Media Appearances

Trend Macro Chief Investment Officer Donald Luskin discusses the recent market selloff and how the U.S. detained an alleged Chinese spy, who is facing charges of trying to steal trade secrets from companies including GE Aviation.

There is a reason Jason Furman didn’t cite any specifics to back up his claim that “financial markets reacted” to President Trump’s tweet about Friday’s jobs report “with unusual volatility for the early morning hours” (“The Economic Risks of Trump’s Premature Tweeting,” op-ed, June 4). The reason is that they didn’t. In the 69 minutes between the tweet and the actual release, futures contracts on the S&P 500 meandered randomly in a narrow range of about one-tenth of a percent of the index’s value. The yield of the 10-year U.S. Treasury bond rose less than two one-hundredths of 1%, moving in the same direction and at the same pace as it had been all night.

The more notable aspect of Mr. Furman’s commentary is that it may mark the first time that a former Obama administration official has admitted that one of President Trump’s tweets was truthful.

Donald L. Luskin

CIO, Trend Macrolytics LLC

Chicago

Donald Luskin, chief investment officer at TrendMacro, offers a simpler reason why stocks eventually stop going down. “It halts once the algos and investors run out of stuff to sell,” he said, adding that a rebound gives investors “hope ... and that starts the healing.”

...We’ve been hosting an op-ed debate on stock prices, and last week financial consultant Donald Luskin made his case for the running of the bulls as expected corporate earnings are adjusted upward due to tax reform. Harvard economist Martin Feldstein makes the case for caution nearby, arguing that equity prices are fated to fall as the Federal Reserve reverses its long period of asset purchases and low interest rates, and inflation makes a comeback. Both men could be right, depending on your investment time frame.

The bullish case is based on expectations of capitalized profits, which have risen smartly with the cut in corporate tax rates. The higher after-tax returns flow into higher asset values, all else being equal. The surprise is that stocks have kept rising this year, with the S&P 500 up some 4%. This suggests that many investors underestimated the possibility of pro-growth tax reform passing last year, and now they are catching up to the implications...

Donald Luskin, chief investment officer for Trend Macrolytics, said that Republican Roy Moore’s loss in Alabama will be a big incentive for Republican leaders to “drive the negotiations to a conclusion.”

“It makes more urgent the need for the GOP to exploit its 2018 electoral map advantage in the Senate — tax cuts are the perfect trophy to bring the voters, now without the stench of Moore’s sexual misconduct scandals," he wrote in an analysis for investors Tuesday night.

Don Luskin of Trend Macrolytics wrote to clients this morning about the aftermath of Charlottesville: "We think it’s a clinical case of mass hysteria – and one of the strangest we’ve ever seen. It’s not about the event itself. It’s about President Donald Trump’s reaction to the event, because he is the most famous and fascinating man who has ever lived, and what we’ve called the Trump Infamy Ecosystem profits from exploiting that strange fact. And it’s not even about whether Trump is a racist. It is self-evident that he is not, because there is no evidence that he is (just as it is self-evident that his campaign didn’t conspire with Russia to hack the election). His sin is that he has failed to express his outrage at the event in a particular way – or, more precisely, that he has expressed it in a way that doesn’t kowtow to the identity politics lobby."

Mr. Luskin points to a number of polls suggesting that the hysterical reaction to Mr. Trump is occurring within the media profession, not among the public at large. For example, an NPR/PBS NewsHour/Marist Poll finds that even a survey sample that gives Mr. Trump his standard lousy approval rating overwhelmingly agrees with the President that statues of Confederate leaders should not be torn down. Even a plurality of African-Americans agrees that the statues should remain in place as symbols of our history.

...Regardless, it is striking that after much of the media labored so hard this week to try to tie Mr. Trump to white supremacists, the public doesn’t seem to be buying it. In what was portrayed as perhaps his worst week in office, the RealClearPolitics average shows a slight improvement in his weak approval ratings. According to Mr. Luskin, this could be a buying opportunity for investors: "...we think Trump’s defiance of prevailing norms of identity politics has profound pro-growth implications. Whatever else it may bring along with it, its embrace by the electorate points to a generational 'turning' away from anti-business and risk aversion trends that have choked off growth in the Not So Great Expansion following the Great Recession. If this moment becomes a referendum on Trump, then it may also be referendum on that 'turning.' Our optimism that we are entering a new secular period of better growth and risk-tolerance has never come from Trump as a person, but rather from the cultural forces – the “animal spirits,” to use an almost pejorative term for them – that have welled up from the grass roots, choosing Trump as their best available representative."

