Republican leaders need to mount an intervention.
Up to now I have not favored removing President Trump from office. I felt strongly that it would be best for the country that he leave the way he came in, through the ballot box. But last week was a watershed moment for me, and I think for many Americans, including some Republicans.
It was the moment when you had to ask whether we really can survive two more years of Trump as president, whether this man and his demented behavior — which will get only worse as the Mueller investigation concludes — are going to destabilize our country, our markets, our key institutions and, by extension, the world. And therefore his removal from office now has to be on the table.
I believe that the only responsible choice for the Republican Party today is an intervention with the president that makes clear that if there is not a radical change in how he conducts himself — and I think that is unlikely — the party’s leadership will have no choice but to press for his resignation or join calls for his impeachment.
It has to start with Republicans, given both the numbers needed in the Senate and political reality. Removing this president has to be an act of national unity as much as possible — otherwise it will tear the country apart even more. I know that such an action is very difficult for today’s G.O.P., but the time is long past for it to rise to confront this crisis of American leadership.
Trump’s behavior has become so erratic, his lying so persistent, his willingness to fulfill the basic functions of the presidency — like
- reading briefing books,
- consulting government experts before making major changes and
- appointing a competent staff — so absent,
his readiness to accommodate Russia and spurn allies so disturbing and his obsession with himself and his ego over all other considerations so consistent, two more years of him in office could pose a real threat to our nation. Vice President Mike Pence could not possibly be worse.
The damage an out-of-control Trump can do goes well beyond our borders. America is the keystone of global stability. Our world is the way it is today — a place that, despite all its problems, still enjoys more peace and prosperity than at any time in history — because America is the way it is (or at least was). And that is a nation that at its best has always stood up for the universal values of freedom and human rights, has always paid extra to stabilize the global system from which we were the biggest beneficiary and has always nurtured and protected alliances with like-minded nations.
Donald Trump has proved time and again that he knows nothing of the history or importance of this America. That was made starkly clear in Secretary of Defense Jim Mattis’s resignation letter.
Trump is in the grip of a mad notion that the entire web of global institutions and alliances built after World War II — which, with all their imperfections, have provided the connective tissues that have created this unprecedented era of peace and prosperity — threatens American sovereignty and prosperity and that we are better off without them.
So Trump gloats at the troubles facing the European Union, urges Britain to exit and leaks that he’d consider quitting NATO. These are institutions that all need to be improved, but not scrapped. If America becomes a predator on all the treaties, multilateral institutions and alliances holding the world together; if America goes from being the world’s anchor of stability to an engine of instability; if America goes from a democracy built on the twin pillars of truth and trust to a country where it is acceptable for the president to attack truth and trust on a daily basis, watch out: Your kids won’t just grow up in a different America. They will grow up in a different world.
The last time America disengaged from the world remotely in this manner was in the 1930s, and you remember what followed: World War II.
You have no idea how quickly institutions like NATO and the E.U. and the World Trade Organization and just basic global norms — like thou shalt not kill and dismember a journalist in your own consulate — can unravel when America goes AWOL or haywire under a shameless isolated president.
But this is not just about the world, it’s about the minimum decorum and stability we expect from our president. If the C.E.O. of any public company in America behaved like Trump has over the past two years —
- constantly lying,
- tossing out aides like they were Kleenex,
- tweeting endlessly like a teenager,
- ignoring the advice of experts —
he or she would have been fired by the board of directors long ago. Should we expect less for our president?
That’s what the financial markets are now asking. For the first two years of the Trump presidency the markets treated his dishonesty and craziness as background noise to all the soaring corporate profits and stocks. But that is no longer the case. Trump has markets worried.
.. The instability Trump is generating — including his attacks on the chairman of the Federal Reserve — is causing investors to wonder where the economic and geopolitical management will come from as the economy slows down.
- What if we’re plunged into an economic crisis and we have a president whose first instinct is always to blame others and
- who’s already purged from his side the most sober adults willing to tell him that his vaunted “gut instincts” have no grounding in economics or in law or in common sense. Mattis was the last one.
