vega113/run-dont-walt.txt

## run-dont-walt.txt
Run, Don't Walk---This Sucker Is Going Down
By David Stockman. Posted On Thursday, January 26th, 2017
The day traders and robo-machines have had their scheduled madcap frolic. They have not only crossed the magic 20,000 marker, but are also making the first few months of 2000, when the dotcom bubble reached it blow-off peak, look tame by comparison.

The truth is, the stock market wasn't wrong at 11:30 PM on November 8th when it greeted the suddenly shocking prospect of Donald Trump's victory with a 1,000 point sell-off in the futures market. But it's been dead wrong since then----rising 2,700 points since the wee hours of election night or 16% in the face of overwhelming evidence that the Trump Stimulus/Reflation story is a complete mirage.

Indeed, at 2140 on election day, the S&P 500 was already drastically overvalued at 24X reported earnings. Now it stands at 2300 and is truly in the skybox section of history----with its GAAP multiple having inflated to nearly 26X the $89 per share of earnings reported for the September LTM period.

Even if earnings for Q4 2016, which are currently being reported, come in 10% above the year ago quarter, S&P earnings would still only total $92 per share on a four quarter basis. And that's still down 13% from their peak in September 2014.

So the casino is "pricing-in" a profits recovery of biblical proportions in the next several years. While this could be dismissed as the same old Wall Street hockey stick, even that would be too charitable.

To wit, exactly what is it that the Wall Street lemmings are expecting of Donald Trump that will reverse the  disappearing ink on which the consensus forecast has been written during the last several years? Can they really be so naïve as to think that the whirling dervish who now occupies the Oval Office is the second coming of Ronald Reagan?


Already just one week on from the inauguration we think the verdict is in: Perish the thought!

The Donald is leading the Imperial City right into the jaws of a Fiscal Bloodbath, but he has no clue whatsoever. Wednesday alone he commissioned the building of a $25 billion Mexican Wall, announced 5,000 more border agents, cranked-up a costly deportation dragnet, unleashed the Pentagon to bust the sequester caps, and leaked to the national governors association their own $150 billion list of public works boondoggles-----all the while not even having a confirmed budget director or domestic cabinet!

What he's got, instead, is a posse of big spending generals and a twitchy twitter finger. What has also got is a debt ceiling stink bomb set to go off on March 15 when the Obama/Boehner "holiday" from the public debt limit expires, and the Imperial City wakes up to a public debt that will be frozen at approximately $20.2 trillion.

What he doesn't have is anything close to a coherent GOP majority that can vote through a debt ceiling increase big enough to even accommodate the built-in deficit that he is inheriting from three decades of Washington's fiscal profligacy. Fittingly, CBO published its 10-year baseline budget forecast Tuesday and its all the evidence you really need to prove that the Trump Stimulus story is entirely delusional.

It shows that the current policy deficit will exceed $1 trillion annually within a few years and cumulate to $10 trillion over the next decade before a single dime is spent on the Trump defense build-up, infrastructure program, tax cuts or additional laundry list of things he's pledged to boost, including border security, veterans benefits and law enforcement.

As we have further documented, however, the CBO baseline deficit forecasts are not the complete story because borrowing for numerous purposes including the $100 billion per year student loan program and borrowing from the trust funds is not included in the official deficit. Consequently, Trump will need a debt ceiling increase, according to CBO's new figures, to $23.5 trillion before the end of his term just to fund the embedded red ink.

And that assumes we go another 4 years without a recession!

Needless to say, a business expansion of 140 months duration (2009-2021) is not in the cards. That's far longer than that of the precious record during the 1990s (118 months)----when the Fed's balance sheet expansion was still in its infancy.

Yet when the next recession hits, the public debt will explode. Moreover, the Social Security trust funds----which assume that recessions have been banished to the hereafter---will tumble into insolvency and trigger a massive 30% benefit cut before the middle of the decade. Political chaos will ensure long before.

So just exactly who is going to vote for a $23.5 trillion debt ceiling---plus several trillions more to fund the Trump Fiscal Stimulus?

In fact, that's a rhetorical question and the answer will be evident soon enough within the next several months. That's because the clock will start ticking on March 15 when the Treasury goes back under a borrowing limit and begins to run-off the approximate $350 billion of cash it will have at the time. With each passing week thereafter,  tens of billions will drain away and the day of reckoning will inch closer.

