Trump takes credit for the Obama economic recovery, but will not take the blame for the next market correction and recession when it comes

Over the weekend, Clad in pink and vowing to vote, activists around the globe flooded streets for another women’s march.

The serial sexual predator and misogynist Twitter-troll-in-chief couldn’t resist trolling the women marchers.

Donald Trump, once again, is taking credit for the economic recovery that his predecessor, President Barack Obama, handed off to him.  Former Treasury Secretary Lawrence Summers explains at the Washington Post, Trump doesn’t deserve credit for all the economic good news:

President Trump will be attending the World Economic Forum in Davos, Switzerland, this week. Inevitably, attention will focus on whether the president projects a commitment to internationalist values or reiterates his truculent nationalism in the name of making America “great again.” Attention will also focus on the durability of the current economic and market upswing that has buoyed the spirits of businesses and investors around the world.

While Trump will probably try to take credit for all the economic good news, it is unlikely that he deserves it. He is president of the United States, not the world. And the economic surprises in the rest of the world have been more favorable than those in America. The scale of upward revisions of growth forecasts for 2017 and 2018 has been higher in Europe, Japan, China and emerging markets broadly than for the United States. Many other stock markets have outperformed those here. If Trump’s pro-business policies were driving the global economy, one would expect an increase in net capital flows into the United States, and so a stronger dollar. In fact, the dollar has weakened significantly in the past year, despite more Federal Reserve tightening than was anticipated at the beginning of 2017.

In the late 1990s and again in 2006, I remarked that “the main thing we have to fear is lack of fear itself.” Today there is an undercurrent of geopolitical concern not present at those times. Yet, there are important similarities between the situations then and now, as households and businesses come to fear missing out on good things more than getting caught up in irrational exuberance. Complacency about the economy can be a self-denying prophecy when it leads to excessive valuations, lending and spending. We are surely closer to such a point than we were a year ago. Sooner or later, another downturn will come, perhaps because central banks overreact to what they perceive as inflationary threats, perhaps because elevated financial markets converge to more normal levels, or perhaps because of some geopolitical shock.

If and when recession comes, the world will have much less room than usual to maneuver. From a narrow economic perspective, there will be much less room than the usual 500 basis points of space to bring down interest rates. There will also be much less space for fiscal expansions than there was when countries were less indebted. At the political level, the kind of agreement forged in London in 2009 between the G20 group of most developed countries to keep markets open, support international institutions and cooperate to stimulate their economies seems much more difficult to achieve today. And there is the real risk in many countries that recession would reinforce tendencies toward authoritarian nationalist politics.

If the short-run concern of those gathered in Davos will be how the world will deal with the next recession, the long-run one has to be declining appeal of democratic global values. In countries as diverse as the United States, Britain, Turkey, Russia, Israel and China, it appears that the governmental platform that commands the most popular support is rooted in nativism, nationalism and negativism. Populist nationalism eventually produces bad economic results, leading to more pressures for anti-establishment leadership and extreme policies. It is far from obvious what re-equilibrates the system.

Lawrence Summers’ concern for the next market correction and recession is born out in a new analysis from Bank of America Merrill Lynch. Business Insider reports, Bank of America has found the formula for a market meltdown — and we’re dangerously close:

The scorching-hot stock market (“irrational exuberance“) is fresh off yet another week of new record highs, yet one glaring question remains: When will it all come crashing down?

The global investment strategy team at Bank of America Merrill Lynch has an idea.

The firm, which has repeatedly warned of investor overexuberance, has identified what it sees as the perfect storm for a stock market correction — traditionally defined as a 10% selloff — and it involves four different metrics crossing particular thresholds.

According to BAML’s analysis, such a reckoning will occur once (1) real gross domestic product (GDP) forecasts rise above 3%, (2) wage inflation climbs higher than 3%, (3) the 10-year Treasury yield exceeds 3%, and (4) the benchmark S&P 500 surges above the 3,000 level.

As BAML chief investment strategist Michael Hartnett puts it: “Three is the magic number.”

So how near are we to those levels? Some might say too close for comfort. Let’s break it down:

• GDP — Economists surveyed by Bloomberg have an average forecast of 2.6% for 2018. However, a handful of the 89 participants see GDP finishing the year at or above 3%, most notably ING Group (3.1%) and Pierpont Securities (3%).
• Wage inflation — This is the measure that’s closest to 3%, with a reading of wage growth from the Atlanta Fed at 2.9% as of year-end 2017. In fact, it was above the threshold for every month of last year until December.
• 10-year Treasury yield — It’s currently at 2.64%, putting it less than 40 basis points from the 3% threshold. And it’s heading upward, having climbed 61 basis points since reaching a low in early September.
• S&P 500 — The benchmark equity index closed at 2,810.30 on Friday, putting it just 7% from the 3,000 threshold. It’s already climbed more than 5% since the start of 2018.

