President Trump’s inability to delay gratification now threatens America’s capital markets. In tweeting a tip last Friday that he was “looking forward to seeing the employment numbers at 8:30 this morning,” the president disregarded decades of financial regulatory experience.
Because the jobs numbers move massive markets, regulators carefully guard the information inside monthly job reports until it is deliberately and transparently delivered to all market participants at once. This gives all stakeholders even access to the information.
{mosads}By tweeting over an hour before the report’s release, Trump altered the information environment. Traders that saw the president’s tweet knew what it meant and acted. Funds flowed from Treasuries and toward stocks sure to surge on a strong report.
As the money moved, Treasury yields ticked upward from 2.8876 percent when Trump tweeted to 2.9186 percent when the Labor Department released the official numbers 69 minutes later.
Despite the rapid rise in rates, Larry Kudlow, the new head of the Council of Economic Advisers, clownishly contended that he did not “think he gave anything away” and that “this was all according to routine, law and custom.”
This is sycophantic nonsense. If Trump’s tweet sent no signal, the roughly $14-trillion-dollar Treasury market would have remained calm and erupted at the moment the report hit instead.
Trump’s reality-television-style governance now trains traders to watch the throne to thrive. Traders that look away from the constant spectacle risk missing future market-moving missives and the easy profits that can be won by exploiting an information advantage. The traders that lost out on last week’s windfall will not be caught flat-footed the next time Trump tips the market.
A new reality has emerged where financial market professionals must pay attention to the president, who will tell them what to think.
In the past, the published report’s numbers stood on their own for at least an hour before any government official commented to reduce the risk that self-serving politicians would whip the markets into a frenzy for their own purposes.
In its eagerness to whoop and gloat over positive economic news, the administration destroys the confidence essential for sustained economic prosperity. Investors from across the globe participate in the United States’ financial markets because we have offered a fair and level playing field.
Trump’s leaky administration and sudden decision to disseminate market-moving information through Twitter may cause many to fear that confidential economic information may be selectively released by the administration.
If investors fear that the president’s favored few have more information, they may hesitate to take the other side of trades or discount the amount they are willing to pay to account for the risk. Ordinary investors may not get fair value for their savings when they need to sell.
Some may discount these concerns as mere hand-wringing by pointing to numbers indicating strong job growth. Although those numbers matter, they cannot capture the value of investor confidence in our system’s integrity and the rule of law.
By rushing to put a sugary spin on short-term economic numbers, the administration risks rotting away the teeth they will need to tell the truth in a crisis. Flaunting financials in this way shifts the market’s focus from stable institutions that reliably report results to a self-promoting president that continually preens for attention.
When the next financial crisis comes, a carnival barker will not be able to restore confidence. Institutions helmed by sycophantic yes men will discover that they also lack the credibility to restore confidence.
Pointless presidential instability and impulsivity generate uncertainty and financial risks that may ultimately cause money to flow from the United States to other markets.
Look at Venezuela’s economy and consider whether Hugo Chávez’s closely-watched show, Aló Presidente, put that nation on the path toward sustained prosperity. Wall Street now watches President Trump as Venezuelans watched Chávez.
Self-control and the ability to delay gratification reliably leads to success. Recall the famous marshmallow experiments Walter Mischel conducted at Stanford in the 1960s and 70s.
Children were offered one marshmallow now or two if they could forgoed gobbling an immediate marshmallow in favor of two 15 minutes later. The children that could wait collected two marshmallows, more academic degrees and had better health outcomes.
When the president yields to an irresistible impulse to tweet out positive short-term optics, we all lose the long-term benefits that come from stable and consistent financial institutions.
Benjamin Edwards is an associate professor of law at the William S. Boyd School of Law at the University of Las Vegas, Nevada, specializing in business and securities law, corporate governance and consumer protection.