We are now left with the B team — all the people who were ready to take the jobs that Trump’s first team either resigned from — because they could not countenance his lying, chaos and ignorance — or were fired from for the same reasons.
I seriously doubt that any of these B-players would have been hired by any other administration. Not only do they not inspire confidence in a crisis, but they are all walking around knowing that Trump would stab every one of them in the back with his Twitter knife, at any moment, if it served him. This makes them even less effective.
Indeed, Trump’s biggest disruption has been to undermine the norms and values we associate with a U.S. president and U.S. leadership. And now that Trump has freed himself of all restraints from within his White House staff, his cabinet and his party — so that “Trump can be Trump,” we are told — he is freer than ever to remake America in his image.
And what is that image? According to The Washington Post’s latest tally, Trump has made 7,546 false or misleading claims, an average of five a day, through Dec. 20, the 700th day of his term in office. And all that was supposedly before “we let Trump be Trump.”
If America starts to behave as a selfish, shameless, lying grifter like Trump, you simply cannot imagine how unstable — how disruptive —world markets and geopolitics may become.
We cannot afford to find out.
With the start of the French election just days away, investors are contemplating their nightmare scenario: a choice between far-left and far-right candidates.
In recent days, a surge in opinion polls has placed Jean-Luc Mélenchon, a left-wing firebrand who promises higher wages and fewer working hours, as a potential candidate to move past this Sunday’s first round of voting. That could set up a second-round vote in May 7 with Marine Le Pen, an economic nationalist who wants to pull France out of the euro.
.. A runoff between Ms. Le Pen and Mr. Mélenchon “would be a disaster for France…[and] a disaster for Europe,” said Patrick Zweifel, chief economist at Pictet Asset Management.
Under that scenario, investors would dump the debt of France and of weaker European economies and send the euro sharply lower, analysts say.
.. the cost of insurance against a sharp fall in the euro, as measured by so-called one-month risk reversals, hit levels seen at the height of the continent’s sovereign-debt crisis in 2011.
.. For months, investors prepared for a runoff that pitted Ms. Le Pen against a candidate from the political mainstream, either François Fillon, a center-right former prime minister, or Emmanuel Macron, a former economy minister.
.. Analysts believe that either would beat Ms. Le Pen in a second round, as voters of different political stripes coalesced around a candidate that wasn’t the National Front leader.
.. The prospect of a victory for Ms. Le Pen, however distant, has long spooked markets. Ms. Le Pen’s desire to pull France out of the eurozone has raised concerns that the entire block could unravel.
.. In a runoff between Mr. Mélenchon and Ms. Le Pen, the sort of trading that hit markets during the eurozone’s sovereign-debt crisis, including extreme volatility in the euro and a selloff in the bonds of weaker members, would re-emerge, some analysts predict.
.. Mr. Mélenchon favors granting a sixth week of annual vacation; encouraging a four-day, 32-hour workweek; raising the minimum wage; and reducing the retirement age.
.. “It’s all very well having a mandate in the presidential election, but you need support in the national assembly too,”
The “Trump trade” has become market shorthand for stocks up, dollar up, bond yields up—and while it has had a rough ride recently, shares remain more than 10% above election day.
.. The basic distinction is between global growth, which was happening anyway and has sped up this year, and a U.S. boom induced by Donald Trump’s promised policies.
The idea that the U.S. would power ahead of the rest of the world was reflected in sharp U.S. stock market outperformance, as well as the stronger dollar. No longer. U.S. equity performance since the election is now merely in line with the rest of the world and slightly behind Europe, in constant currency terms, while the dollar’s given back about half its postelection gains.
Bank red tape.
It is hard to split out bank stocks from bond yields, as the two have moved tightly together recently, but an administration packed with former Wall Street executives pledging to slash financial bureaucracy ought to be great for banks. Investors are still giving credence to the idea of a bonfire of regulations, with U.S. bank stocks 12% ahead of the market, about double the outperformance of banks in the eurozone.
In the United States, two illusions have been important recently in financial markets. One is the carefully nurtured perception that President-elect Donald Trump is a business genius who can apply his deal-making skills to make America great again. The other is a naturally occurring illusion: the proximity of Dow 20,000.