* * *

BAML is still constructive on stocks in the immediate term due to a combination of continued global central bank accommodation and strong corporate earnings growth. Hartnett himself has admitted that the current 8 1/2-year bull market could continue as long as the so-called “Goldilocks” economy persists — one characterized by high growth and low inflation.

Meanwhile, experts across Wall Street remain bullish on the stock market. They expect the S&P 500 to finish 2018 at 2,950, which is roughly 5% higher than current levels, according to the median forecast of 23 equity strategists surveyed by Bloomberg.

The main takeaway here should be that while pessimists like Hartnett have thrown in the towel in the near term, there’s still significant risk lurking under the surface of the market. And now, thanks to BAML’s handy threshold list, you know what to keep an eye on.

Trump likes to take credit for other people’s hard work and success, but when the next market correction and recession comes, and it will,  he will seek to blame anyone and everyone else, as he has done his entire life, because he is never to blame.

Trump’s taking credit for the Obama economic recovery is not registering with many Americans outside of his own narrow political base. Philip Bump at the Washington Post writes, On the success Trump cares about most, more people still give Obama the credit:

One staple of President Trump’s self-congratulatory tweets is his celebration of the strength of the economy . . . Time and again, Trump points to the Dow Jones industrial average or to record-low unemployment numbers as proof he is doing a good job as chief executive.

Americans agree the economy is doing well. They do not agree this should be credited to Trump.

Nearly 6-in-10 respondents in a new Post-ABC News poll describe the state of the U.S. economy as “excellent” or “good.” Four-in-10 describe it as “not so good” or “poor.” There is a partisan split on the question, as there is with most questions these days. About 6-in-10 Democrats use one of the two more negative terms to describe the economy while 80 percent of Republicans use one of the two more positive terms. Most independents view the economy favorably.

Again, Trump does not get the credit. About 4-in-10 respondents say Trump’s administration deserves a “great deal” or a “good amount” of credit for the economy, with Republicans again more positive than Democrats.

By contrast, half of respondents say the administration of former president Barack Obama deserves a “great deal” or “good amount” of credit. Nearly a quarter of Americans say Obama’s team deserves a great deal of credit, while 19 percent of respondents say Trump’s team does.

There is a likely reason for this. For the most part, economic trends that began under Obama have continued, including those trends Trump points to the most often.

After the economic collapse at the end of George W. Bush’s second term, stock indexes began a fairly steady climb in early 2009. They leveled out a bit in late 2015 and into 2017, but then continued upward. (A number of international indexes have also performed well since 2009.)

The unemployment rate has been sinking steadily since 2010.

That includes the rates for a number of demographic groups Trump has called out: black Americans, Hispanics and women. (On Saturday night, Trump claimed the overall unemployment rate and the rate for women were at the “lowest” they had been. That is not true; at the end of Bill Clinton’s second term, the rates were lower.)

Politics plays a big role in perceptions of who deserves credit. Among those who say Trump deserves a great deal or good amount of credit for the economy, 31 percent say Obama does, too. Among those who say Obama deserves that much credit, only 24 percent are willing to say Trump does as well.

If Trump is frustrated by not getting more credit for the economy, here is a silver lining: Those who view the economy mostly negatively are much more likely to blame Obama. Among those who view the economy positively, half say Trump deserves a great deal or good amount of credit. Among those who view it negatively, 56 percent say Obama largely owns the economy.

Three-quarters of those who view the economy negatively say Trump has little ownership over it.

This is how Trump gets away with taking credit for positive economic news, but can still blame Obama for any negative economic news with his MAGA base. Trump’s demonizing of Obama, from the Birther movement to running for office on white grievances against that black man in the White House, no doubt baked in these negative views of president Obama among his MAGA base.

This is about to change.

The big risk for Trump is a significant shift in the economy will likely be seen as being due to his efforts. The economy is doing so well on the above metrics that such a shift would almost certainly be negative: A drop in the stock indexes or a shift in the unemployment rate back upward. If those things happen over the next few years, Trump will almost certainly get the credit blame.

After all, he has been asking for credit for those things for over a year.

As I said, when the next market correction and recession comes, and it will, Trump will seek to blame anyone and everyone else, as he has done his entire life, because he is never to blame.