Terry McCrann: Powell, Trump and Lowe responsible for Aussie market’s record high
US President Donald Trump, Federal Reserve Chairman Jerome Powell and Reserve Bank governor Philip Lowe played pivotal roles in our share market topping its pre-GFC record high, writes Terry McCrann.
Terry McCrann
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We can mostly thank President Trump and Chairman Powell for our share market finally — finally, after nearly 12 long, very long years — getting back to and then topping its pre-GFC all-time record high.
But what gave it the final kick up was the belated, perhaps surprisingly aggressive and unusually very public intervention of Governor Lowe.
All three — President, Chairman and Governor — played pivotal roles.
The first two were deliberately aiming at boosting the market — obviously, that’s the market, Wall St, not the little ’ole downunder one.
The third had absolutely no such intention.
President Trump judges his “success” not in conventional political terms like the conventional politician that he most definitely is not — opinion polls or even election outcomes (apart from his own) like the mid-terms where the Republicans lost big.
But in money; and in America the ultimate measure of money is the market. Since his election in November 2016, Wall St is up more than 50 per cent. That’s made a lot of people rich and a lot of rich people much, much richer.
Chairman Powell — Jerome Powell, appointed by Trump to head the Fed, their version of our Reserve Bank — doesn’t quite measure the “success” or otherwise of himself personally or the Fed generally in quite the same way.
Through 2018 he was quite prepared to lift the US official interest rate — and intended to keep lifting through 2019 — even though “the market” was getting a little grumpy at that.
I put the word “market” in quotes because there is no such uniform animal; it’s actually rather greedy investors wanting to have a permanently pro-market, easy money policy.
So that if they were already billionaires they could become multi-billionaires; and if they were mere multi-millionaires they could become billionaires.
Heck, you might ask: Why do you need a billion dollars, far less $10 billion; surely $100 million’s enough?
Wash your mouth out — have you seen what an estate on Long Island costs? Far less one or two or three Impressionist paintings?
No, it was more that Powell was terrified of sparking another GFC — global financial meltdown.
Like all his recent predecessors he’s made the Fed hostage to Wall St.
As November ticked into December last year Powell was still promising to hike through 2019. Wall St promptly threw a temper tantrum; it plunged 20 per cent in just three or so weeks up to Christmas.
Powell promptly did a 180. Hike? You must have misheard; we are going to cut. And we will see the first of these cuts; indeed, the first cut from the Fed in nearly 10 years, since when it was slashing after the GFC, early Thursday morning downunder time.
In the unlikely — actually, impossible — event that it did not cut, Wall St would plunge and Powell would immediately promise, cross his heart and hope to die promise, to rectify things as quickly as possible.
Now, he has of course been “helped” in forming this view that the US needed rate cuts by constant “advice” from the President. He’s said that he hasn’t been influenced by this “advice” and I’d probably agree that’s been largely true.
But I don’t know that he or the Fed has emerged with greater credibility for being instead hostage to and responding to the greed of Wall St.
Now President Trump gets direct credit for the rise and rise of Wall St through 2017 and 2018 when the Fed was lifting rates and promising to lift them further.
His election unleashed both business and consumer confidence and he’s slashed company tax and wiped away great swathes of anti-business red tape. Then there’s also been the benefit of the — at least initial stage of the — boost-America anti-China trade agenda. So Wall St has had the best of all possible worlds — a strongly growing economy, booming business profits and the promise of lower interest rates, when normally the first two would be guaranteeing market-dampening rate hikes.
In surging more than 50 per cent since Trump’s election Wall St has dragged all markets up around the world, including ours.
But our market has only gone up 32 per cent in that same time period. Interestingly and importantly, it’s actually gone up faster than Wall St and indeed almost all other markets this year.
So, slower to rise through 2017 and 2018 and then suddenly accelerating in 2019; what’s changed?
Simple answer is that all through 2017 and 2018 our RBA was threatening to raise its official rate. Then suddenly at the start of the year it switched. First, to promising to cut and then actually cutting — getting ahead of the Fed.
Further and importantly, Governor Lowe has not only promised to cut again “if necessary” but to keep the rates at these very “Lowe” levels pretty much for what ranks as “forever” in these hyperventilated days (longer than a year or so).
This is what’s given the final kick to our market. So we are where we are. What happens next?
Well on both Wall St and in our local market, I would suggest, all the good stuff and especially low rates is now pretty much baked in.
That would suggest there is not a lot of upside there or here. We are certainly not going to get another 30 per cent anytime soon; Wall St is similarly not going to see another 50 per cent. Or indeed, much smaller advances.
And that’s before factoring in all the things that could go wrong. Like China. Like the US economy. Like our own economy. Like our rates can’t go much lower.
This is not to suggest a certain fall or worse, a complete meltdown, either there or here or both. But the risks are now very clearly tilted to the downside. Plus, any “events” would be negative.
The only counter is that the Fed would at least do whatever it could to try to keep the music playing.
Originally published as Terry McCrann: Powell, Trump and Lowe responsible for Aussie market’s record high
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