What that means is Trump's entire agenda will get bottled-up as his GOP majority splinters in the face of the impending debt ceiling crisis and the revengeful Democrats pile-on. In short, there is not a snowballs chance that an Obamacare "repeal and replace" bill or a huge tax cut or an infrastructure program can pass before the August recesses.

Instead, Trump is heading for a debt ceiling showdown and government shutdown crisis that will make the summer of 2011 look like a Sunday School picnic. At least back then the GOP congressional leadership eventually sold-out when Obama offered to embrace the so-called budget Supercommittee and automatic sequester.

By contrast, this time the Democratic opposition will go in for the kill and the White House occupant is likely to launch a spree of Twitter Terror in response.

This time, as well, Trump is being advised by a intrepid budget director, who will insist that when the treasury runs out of cash, spending can be prioritized and allocated to debt service and social security payments, and it is that prospect which will unleash political mayhem in the Imperial City.

In short, Donald Trump is about to be taken hostage by the coming debt ceiling crisis and he and his incipient government are utterly unprepared. Here is just a small anecdote that helps crystalize the fiscal armeggedon directly ahead.

As we have explained, Ronald Reagan's massive 6% of GDP tax cut and defense spending increase produced a temporary deficit-driven boom in the mid-1980s, but it was purely by accident.

The Gipper would not have dreamed of calling himself the King of Debt----and was determined to balance the budget at the earliest date possible. And that was at a time when the nation had just $930 billion, of public debt, not $20 trillion; and when the public debt represented only 30% of GDP, not today's 106%.

Still, Reagan sat through five in-depth budget review sessions during the first 20 days of January before he was sworn in, and then five more sessions during his first week in office.

By contrast, Donald Trump is sitting on a ticking fiscal time bomb, and has not even had a single budget session. So if the casino thinks the stimulus baton is about to be handed-off to fiscal policy, it might take note that it the baton appears to be connected to a lit fuse.

Accordingly, there may be only a few weeks left before the casino blows-----meaning that it is time to run, not walk.

Indeed, when it happens the dotcom melt-down pictured below is likely to seem tame in comparison.
	Run, Don't Walk---This Sucker Is Going Down
	By David Stockman. Posted On Thursday, January 26th, 2017
	The day traders and robo-machines have had their scheduled madcap frolic. They have not only crossed the magic 20,000 marker, but are also making the first few months of 2000, when the dotcom bubble reached it blow-off peak, look tame by comparison.

	The truth is, the stock market wasn't wrong at 11:30 PM on November 8th when it greeted the suddenly shocking prospect of Donald Trump's victory with a 1,000 point sell-off in the futures market. But it's been dead wrong since then----rising 2,700 points since the wee hours of election night or 16% in the face of overwhelming evidence that the Trump Stimulus/Reflation story is a complete mirage.

	Indeed, at 2140 on election day, the S&P 500 was already drastically overvalued at 24X reported earnings. Now it stands at 2300 and is truly in the skybox section of history----with its GAAP multiple having inflated to nearly 26X the $89 per share of earnings reported for the September LTM period.

	Even if earnings for Q4 2016, which are currently being reported, come in 10% above the year ago quarter, S&P earnings would still only total $92 per share on a four quarter basis. And that's still down 13% from their peak in September 2014.

	So the casino is "pricing-in" a profits recovery of biblical proportions in the next several years. While this could be dismissed as the same old Wall Street hockey stick, even that would be too charitable.

	To wit, exactly what is it that the Wall Street lemmings are expecting of Donald Trump that will reverse the disappearing ink on which the consensus forecast has been written during the last several years? Can they really be so naïve as to think that the whirling dervish who now occupies the Oval Office is the second coming of Ronald Reagan?




	Already just one week on from the inauguration we think the verdict is in: Perish the thought!

	The Donald is leading the Imperial City right into the jaws of a Fiscal Bloodbath, but he has no clue whatsoever. Wednesday alone he commissioned the building of a $25 billion Mexican Wall, announced 5,000 more border agents, cranked-up a costly deportation dragnet, unleashed the Pentagon to bust the sequester caps, and leaked to the national governors association their own $150 billion list of public works boondoggles-----all the while not even having a confirmed budget director or domestic cabinet!

