I don’t know why at first, but watching Donald Trump tell Fox News in October that because the value of the US stock market has risen by $5.2 trillion since he became president that “maybe in a sense, we are reducing the debt” makes me feel warm inside.
Eventually I realize that it is taking me back to my early days as a graduate trainee at Euromoney. I had spent my first week dutifully asking impatient and invariably pompous syndicated loan bankers to tell me the fees and margins on the deals they had out in the market. I had no idea what any of this was about and decided to seek help from one of the wise old hands on the editorial desk.
He must have been at least 25, maybe as old as 27, and looked at me through narrow eyes. “Do you understand the difference,” he asked, “between debt and equity?”
Oh, what a world he was about to open up. I look back now and revel in the innocence of embarking into a new life, like Newton on the beach, finding a smoother pebble or a prettier shell than ordinary, and just sensing for the first time the great ocean of finance that lay all undiscovered before me.
There is often something touching about a character who tries to talk big but obviously has no idea of just how little he knows his subject, although perhaps not when he is about to nominate the next chair of the Federal Reserve
Nobody takes any notice of ratings agencies anymore, so no doubt Trump has not glanced at the recent Scope report into how the polarized political environment in the country is impeding the federal government’s ability to address US structural weaknesses: low productivity growth and labour force participation; a high and rising federal government debt level; and elevated contingent liabilities due to social security and healthcare programmes.
Maybe someone at the US Treasury takes account of bond investors. BlackRock has been negative on US government bonds for a while now, albeit for a good reason – the obvious threat, amid continuing economic expansion, of rising rates to nominal bonds. In late October, it downgraded US credit as well, pointing out that spreads over record low risk-free rates are now at the narrow end of their 17-year range. When credit spreads are this tight, even a relatively small sell-off can wipe out the income advantage of credit over government bonds.
Trump says he is very honoured by the rise of the US stock market since he took office – an endearingly modest way to take credit for it – and very, very happy with what is happening on Wall Street.
I can’t imagine ever being in a position to claim responsibility for the rise of debt or equity markets, but I know that I never would.