Advertisement
Features

David Stockman: Trump is playing with fire

It’s safe to say that David Stockman, former US government budget director, is not impressed by President Donald Trump

922_MW_P16_strategy_guru
David Stockman, former US government budget director

David Stockman is very familiar with US government debt he served under President Ronald Reagan from 1981 to 1985 as his budget controller, and was a keen advocate of balancing budgets and cutting government spending. It's safe to say he is not impressed by President Donald Trump.

By cutting corporate tax rates and expanding the US government deficit (its annual overspend), Trump is "playing with fire at the very top of an ageing expansion", he tells CNBC. And Trump's criticisms of the Federal Reserve for raising interest rates is also wrongheaded: "He's attacking the Fed for going too quick when it's been dithering for eight years. The funds rate at 2.13% is still below inflation."

Advertisement - Article continues below

All of this means investors need to be extra-defensive. In fact, Stockman who has a history of being very bearish reckons the S&P 500 (the main US stockmarket) is set to fall by as much as 40% from its current level of around 2,800. "No-one has outlawed recession. We're within a year or two of one." When it arrives, unwary investors will get a brutal shock. "Fair value of the S&P going into the next recession is well below 2,000, 1,500 way below where we are today."

As for Trump's attacks on China: "The trade war is not remotely rational." China, says Stockman, accounts for about 30% of US goods imports. As a result, if tariffs drive up prices or force the US to source its goods from elsewhere, then it "is going to hit the whole goods economy with inflation like you've never seen before."

Advertisement
Advertisement

Recommended

How long can the good times roll?
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Why Wall Street has got the US economy wrong again
Economy

Why Wall Street has got the US economy wrong again

The hiring slowdown does not signal recession for the US economy. Growth is just moving down a gear, says Brian Pellegrini.
25 Oct 2019
Abby Joseph: US markets have no margin for error
Investment gurus

Abby Joseph: US markets have no margin for error

Much of the markets' recent strength is down to the US Federal Reserve using monetary policy to backstop the equity market, says Abby Joseph Cohen, se…
31 Jul 2020
What will the US central bank do next?
US Economy

What will the US central bank do next?

As the US continues to grapple with the Covid pandemic, the Federal Reserve will meet to decide what to do next on jobs, inflation and the recovery in…
28 Jul 2020

Most Popular

Don’t despair on dividends – these companies could be set to bring them back
Income investing

Don’t despair on dividends – these companies could be set to bring them back

The value of dividends paid out by UK stocks has plummeted this year as companies “rebase” their payment policies. But things could soon start to look…
6 Aug 2020
Gold hits the big $2,000 level – are Aim miners about to play catch up?
Gold

Gold hits the big $2,000 level – are Aim miners about to play catch up?

With the price of gold shooting through $2,000 an ounce, the yellow metal looks unstoppable. Things are so bullish, even Aim-listed junior gold miners…
5 Aug 2020
Platinum: the precious metal that looks set to play catch-up with silver and gold
Silver and other precious metals

Platinum: the precious metal that looks set to play catch-up with silver and gold

Gold and silver continue to soar, but there's still time to get in. And there's another precious metal that looks set to go on a bull run too, says Jo…
7 Aug 2020