	What he's got, instead, is a posse of big spending generals and a twitchy twitter finger. What has also got is a debt ceiling stink bomb set to go off on March 15 when the Obama/Boehner "holiday" from the public debt limit expires, and the Imperial City wakes up to a public debt that will be frozen at approximately $20.2 trillion.

	What he doesn't have is anything close to a coherent GOP majority that can vote through a debt ceiling increase big enough to even accommodate the built-in deficit that he is inheriting from three decades of Washington's fiscal profligacy. Fittingly, CBO published its 10-year baseline budget forecast Tuesday and its all the evidence you really need to prove that the Trump Stimulus story is entirely delusional.

	It shows that the current policy deficit will exceed $1 trillion annually within a few years and cumulate to $10 trillion over the next decade before a single dime is spent on the Trump defense build-up, infrastructure program, tax cuts or additional laundry list of things he's pledged to boost, including border security, veterans benefits and law enforcement.

	As we have further documented, however, the CBO baseline deficit forecasts are not the complete story because borrowing for numerous purposes including the $100 billion per year student loan program and borrowing from the trust funds is not included in the official deficit. Consequently, Trump will need a debt ceiling increase, according to CBO's new figures, to $23.5 trillion before the end of his term just to fund the embedded red ink.

	And that assumes we go another 4 years without a recession!

	Needless to say, a business expansion of 140 months duration (2009-2021) is not in the cards. That's far longer than that of the precious record during the 1990s (118 months)----when the Fed's balance sheet expansion was still in its infancy.

	Yet when the next recession hits, the public debt will explode. Moreover, the Social Security trust funds----which assume that recessions have been banished to the hereafter---will tumble into insolvency and trigger a massive 30% benefit cut before the middle of the decade. Political chaos will ensure long before.

	So just exactly who is going to vote for a $23.5 trillion debt ceiling---plus several trillions more to fund the Trump Fiscal Stimulus?

	In fact, that's a rhetorical question and the answer will be evident soon enough within the next several months. That's because the clock will start ticking on March 15 when the Treasury goes back under a borrowing limit and begins to run-off the approximate $350 billion of cash it will have at the time. With each passing week thereafter, tens of billions will drain away and the day of reckoning will inch closer.

	What that means is Trump's entire agenda will get bottled-up as his GOP majority splinters in the face of the impending debt ceiling crisis and the revengeful Democrats pile-on. In short, there is not a snowballs chance that an Obamacare "repeal and replace" bill or a huge tax cut or an infrastructure program can pass before the August recesses.

	Instead, Trump is heading for a debt ceiling showdown and government shutdown crisis that will make the summer of 2011 look like a Sunday School picnic. At least back then the GOP congressional leadership eventually sold-out when Obama offered to embrace the so-called budget Supercommittee and automatic sequester.

	By contrast, this time the Democratic opposition will go in for the kill and the White House occupant is likely to launch a spree of Twitter Terror in response.

	This time, as well, Trump is being advised by a intrepid budget director, who will insist that when the treasury runs out of cash, spending can be prioritized and allocated to debt service and social security payments, and it is that prospect which will unleash political mayhem in the Imperial City.

	In short, Donald Trump is about to be taken hostage by the coming debt ceiling crisis and he and his incipient government are utterly unprepared. Here is just a small anecdote that helps crystalize the fiscal armeggedon directly ahead.

	As we have explained, Ronald Reagan's massive 6% of GDP tax cut and defense spending increase produced a temporary deficit-driven boom in the mid-1980s, but it was purely by accident.

	The Gipper would not have dreamed of calling himself the King of Debt----and was determined to balance the budget at the earliest date possible. And that was at a time when the nation had just $930 billion, of public debt, not $20 trillion; and when the public debt represented only 30% of GDP, not today's 106%.

	Still, Reagan sat through five in-depth budget review sessions during the first 20 days of January before he was sworn in, and then five more sessions during his first week in office.

	By contrast, Donald Trump is sitting on a ticking fiscal time bomb, and has not even had a single budget session. So if the casino thinks the stimulus baton is about to be handed-off to fiscal policy, it might take note that it the baton appears to be connected to a lit fuse.

	Accordingly, there may be only a few weeks left before the casino blows-----meaning that it is time to run, not walk.

	Indeed, when it happens the dotcom melt-down pictured below is likely to seem tame in comparison.