Steve Bannon is out as President Trump’s chief strategist, White House chief of staff Gen. John Kelly (Ret.) looks to be in command, and the spin doctors are already talking about a hard pivot to tax reform in coming weeks.
Stock markets seemed relieved. On Monday the Dow Jones Industrial Average
and the S&P 500 index
reversed two consecutive days of declines, and continued their rebound early Tuesday.
The indexes haven’t fallen very much given what’s happened over the last couple of weeks, from the threat of war with North Korea to the CEOs’ revolt against Donald J. Trump over his botched response to the recent turmoil in Charlottesville, Va.
They’d fall a lot more if investors fully digested the implications of Charlottesville: Once again the president couldn’t control his temper and fostered polarization rather than unity.
This fundamental lack of self-discipline bodes ill for his handling of future foreign policy crises, especially North Korea, where the risk of war is growing and firm but flexible statesmanship is essential.
It also makes the coming trifecta of passing a new budget, avoiding a government shutdown, and raising the debt limit to avoid default—all within 12 legislative days after Congress returns from recess right after Labor Day—more challenging. Politico Playbook’s well-connected reporters write, “House and Senate Republicans and the Trump administration have no idea and no plan how it’s going to get done.”
Read: Sen. McConnell says there’s ‘zero chance’ U.S. won’t raise debt ceiling
That increases the chances of a big, bad September-October surprise for the markets.
So any major tax reform will take much longer than expected, if it happens at all, and there will be no infrastructure building, as Democrats won’t give him a single vote on key legislation. The president can tut-tut all he wants about “obstruction,” but this is his own fault, and no one else’s.
Why? Because his own intemperate remarks and outrageous tweets have continually undermined his agenda. In plain English, he constantly steps on his own feet.
Read: Democrats risk overreaching in their attacks on Trump, Confederate memorials
I won’t rehash what happened in Charlottesville, but I do want to focus on a couple of critical points.
At last Tuesday’s impromptu news conference in Trump Tower, the president doubled down on his disastrous remarks from the previous Saturday that “many sides” were responsible for the violence, and said, “You also had people that were very fine people on both sides.”
On Monday, Former House Speaker Newt Gingrich, a big Trump supporter, told Fox & Friends, the president’s favorite TV show: “He’s got to quit stepping on himself.”
Last Tuesday’s news conference was supposed to showcase the administration’s new infrastructure plan, a key part of the president’s efforts to create blue-collar jobs. That all got lost in his resentful efforts to avoid pinning the blame for Charlottesville on neo-Nazis and white supremacists.
“He had a very good infrastructure press conference, then he stepped on it, blew it, guaranteed that it wouldn’t get covered,” said Gingrich.
This isn’t the first time it’s happened: The president’s enraged tweets about Special Counsel Robert Mueller’s Russia probe have kept that investigation in the headlines and taken bandwidth away from his economic program.
You don’t have to be a psychiatrist to see this president has serious anger-management issues and acts out in a self-destructive way.
Tellingly, 71% of American voters don’t believe President Trump is levelheaded, a Quinnipiac University national poll taken before Charlottesville revealed.
Ray Dalio, an early supporter of the “Trump trade,” has thrown in the towel.
The big Wall Street banks have been the biggest beneficiaries of Trump’s deregulation, though they overwhelmingly supported Hillary Clinton in 2016. They’re licking their chops over tax reform.
But the president’s apparent indifference to the gritty details of legislation, which he displayed most blatantly during the health-care fiasco, makes it hard to believe he can spearhead the painful compromises true tax reform would entail.
The 1986 tax-reform bill took two years and needed Democratic votes, which President Ronald Reagan secured after much schmoozing and horse trading with Speaker of the House Tip O’Neill. By contrast, Trump has regularly skewered Senate Minority Leader Chuck Schumer and House Minority Leader Nancy Pelosi.
One big investor has thrown in the towel. Ray Dalio, founder of Bridgewater Associates, the world’s largest hedge fund, which has about $150 billion under management, was an early supporter of the “Trump trade.”
Right after the election, Dalio wrote to investors: “We believe that we will have a profound president-led ideological shift that is of a magnitude…analogous to Ronald Reagan’s shift to the right….and there’s a good chance that the ‘craziness’ factor will be smaller and play a lesser role in driving outcomes than many had feared.”
But on Monday, Dalio wrote investors that Bridgewater was “reducing our risk” because he doesn’t think sharp partisan conflicts in Washington will be “handled well.” Apparently he underestimated the “craziness” factor.
How much longer will it take for Wall Street’s wall of denial and wishful thinking to crumble? Who knows? But when it happens, we’ll get our much-needed correction, and then some.
Howard R. Gold is a MarketWatch columnist and founder and editor of GoldenEgg Investing, which offers exclusive market commentary and simple, low-cost, low-risk retirement investing plans. Follow him on Twitter @howardrgold.