Nomi Prins: The Reality of Trump’s Market Euphoria

Economist and bestselling author, Nomi Prins joins Max Keiser and Stacy Herbert on their radio talk show Double Down to discuss the market euphoria surrounding the election of Donald Trump just after the election.  The conversation, in retrospect, is more relevant than ever as the incoming cabinet nomination hearings unfold.

As the markets are hitting levels never seen before, just listen to the hoopla over the Dow Jones flirting with breaking 20,000 points, the question is – why have investors fallen so hard for the prospect of Trump at 1600 Pennsylvania Ave?

The radio hosts introduce the banking sector nirvana undertaken at the prospect of having a true ally in Donald Trump.  To better explain the market euphoria following Trump’s ascension to the White House, they turn to Nomi Prins who is a former managing director at Goldman Sachs and various other Wall Street banking institutions.

Nomi Prins started off the conversation regarding the markets by referencing a quote closely connected with P.T. Barnum saying, There’s a sucker born every minute. “On the one hand there is market euphoria. On the other, it has to deal with the speculation of Trump’s ability to spur growth, jobs and infrastructure building. Somehow the belief that he is going to get a Republican Congress to agree to a massive budget proposal that will topple a trillion dollar bill has rallied attention – but that is never going to happen.”

“Some of the market action has been attributed to growth, on the other hand there is an actual attribution to the deregulation of the banking sector… which will happen. Between those two things we have had a ‘double rally.’ We are ultimately going to pull back on the growth because Trump will likely not be able to do what he has set out to during the election promise period.”

Nomi Prins and Trump Market Euphoria

The author was then asked about the influence of Wall Street on the incoming President where she explained, “Trump does indeed have the outside personality. It is irrelevant to the fact that he is now part of the political and financial establishment. This is by virtue of the people he has had around him for decades and by virtue of the people he will have around him while in Washington.”

When asked about the incoming administration and the promise of bringing jobs back to the United States from major corporations like Apple and Carrier, Prins’ noted, “The euphoria here, beyond what it can do in the deregulation of markets, is largely misplaced based on reality.  He can get tax breaks to corporations, and he probably will. That is something he can get through. That is a platform issue and Congress will vote for. That is a standard Republican and Democratic action, it happens under both parties.”

“But to actually give big corporations an incentive to bring jobs back, domestically, that will compensate for that cost (whether based on market shrinkage, or the overhead cost) could be overwhelming compared to any tax incentive to do that.”

When asked about the Goldman Sachs and the big bank rally under Trump, the former Wall Street insider indicated, “The incoming administration will deregulate Wall Street. They will also deregulate for small and medium sized banks. In terms of the big banks, there will be an even larger euphoric nature in terms of the deregulation that will happen. This deregulation will relate to the types of things they can trade, the hedge fund related activities. Dodd-Frank was super weak, while touted as a groundbreaking regulatory Act it has not made the big banks smaller, it hasn’t made them less complex.

In fact, the top six banks are nearly 40% bigger, in terms of the assets they are holding, than they were before the global financial crisis. They still control nearly 95-98% of the derivatives and trading securities in the country. What will happen is that the percentage in which Wall Street had to refrain from certain segmented trading activities (hedge fund to private equity related activities) will probably be dialed back. This will mean that there will be an ability to speculate more from the trading desks of banks. This was the very thing that exacerbated the financial crisis, and the one thing to a minimal extent that Dodd-Frank was able to mitigate.”

To hear the complete interview on this market euphoria for Trump covered by Nomi Prins together with Max Keiser and Stacy Herbert CLICK HERE.


Craig Wilson, @craig_wilson7
for the Daily Reckoning

The Daily Reckoning