.. the Dow had already hit nine record highs before the election, when Hillary Clinton was projected to win. In nominal terms, the Dow is up 70% from its peak in January 2000.
.. But these numbers are illusory. The US has a national policy of overall inflation. The US Federal Reserve has set an inflation “objective” of 2% in terms of the personal consumption expenditure deflator. This means that all prices should tend to go up by about 2% per year, or 22% per decade.
.. The Dow is up only 19% in real (inflation-adjusted) terms since 2000. A 19% increase in 17 years is underwhelming
.. The Fed, like the world’s other central banks, is steadily debasing the currency, in order to create inflation.
How could so many asset classes be wrong?
Actually, quite easily. The danger is that investors are responding to their own prejudices, then receiving reinforcement from one another. While the market is internally consistent, that isn’t enough if it has misjudged the big picture—as it often does on the economy, and even more so on presidents.
.. Take the 2013 taper tantrum, or a period in 2010 when markets bet big on a rapid postrecession recovery—only for panic to set in when the economy proved weak.
.. But history suggests markets aren’t that good at judging presidents. And that presidents just aren’t that important to stock prices. The worst performance of U.S. stocks between Election Day and Inauguration Day came ahead of Franklin Roosevelt, Richard Nixon and Barack Obama’s first terms and Lyndon Johnson’s 1964 election, according to calculations by Birinyi Associates. Yet after FDR and Mr. Obama took office, the market boomed, while it did perfectly well under Nixon and LBJ.
The market wildly misjudged the potential of Herbert Hoover. His election-to-inauguration stock price jump hasn’t been bettered, but the 1929 crash was on his watch and no president since has overseen such poor returns.
Politico reported that Treasury and Federal Reserve officials were monitoring the situation closely, prepared to take extraordinary action, if needed, to save the U.S. economy from free fall.
.. Pharmaceutical companies and private prisons saw their values rise, presumably rooted in a belief that President Trump will abandon efforts to rein them in. Gun stocks fell—a sign that Americans no longer fear a gun-control advocate in the White House.
.. Or, as John Maynard Keynes wrote, “We devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees.”
.. Trump has attacked every one of these foundations. How much should you pay for Apple stock, say, if we have to worry about the dollar plummeting in value and the President declaring a trade war on China, which is both Apple’s chief supplier and its fastest-growing market? There is no financial model, right now, for that many levels of structural uncertainty.
.. Markets are designed to make relatively minor adjustments on a fundamentally sound base. They never perform well when the base itself is under assault, as it was during the financial crisis of 2008.
.. Donald Trump’s proposed policies are, in this technical sense, toxic.
.. The repeal of Obamacare, alone, would force many people to forgo their riskier, entrepreneurial ambitions for the safety of a job with a health plan. Curtailing immigration will redirect the world’s most ambitious citizens elsewhere. A trade war with Mexico and China would be damaging in ways that are hard to fathom or measure. Trump’s tax plan will turn America’s serious but manageable debt burden into a crisis weighing on future generations.
Consider the 449 companies in the S&P 500 index that were publicly listed from 2003 through 2012. During that period those companies used 54% of their earnings—a total of $2.4 trillion—to buy back their own stock, almost all through purchases on the open market. Dividends absorbed an additional 37% of their earnings. That left very little for investments in productive capabilities or higher incomes for employees.
.. Why are such massive resources being devoted to stock repurchases? Corporate executives give several reasons, which I will discuss later. But none of them has close to the explanatory power of this simple truth: Stock-based instruments make up the majority of their pay, and in the short term buybacks drive up stock prices.
In 2012 the 500 highest-paid executives named in proxy statements of U.S. public companies received, on average, $30.3 million each; 42% of their compensation came from stock options and 41% from stock awards. By increasing the demand for a company’s shares, open-market buybacks automatically lift its stock price, even if only temporarily, and can enable the company to hit quarterly earnings per share (EPS) targets.
.. Even when adjusted for inflation, the compensation of top U.S. executives has doubled or tripled since the first half of the 1990s, when it was already widely viewed as excessive.
