Peter Schiff: The “Trump Tariff Put” on the Stock Market Is Worthless

The Dow Jones pushed into record-high territory again late last week. As Peter Schiff pointed out in his latest podcast, Pres. Trump was out there pointing out the record run on Wall Street and claiming responsibility for this bull market. Just turn on Fox News and hardly a segment will go by that somebody isn’t reminding you about how great the economy is. Peter said it reminds him how people were talking up George W. Bush before the Great Recession.

Just because you’re a Republican, you don’t have to claim that anything that’s done by another Republican is great in order to make the Democrats look bad. Because ultimately that comes back and bites you because you lose all credibility when the economy turns down and you’ve been gushing over how great it is and how successful the Republican president is. And when it turns out it was just a bubble, it was just an illusion and when the bubble bursts and the illusion is replaced with a harsh reality, well you’ve got nothing and it makes it easier for the other side to scapegoat capitalism for the problems and hold out more government as the solution.”

Nevertheless, the markets are going up. One of the reasons is the so-called “Trump tariff put.” The idea is that Trump will keep an eye on the stock market and the economy, and if the tariffs actually start to have a negative impact, he can just soften his stance and perhaps even lower the tariffs. That will rescue the stock market and everything will be fine.

In other words, there’s this put. So, it’s heads the market wins, tails, nobody loses, right? Because as long as the tariffs aren’t doing any damage, the markets keep going up, but if the tariffs turn out that they do damage, well they get rid of them and the market resumes going up, even if it has temporarily gone down. So, that is the ‘Trump put,’ just like the ‘Greenspan put’ we had, which became the ‘Bernanke put’ and the ‘Yellen put,’ whether or not there is a ‘Powell put’ beneath the market — the idea was, hey, if the market ever falls, the Federal Reserve is going to slash rates to make it go up again. So, you can’t lose. Even if the market goes down, you’re going to get bailed out, whether it’s by the Federal Reserve or whether it’s by Donald Trump.”

But Peter said he thinks this is just wishful thinking. It’s the kind of attitude you get during a bubble — a mania. And wishful thinking won’t change reality.

If the stock market really starts to fall, it’s not going to matter if we call off the tariffs. Because if the market is falling, chances are it’s falling not simply because of the tariffs. I mean, the tariffs might be one element that is a problem for the markets, but it may simply be one of a number, and just getting rid of the tariffs isn’t going to be enough to turn around a bear market in stocks, which is long overdue.”

Actually, the whole “Trump put” thing may work exactly opposite. Let’s say Trump does surrender in the trade war. A lot of people have priced a trade war win into the market. The tariffs are a stick Trump is using to beat the Chinese over the head. The payoff is the US is supposedly going to get these fantastic trade deals when the Chinese finally give in.

But if Trump has to take the tariffs away because he has to admit that we’re losing because the market is going down, maybe the market is already pricing in all of these promised benefits that are waiting for us at the other side of this trade war, and if the trade war is over and we surrender, if the benefits have already been priced into the market, well now we’ve got to price those benefits out, whatever they were. So, it’s even possible that if the market is falling and then Donald Trump’s reaction to a falling market is to back away from the tariffs, the market could actually fall even more. It could accelerate the decline.”

Peter also offered an interesting analysis of cannabis stocks. There is a great deal of volatility in that market right now. Peter said it reminds him of the dot-com era. It’s not that cannabis is a bad industry. But there is a lot of speculation there right now. He said it’s indicative of what you see overall during periods of market mania.

Make sure you listen to the whole podcast. Peter also gets into home sales, the impact of tariffs on consumer prices here in the US, and a GQ article on Puerto Rico.

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