...Donald Luskin of Trend Macrolytics thinks Mr. Trump has every right to take credit for rising markets. In a note to clients this week he acknowledges the view of many investors that “all of the pro-growth hopes and dreams that flourished right after Trump’s surprise election have now been crushed by the swamp, and Trump’s own seeming self-destructiveness.”

Mr. Luskin has a different view and writes that booming U.S. stock markets probably represent a “rational recognition that, since Trump took office, many pro-growth hopes and dreams have already become reality.” Mr. Luskin continues, “We’re not trying to be either cheerleaders or partisans here. But it’s a reality that a great deal of pro-growth progress has been made.” He ticks off a list that includes pipeline approvals, the rollback of various Obama-era rules, and the hiring of deregulators to run the EPA, the FCC and other federal agencies.

As for disturbing news out of Washington, Mr. Luskin sees Mr. Trump at the center of “an ecosystem self-perpetuated by the lust for power by politicians on both sides of the aisle, and the lust for audience by the media both liberal and conservative. The apex predator in this ecosystem is Trump, who controls it all by following Roger Stone’s rule that ‘it is better to be infamous than not to be famous at all.’ That’s not a recipe for clarity.”

Mr. Luskin observes that neither Mr. Trump nor the journalists who hate him seem to have much interest in presenting a “false image of calm and control,” as might have prevailed in some earlier administrations. Mr. Luskin writes:

"What is happening here is that the swamp hasn’t gotten drained yet, but we are seeing it more clearly than ever before. You can tell yourself that things are actually worse now, but we think the truth is that you are just seeing for the first time distasteful realities that have been there all along."

What does it mean for investors? Mr. Luskin concludes:

"Despite seeming chaos in Washington, US stocks are on track for a 2017 total return of 20.9%, twice the historical average, and risk premia are lower. Technically, a correction is overdue. But risk-tolerant markets can handle the chaos of the Trump infamy ecosystem. It is informationally efficient to reveal distasteful processes that were there all along, but concealed."

Today’s jobs report might seem perfect in the context of recent years. But Mr. Trump wants Reagan-style growth, not Obama- or Bush-style job creation. Donald Luskin of Trend Macrolytics writes in a note to clients today that while this morning’s report was better than expected, it’s actually a “middle of the pack jobs report.”

I’m surprised by the naiveté of Mr. Luskin in assuming that Republicans welcome a (truly) more objective rule in setting interest rates. Consider that in December 2016 the newly appointed (January 2017) Vice Chairman of the House Subcommittee on Monetary Policy and Trade Roger Williams whined about only the second one quarter-point interest rate rise in a decade to a level which is still well below what most rules-based advocates would calculate. Does conservative dogma include perpetual, unwarranted interest-cost subsidization for all borrowers and debtors?

The S&P 500 — and not the Dow — is also the performance benchmark that money managers are compared against, adds Don Luskin, chief investment officer at TrendMacro. “A pro is only interested in what benchmark he is trying to beat,” Luskin says.

Adds Luskin: “Retail investors who still think about the Dow do so out of nostalgic habit. But investors who make up the vast majority of trading nowadays look at more sophisticated indexes that are better constructed and more diversified.”

“When there is a quantum shift in growth expectations, the arithmetic of P-E multiples fails to capture the value in stocks,” argues Don Luskin, chief investment officer at TrendMacro. “Why look at this quarter’s earnings, or for that matter why just look one year ahead, to appraise what a company might earn? If America is really going to be great again, stock prices should look to above-trend earnings growth that could last for several years. That will make stocks appear expensive, but they’re really not.”

...don’t rule out a bear market if Clinton loses, warns Don Luskin, chief investment officer at financial research firm TrendMacro. “If Trump wins … stocks will drop at least 20% just like that,” Luskin told USA TODAY. “Because markets hate to be surprised and hate it when the conventional wisdom is dead wrong. Just look at the reaction to Brexit.”

...Violence in the aftermath of the election, if it occurs, is viewed as a short-term hiccup... Adds Luskin: “Markets are not typically rattled by violence in the streets. Remember 1968 — riots, assassinations, shootings all over the world — stocks just went higher and higher, through it all.”

...Donald Luskin, chief investment officer at TrendMacro, a financial research firm, zapped out a recent report to clients titled, Let’s Talk About Something Other than the Election.

