There's a reason Wall Street gets paid the big bucks. It's that it only took it six months to figure out that President Trump doesn't always do what he says he will.
Actually, that's giving Wall Street too much credit. It never did reach that realization on its own. It took the almost daily revelations of potentially impeachable offenses for Wall Street to completely come to terms with the fact that Trump may not be able to deliver all the tax cuts and infrastructure spending and deregulation—oh my!—that it had been counting on. Or, as CNBC commentator and supply-side enthusiast Larry Kudlow succinctly put it, “None of Trump-Comey events help tax cuts.”
That's clear enough in the way the dollar has given up all of its post-election gains. That, you see, may be the best barometer for how much Wall Street believes Trump's promises—or doesn't. Here's why. If Trump really did slash taxes and boost spending, the Federal Reserve would almost certainly have to increase interest rates more than it thought it would to keep the economy from overheating. And if it did that, then more people would want to move their money to the United States where it would now earn a better return—pushing up the demand for, and, as a result the price of, dollars.
And for a long time, Wall Street really thought this. Indeed, at one point, the dollar was up as much as 3.5 percent from where it was on election night. It was almost an endearing level of naivete. Wall Street thought that someone who had made a career out of breaking his promises—to creditors, to contractors and to students—would keep them now. It didn't concern itself with details such as how long it would take Trump's agenda to pass and how short the legislative calendar really is. Between things Congress has to do, such as funding the government and lifting the debt ceiling, and things Congress wants to do, such as taking a lot of vacations, there just isn't that much time to hammer out once-in-a-decade bills—especially when Republicans themselves don't agree on them.
And it's not just health care. It's taxes, too. Do they want to pass a short-term tax cut that isn't paid for or a longer-lasting tax restructuring that is? And if they do try to pay for it, how will they? The House GOP's two big ideas—a border adjustment tax and ending the deductibility of interest—are nonstarters for the Senate GOP. And can Trump really wrangle Republicans into passing an infrastructure bill they have almost no interest in?
Wall Street finally started to catch on in the last month, but it's only now that Trump seems to be self-immolating with metronomic frequency that traders have given up all their dreams of a big, fat Trump stimulus. Which is to say that the dollar is back to where it was on election night. After all, it's not like a lot of legislation passed during the Watergate hearings. If that's where we're headed, then we're not just talking about tax reform being pushed off until 2018, which was already fraught because election years are where bills go to die, but for the future. That's because the way things are going, there's at least a decent chance that Democrats could take back the House in the midterms. Republicans, then, may only have eight or 10 more months to realistically get things done.
Of course, that won't stop some traders from betting that isn't a big deal because a President Pence would be just as amenable to their interests. But that's the same reality TV theory of politics—the president said it, so it will happen—that got them so ahead of themselves in the first place. Not to mention that there'd be even less of a chance of that working if Pence entered office right after his party had torn itself in two over his old boss, who isn't exactly known for his magnanimity in defeat. That's why, for the most part, Wall Street has accepted that Santa is actually Godot. In other words, it could be waiting awhile for all the tax cut goodies it thought were under the tree. Who could have known that Trump's word isn't always worth much?
Maybe for its next trick, Wall Street will discover how a bill becomes a law.