Gary Cohn, Donald Trump’s trusted economic adviser, started his career as a trader at Goldman Sachs, and wound up becoming the bank’s president.
So when Cohn said on Friday that the bond market is taking a “long-term view of the economy,” it seemed like a startling admission.
Either Cohn spent so long in the C-suite that he’s forgotten how financial markets work, or he just said that bond traders aren’t buying into the President’s plan to make America’s economy great again.
First, here’s what’s going on in the markets: Immediately after Trump’s election, bond yields began to rise. It’s an indication that traders think the economy is going to grow faster, and interest rates will begin to creep up. That was undoubtedly a positive read on the potential for Trump to spur some growth and inflation in the U.S. economy.
But that was months ago, and since then bond yields have begun to slink back. Cohn’s comments came as yields sank further on Friday — after the May jobs report showed just 138,000 new jobs were created last month, while downward revisions to prior months made the picture look even bleaker.
The yields are still higher than they were in November, but they’re falling fast.
So when Cohn appeared on CNBC Friday, with Jim Cramer asked what he made of a recent split between stocks, which have been rallying to all-time highs on endless optimism, and bonds, which have been pointing to economic weakness:
CRAMER: What do you make of the fact that rates are going down so precipitously? Is it that trading partners keeping their currencies down and causing money to come here or are the bond market right and we just saw a peak in employment and maybe even earnings?
COHN: I don’t think there’s a simple answer or a simple factor here, but remember the bond market takes a longer-term view of what’s going on. I think people are taking a longer term view on our economy, our economy growth and where they think policy’s going.
Really? If so, that long-term view is starkly at odds with President Trump’s vow to double the US economy’s growth rate.
Low long-term interest rates suggest investors do not see value in the economy over a prolonged period and thus see little reason to make invests and hire workers. They also reflect the anemic growth environment that has characterised the weakest economic recovery in modern history — albeit also the longest continuous one.
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