"Whatever happens with Deutsche Bank, this is not — I repeat, not — a Lehman moment," says Don Luskin, chief investment officer at investment firm TrendMacro. "We are not looking at globally interconnected fragility like we were in 2008. And if anything goes wrong at all, after the 2008 experience, the central banks of the world know precisely what to do to put the fire out."

"When push comes to shove, Merkel will bail out Deutsche Bank," says Luskin of TrendMacro.

...the Trump haters say we must throw Mr. Trump over the bus in order to save the Senate and House majorities.This is a foolhardy strategy because one can’t win without the other. As economist Donald Luskin puts it in his historical analysis of presidential races and Senate gains: “It is clear from history that the House and the Senate always move in the same party direction as the White House, and with the same magnitude. That means the presidential candidate is like a boat that congressional candidates are riding on. It’s really stupid to torpedo that boat."

"The key lesson is that when bond yields are so persistently low, there is really no sensible place for money to go except for stocks," says Don Luskin, chief investment officer at TrendMacro. "That puts a safety net under stocks, and events that would normally be bear markets turn out to be mere corrections and buying opportunities."

Donald Luskin, TrendMacro, discusses Trump's stance on trade and what it will take to make America grow again.

"Yellen is effectively admitting that 'liftoff' was an error," Don Luskin, chief investment officer at TrendMacro, noted in a report to clients before the opening bell. "It's one and done until the environment changes substantially.

Financial analyst and our contributor Donald Luskin has described Donald Trump as a "black swan" over the political economy. He's referring to an outlier event that few anticipated and whose impact is impossible to predict. As the voting season begins in Iowa, this strikes us as a useful way for Republicans to think about the Trump candidacy.

I said people were going to anticipate the end of the Obama era. I didn't say it was going to happen in the first week of the year. This was obviously the roughest week in equity markets. But Donald Luskin noted in our paper that the 70% decline of oil prices over the last year represents $2.9 trillion of savings to consumers world-wide. This is enormous. You couple this with people seeing the end of the Obama era, and eventually we're going to get more discussion about tax reform in the Republican primary. I think that optimism starts coming back.

"We went three years, two months and 21 days without a 10% correction in the (S&P 500), says Don Luskin, market strategist at TrendMacro. "It was overdue. That doesn't make it a bear market."

Greek banks have for months been relying heavily on what is called "emergency liquidity assistance" from the European Central Bank for just more than 80 billion euros ($90 billion).

"It's a bit like printing euros for that one national bank," said Donald Luskin, chief investment officer at TrendMacro, who points out the loan comes at a higher interest rate since it's often backed by the flimsiest of notes. "But ELA doesn't come as an obligation or a risk of the Eurosystem."

"It's strange because normally the banks that take on the risk make the decisions, but in this case it's Greece with the risk, and the ECB making the decision," Luskin told CNBC.

"This is the ultimate pressure point the ECB has on Greece, it's the real thing," Luskin said. "If the ECB says no more ELA, then Greece goes back to the Stone Age."

"The Chicago floors were unique social environments that I treasured," said Donald Luskin, who traded on the Chicago Board of Exchange in the early-1980s and would go on to become a respected and veteran investment officer with Wells Fargo and BlackRock. "They were ladders of opportunity through which completely noncredentialed new entrants could get up close and personal with high finance."

Like Luskin, many current and former members lamented the gritty environment of the floor that built not only careers, but life skills.

"Everyone there is trying to take advantage of everyone else. It is dog eat dog. ... Yet the acts of kindness and friendship and generosity that emerge from the combat create a kind of camaraderie I've never experienced anywhere else," said Luskin, who is chief investment officer at his own firm, Trend Macrolytics.

Don Luskin, chief investment officer at TrendMacro, says the bad market action tied to sinking oil prices will eventually play out and exhaust itself.

"The instabilities are upon us -- in spades; the big losers are identifying themselves," says Luskin. "It seems that's all markets are focusing on now. But the instabilities are short-term, and we think we'll get through them without a lot of damage. On the other side beyond the instabilities is an enormous stimulus to global growth in the form of liberation from a decade of the highest oil prices in history. In the US, just the drop in gasoline prices represents a tax cut almost equivalent to abolishing the payroll tax. Be patient, be alert -- in this instability will emerge great opportunity."

"People waited in line to buy Alibaba because they think CEO Jack Ma is the smartest man in the world," says Donald Luskin, chief investment officer at TrendMacro. "Hey, everybody -- the guy you think is the smartest man in the world thinks it's a good time to sell stocks. And you want to buy? Really?"

