WASHINGTON, May 24, 2017 – CNBC’s online site posted an article Wednesday morning, reporting on an interview with Allianz’ chief economist Mohamed El-Erian on the cable network’s morning show “Squawk Box.”
“The stock market has been rising because too much money is chasing too few opportunities, economist Mohamed El-Erian told CNBC on Wednesday.
“The Trump trade — betting on stocks in hopes that the president’s policies will boost economic growth — is no longer the main factor driving the market…
“‘This is no longer a Trump trade. This is somewhere between a reflation trade, but much more importantly a liquidity trade. This is a liquidity-driven market,’ El-Erian said.
“‘I have underestimated the strength of the liquidity injections. Not just from the Fed, but I think the increase in [income] inequality has meant there’s been less consumption and more investing in the market,’ he said. ‘And the profit share is so high that the companies are putting the money back into the marketplace.’”
El-Erian, one of few economists worth listening to currently, became Allianz’ top economic advisor after the German company ousted the increasingly controversial Bill Gross, previously the long-time head of Allianz’ U.S. subsidiary, bond and mutual fund giant Pimco. (El-Erian had left Pimco earlier in a bitter dispute with Gross, who now works for Janus.)
El-Erian provides at least one plausible answer to the burning question this writer has been asking recently: What happened to the Trump Rally? Allianz’ chief economic guru observes that there’s actually more liquidity in a U.S. equities market that other economists believe is illiquid.
Evidence? Less spending on “stuff” and more savings and investment. That’s entirely plausible, given the retail industry’s current, store-closing hard times, although it doesn’t take into account increased spending in online transactions that may be replacing bricks-and-mortar retail business at a faster rate than anyone has anticipated.
However, given the non-stop anti-Trump bias of CNBC, particularly online, we think the network – whose parent is the radically anti-Trump NBC-TV network – is failing to note the quiet success Trump has had in the economic sphere, choosing instead to over-hype the President’s current and largely bogus Russian troubles and Republicans’ failure to make much progress on Obamacare “repeal and replace” legislation and tax reform.
What the media is apparently choosing to ignore is the unending parade of executive orders and Congressional actions that have already overturned a substantial number of former-president Barack Obama’s viciously anti-business executive orders, many of which were signed in the late innings of his Washington tenure.
As Trump and the Republicans deep-sixed more and more of Obama’s crippling rules and regulations, and as the new administration has endeavored to clip the oversized wings of the anti-business, anti-fossil fuel EPA, businesses large and small seem to have re-energized over night and have once again begun to reach for the previous R&D levels that had once made American businesses the envy of the world.
Some of this activity has already shown up in the economy, although considerably more is yet to come. In other words, even as Congress – without any cooperation from the stubbornly socialistic Democrats – struggles to implement the big picture, Trump has been busily whittling away at the thousands of tiny cuts Obama dealt America’s businesses, thus freeing more and more companies to get back to doing what they do best: creating exciting and useful new products and the jobs to go along with them.
It’s this incremental positivism that the media and politicians alike either don’t get or choose to ignore. For that reason, while we don’t doubt the correctness of Mohamed El-Erian’s observations today, we don’t think this reasoning goes far enough.
If you restrict businesses to the point where it no longer makes sense for them to invest in themselves, in their products and in America itself, you reach a point of unproductive stasis. That’s what characterized the eight years of decay and decline presided over by a former president consistently more interested in redistributing income to buy votes than he was in putting America back to work after the country was virtually blindsided by the Great Recession.
Rolling onerous and outright stupid rules and regulations that stymie growth and employment, while it won’t make America great again, will put the country back on the recovery path it should have begun to enjoy circa 2010. As Paul Harvey used to say, that’s “the rest of the story.” Now, if Congressional Republicans would quite bickering and hairsplitting and if President Trump could issue a few dozen less tweets, the American economy could begin to gain some real velocity.
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