investors on market developments. He publishes "The Closing Print" on a daily basis in which his primary focus is identifying short term catalysts that drive daily trading activity while addressing how they fit into the “big picture.” This piece does not necessarily reflect the opinion of Hedgeye.