.. From the end of World War II until the late 1970s, a retain-and-reinvest approach
.. in the late 1970s, giving way to a downsize-and-distribute regime
.. Since the late 1980s, the largest component of the income of the top 0.1% has been compensation, driven by stock-based pay.
.. A turning point was the wave of hostile takeovers that swept the country in the 1980s. Corporate raiders often claimed that the complacent leaders of the targeted companies were failing to maximize returns to shareholders. That criticism prompted boards of directors to try to align the interests of management and shareholders by making stock-based pay a much bigger component of executive compensation.
.. The result: Trillions of dollars that could have been spent on innovation and job creation in the U.S. economy over the past three decades have instead been used to buy back shares for what is effectively stock-price manipulation.
.. There are two major types: tender offers and open-market repurchases.
.. Tender offers can be a way for executives who have substantial ownership stakes and care about a company’s long-term competitiveness to take advantage of a low stock price and concentrate ownership in their own hands. This can, among other things, free them from Wall Street’s pressure to maximize short-term profits.
.. Exxon Mobil, by far the biggest stock repurchaser from 2003 to 2012, can buy back about $300 million worth of shares a day, and Apple up to $1.5 billion a day. In essence, Rule 10b-18 legalized stock market manipulation through open-market repurchases.
.. the reality is that over the past two decades major U.S. companies have tended to do buybacks in bull markets and cut back on them, often sharply, in bear markets.
.. companies that do buybacks never resell the shares at higher prices.
.. when a company buys back shares at what turn out to be high prices, it eventually reduces the value of the stock held by continuing shareholders.
.. Warren Buffett wrote in his 1999 letter to Berkshire Hathaway shareholders. “Buying dollar bills for $1.10 is not good business for those who stick around.”
.. A related issue is the notion that the CEO’s main obligation is to shareholders. It’s based on a misconception of the shareholders’ role in the modern corporation.
.. As risk bearers, taxpayers, whose dollars support business enterprises, and workers, whose efforts generate productivity improvements, have claims on profits that are at least as strong as the shareholders’.
The only money that Apple ever raised from public shareholders was $97 million at its IPO in 1980. Yet in recent years, hedge fund activists such as David Einhorn and Carl Icahn—who played absolutely no role in the company’s success over the decades—have purchased large amounts of Apple stock and then pressured the company to announce some of the largest buyback programs in history.
.. MSV as commonly understood is a theory of value extraction, not value creation.
.. Consider the 10 largest repurchasers, which spent a combined $859 billion on buybacks, an amount equal to 68% of their combined net income, from 2003 through 2012.
.. Yet since 2003 only three of the 10 largest repurchasers—Exxon Mobil, IBM, and Procter & Gamble—have outperformed the S&P 500 Index.
.. For example, during that period the amount of stock taken out of the market has exceeded the amount issued in almost every year; from 2004 through 2013 this net withdrawal averaged $316 billion a year. In aggregate, the stock market is not functioning as a source of funds for corporate investment.
.. large companies tend to use the same set of consultants to benchmark executive compensation, and that each consultant recommends that the client pay its CEO well above average.
As a result, compensation inevitably ratchets up over time. The studies also show that even declines in stock price increase executive pay: When a company’s stock price falls, the board stuffs even more options and stock awards into top executives’ packages, claiming that it must ensure that they won’t jump ship
.. The vast majority of shareholders are simply investors in outstanding shares who can easily sell their stock when they want to lock in gains or minimize losses. As I argued earlier, the people who truly invest in the productive capabilities of corporations are taxpayers and workers.
.. Exxon Mobil, while receiving about $600 million a year in U.S. government subsidies for oil exploration (according to the Center for American Progress), spends about $21 billion a year on buybacks. It spends virtually no money on alternative energy research.
.. from 2003 through 2012, Pfizer funneled an amount equal to 71% of its profits into buybacks, and an amount equal to 75% of its profits into dividends.
.. If Americans want an economy in which corporate profits result in shared prosperity, the buyback and executive compensation binges will have to end. As with any addiction, there will be withdrawal pains.