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What Should Investors Do in These Uncertain Times? Ignore Trump's Tweets

The correlation between what he says and what the White House does is not very strong, so there’s no reason to hang on every word he says

David Rosenberg
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Trump: Don't be governed by his tweets, check for actual White House directives.Credit: AFP
David Rosenberg

Here’s my message to the markets for these times of uncertainty: Pay no heed to Trump's words.

Even in the best case scenario, Trump will be in office until January 2021 and that gives him a lot of time to do a lot of damage with his inflammatory  rhetoric.

It’s not as if the president hasn’t done real things vis a vis the economy: the trade war with China, the tax cuts, jawboning an interest rate cut, and shredding environmental regulations. But in contrast to his White House predecessors, the ratio of Trump verbiage to Trump action is extraordinarily high.

The last few days have been particularly fraught. He started off Friday by attacking his own Federal Reserve chairman, tweeting “My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?”

Trump tweetsCredit: Twitter

But the attack on Powell was just the start. After Beijing announced on Friday it was imposing tariffs on $75 billion of U.S. goods, Trump said he was ordering was ordering U.S companies to leave China and find alternatives.

The attack on Powell is serious stuff. If Trump really planned to act against him it would strike a serious blow against the Fed’s status as an independent, nonpartisan body that acts in the interests of the economy, not the political requirements of the president.

Yet for all of Trump’s snarling, the Fed has acted as it sees fit. Trump may want it to bend to his will but he hasn’t the power to do it, nor has he shown any serious inclination to try.

His threat against U.S. companies in China is similarly vacuous.

China is too thoroughly ensconced in the global supply chain for U.S. companies to just pick up and go. In any case, by what authority can the president order businesses out of China? No matter, Wall Street skidded in response to the tweet.

In any case, by Saturday when the markets were closed, Trump effectively undid the threat by claiming his authority to act was based on obscure legislation that has never been employed in a trade dispute and would clearly be subject to court challenges. In any case, Trump tweaked his tweet from “you are hereby ordered” to I have the “absolute right” someday in the future maybe to do something like that.

If that weren’t enough, on Sunday Trump seemed to express regret over starting the trade war with China. Some thought it might portend he’d realized trade wars aren’t so “easy to win” and wanted to reengage  with Beijing, but then his economic adviser, Larry Kudlow, explained that what the president really meant was he regrets not raising tariffs on China even more.

The markets in Asia opened on Monday on a sharp drop on fears that the trade war was back.

Or maybe it isn't. Later on Monday Trump disclosed that he had gotten not one, but two calls, from China saying it was ready to resume negotiations. Xi Jinping, who he had branded a “criminal” with Powell on Friday, had, over the weekend, morphed in Trump’s word into a “great leader.” The markets in Asia recovered.

Fastest mouth in the west

But is the U.S. ready to compromise? Are his White House advisers behind Trump or is it the president mouthing off again? The fact is that Trump's presidential aides have a history of scurrying to clarify, or effectively retract, what their boss has said, making sure that it never becomes actual policy.

The White House seems to operate on two tracks: presidential tweets and White House acts. The two may converge, but they aren’t one and the same. When Trump talks about ordering companies out of China or firing the chairman of the Fed, the markets should wait for the presidential directive to be issued or pink slip to arrive on the chairman’s desk before they panic. In the meantime they should shrug off the tweets. Far from announcing a new policy initiative, they may not even signal which direction U.S. policy is going.

Trump plays the same game of roiling the public on non-economic issues, like his remarks on Jews who don’t support the Republican Party being “disloyal.” But there’s a difference. Trump may boorish, ignorant, self-serving and semi-literate, but he is still the president of the United States and, whether he deserves it or not, he occupies the world’s most bully pulpit.

Like prophets and popes, presidents influence public opinion and public discourse. Their words count for more than celebrities, oped writers or even teenagers with the millions of Instagram followers. It’s one reason why presidents are careful and sparing with their words.

After three-and-a-half years in office and dismal ratings, you’d think Trump would have learned at least that one lesson about presidential power. He hasn’t, and if anything it seems like his penchant for empty threats, distortions and lies, and incendiary remarks seems to be growing.

We’d all be better off -- the financial markets in particular -- in treating him like a rich and doddering old aunt. Show a modicum of interest and attention when she talks rails against you or some other wastral nephew, but wait till her executor reads the will to figure out where you really stand.