World

Corona virus illustrates the problem with Trump’s stock market superiority

There is a reason why most heads warn when talking about the stock market. President Trump is learning this the hard way this week.

In fact, he suffers from the downside because he spent the past three years allocating a large portion of what is happening in the markets and the economy, saying that the rise in the value of shares under his watch is a reflection of his own ability and a central part of his case for his re-election in November.

Most bosses avoid bragging to the high stock market because they know how fragile they are, how little control over stock prices they already have, and how stock prices can move sharply for reasons beyond their control, or sometimes for no apparent reason at all.

The cost of claiming personal credit for stock market gains comes when you get stock market losses. This is especially important after falling 7 percent in the S&P 500 since its peak last Wednesday, and it appears to be the result of Wall Street’s recognition that the spread of the Corona virus could disrupt the global economy.

The outbreak of the new type of coronavirus in China and its spread to other countries was not something that Mr. Trump could have prevented. But even when public health officials began to warn of the possibility of injuring many Americans, the Trump administration had devoted much effort to speaking in the stock market.

“The stock market is starting to look very good to me!” The president tweeted shortly after the market closed on Monday afternoon after falling 3.5 percent.

It continued to drop an additional 3 percent on Tuesday.

If sales continue, this could undermine the main pillar of the president’s re-election phase. This may be a lesser problem if Mr. Trump does not repeatedly talk about the stock market as a real-time measure of the success of his presidency.

But there is more to risk than PR. There is also a risk that the administration’s focus on optics in the market is distracting them from the larger existing task – trying to protect from the potential spread of disease and loss of life that accompanies a global pandemic.

Ideally, even economists who have no experience in transmitting diseases will spend their time trying to understand which industries are likely to be severely affected and whether the government can do anything to help them work through supply chain disorders and other negative effects of the virus.

  • Updated February 25, 2020

    • What is Corona virus?
      It is a new virus that has been called a crown-like mutation that protrudes from its surface. Coronavirus can infect animals and people alike, and can cause a range of respiratory illnesses from common colds to more serious conditions such as severe acute respiratory syndrome, or SARS.
    • How infectious is the virus?
      According to preliminary research, it appears to be moderately contagious, similar to SARS, and may be transmitted by sneezing, coughing and contaminated surfaces. Scientists have estimated that each infected person can spread it between 1.5 and 3.5 people without effective containment measures.
    • Where has the virus spread?
      The disease, which originated in Wuhan, China, has sickened more than 80,000 people in at least 33 countries, including Italy, Iran and South Korea.
    • Who works to contain the virus?
      WHO officials are working with officials in China, where growth has slowed. But this week, with confirmed cases rising on two continents, experts warn that the world is not ready for a major disease outbreak.
    • How do I keep myself and others safe?
      Washing your hands frequently is the most important thing you can do, as well as staying home when you are sick.

On Tuesday afternoon, I interviewed the White House’s chief economic adviser, Larry Kudlow, on CNBC in the midst of the selling, focusing on talking to the markets.

“The story of the virus will not last forever,” he said on the “Stock Exchange.” “For me, if you are an investor there and you have a long-term view, I suggest looking seriously to the market; the stock market, that’s much cheaper than it was a week or two ago.”

He then proceeded to point out that fears of spreading the virus and causing major damage to the US economy were misplaced.

“It contained this,” said Mr Kudlow. “I will not say tight, but it is very close to airtight.”

This is not what public health officials said at a press conference that afternoon.

“It is no longer just a question of whether this will happen anymore, but rather it is a matter of when exactly this will happen,” said Dr. Nancy Messonnier, director of the National Center for Immunization and Respiratory Diseases.

She added: “We ask the American public to prepare to expect that this might be bad.”

Efforts to put an upbeat tone on the market clearly contrasted with what public health officials saw as necessary to reduce the damage from a potential pandemic.

“It is understood that in the election year, the administration is focused on keeping the stock market and the economy strong,” said Michael Steele, a partner at the Hamilton Place Strategies and former spokesman for House Speaker John Boehner. “But they risk creating the impression that they are more focused on the economic impact of the virus than effective public health measures.”

Then there is a broader issue of credibility. During the global financial crisis of 2008, White House and Treasury officials were well aware that if they seemed to be very reinforced in public comments on the crisis, it would undermine their credibility and the sense in the markets that they were taking the threat seriously enough.

When the government announces some important good news about resolving the crisis – whether the banks have enough capital or an epidemic has been contained – you want people to believe it, which they will only do if the same government is alert about the facts from that crisis to begin. Neither the president’s tweets nor Mr. Kudlow’s interviews indicate that this administration is very concerned about this idea.

Imagine a company facing a major crisis, such as restoring the safety of its products, which in turn would lead to a drop in the share price.

If the executive team devotes all their energy to going to TV to complain about the drop in the stock price, it probably wouldn’t be that good. If the team instead ignores the stock price for a while and tries to solve the safety issue and show consumers that the company is reliable, it may take some time for the stock to recover, but in the end it will likely be.

The risk for the United States is that the Trump administration, given the politics of the election year and the president’s tendency to personalize the markets, is following something like the first strategy.

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button
Close
Close