Still, Luskin doesn't think the Alibaba-all-the-time storyline caused a market top. Instead, he says the booming-BABA narrative "signaled that a correction was long overdue." ...Luskin, for one, doesn't think Alibaba marks a major top, the one that leads to a full-fledged bear-market drop of 20% or more.

Fallout from the sanctions -- and from Russia's destabilization of Ukraine -- could be far-reaching. The worst-case economic scenarios are fairly awful, says Donald Luskin, chief investment officer for Trend Macrolytics.

"We think the feasible worst-case is a war of strong trade sanctions, depriving Russia and Europe of mutual trade," he says. "That would hit both sides hard -- Russia, because if derives 12.3% of GDP from exports to Europe, and Europe because it sources a significant share of its natural gas from Russia."

Now that Bernanke has tapered twice in succession and in equal $10 billion increments, it could reduce Yellen's flexibility if circumstances change, warns Donald Luskin of Trend Macrolytics.

"Bernanke has handed Yellen a fait accompli, an established policy trend that will be difficult for her to contradict," he told clients.

Now we come to what happened at last week's ECB announcement and presser. Most of the subsequent commentary focused on the main refinancing rate cut, the hint of a negative deposit rate, and the commitment to spur lending to small- and medium-sized companies.

But our pal Lorcan Roche Kelly of TrendMacro emphasised something different in his latest note:

• Most critically, in his speech at the press conference, ECB President Mario Draghi also gave the longest forward commitment yet to the continuation of weekly fixed-rate full-allotment refinancing operations by the ECB: they will now continue until July 2014. As forward guidance goes, this is a pale shadow of the Fed's policies, but it is a major step for the ECB.
• This move is not exactly another long-term refinancing operation (LTRO). Rather, it is a long-term commitment by the ECB to provide limitless liquidity every week, on a short-term basis.
• It is roughly analogous to a 15-month LTRO that banks can access on a weekly basis.
• It renders meaningless much of the free option given by the 3-year LTROs. The two 3-year LTRO operations only extend for five and seven months, respectively, beyond the new commitment from the ECB.
• This may well lead to increased early repayments of the current outstanding 3-year LTROs. For banks the upside to remaining in the operations has been largely removed today.As the terms are fixed until July 2014 at the earliest, banks can now be assured of funding when they need it in the short to medium term, without being forced to access it immediately -- as happened in the 3-year LTROs.

Draghi's recent comments are being mainly interpreted as a double-down on austerity. That's not wrong and it remains unfortunate, but there are several complicating factors that are nonetheless worth remembering.

One is simply that Draghi probably needs to keep reiterating the importance of budget constraints for internal political reasons (giving himself cover at the Bundesbank).

Another is that Draghi has long been more concerned with structural changes in labour markets and economies than in broad-based austerity for its own sake, as Lorcan notes. Draghi is generally against tax hikes, for instance, and would prefer spending cuts. Of course, this particular nuance isn't exactly comforting given the brutal choices faced by the countries on the periphery.

Analyst Lorcan Roche Kelly, of Trend Macrolytics, said Mr Dijsselbloem's comments risked discouraging investment in Europe.

''Any reason anyone should leave more than EUR 100,000 in a euro area bank after [his] comments? Any at all?'' he tweeted.

This is all being played out against the threat of ELA being cut from Monday. ...It's worth noting that quite a few of the people we talked to this morning didn't see it that way and expected an eventual fudge. But others we respect, such as Lorcan Roche Kelly at Trend Macro, see this as a very hard line -- why else would the ECB have mentioned Monday, 25 March 2013 in their release.

The government hopes that the 10-year issue and another long-term offering later this year will make it eligible for help from the ECB's still-untested program of bond purchases, known as Outright Monetary Transactions, which would in turn help push its borrowing costs lower. "If there is some clarification forthcoming from the ECB as to whether Ireland has reached the bar required to qualify for OMT, then Ireland should be home and hosed on exiting the bailout program this year," said Lorcan Roche Kelly, chief European strategist at research firm TrendMacro.

The government and Honohan need to find a way to restructure the notes in a way that leaves the net impact on the money supply at zero. Otherwise Ireland's central bank could be accused of printing money, a policy opposed by the ECB.

A central bank commitment to hold Irish government bonds for 15 years "in this case would be for fiscal policy reasons, which makes it monetary financing, which is a no-no," said Lorcan Roche Kelly, chief Europe strategist at Trend Macrolytics LLC.