In the last few weeks the Wall Street Borg has coalesced around the narrative that the stock market is headed for that distinct phase known by that special paradox, the “melt-up.” Although the only natural phenomenon that could be said to “melt” “up” is the stalagmite (growth rate: inch per century), the idea is that the already-pricey stock market is set to accelerate upward in one last sudden spurt of retail-driven euphoria before inevitably correcting.
It's not a niche view. Here's Rupert Harrison of BlackRock calling a melt-up “the phrase I've heard most” in the new year. Bank of America Merrill Lynch strategists wrote Friday that their long-simmeringIcarusmelt-up trade “isn't likely over.” Jeremy Grantham, speaking in a sagacious third-person, “thinks he sees the signs of an impending melt-up that will be painful for value investors.”
And yet, despite reports that presidential advisor Gary Cohn is living in a White House of emotion, the big guy couldn't be happier. Melt-up on the horizon? Time to carve out a few minutes for some quality MAGA airtime:
In an unusual move for the executive branch, the White House's top economic advisor Gary Cohn said he believes stocks are cheap. "I think the stock market — and some other pretty famous investors over the last 24, 48 hours have agreed with us — that the stock market is not expensive right now," Cohn said on Bloomberg TV Friday.
Let's leave the tedious debate over how cheap the stock market is to those for whom the words “Shiller P/E” constitute foreplay and focus instead on the news here. It's an obvious and well-reported fact – repeatedly demonstrated by Cohn – that the greatest service you can render unto the current president is to go on TV and lather his ego.
But these days it isn't enough simply to say that the stock market is up because Trumponomics works, as Cohn and Steve Mnuchin have donein the past. Now it seems incumbent upon the wind-up dolls in the cabinet not only to mention the stock rally, but to actively promote it. This goes a step beyond the Dow 25,000 stock-market cheerleading we've seen of late from Trump et al:
Cohn has taken it a step further, not just pointing to the big round numbers the Dow is making, but beckoning Americans to get in. Whether it's a conscious strategy or not, the logical outcome is a sort of self-fulfilling prophecy. The more those in the Trump orbit yip and howl about stocks, the more the Fox News viewership is likely to shift some of their portfolio from gold coins to equities, which go up. It's Sorosian reflexivity, only for the Twitter age.
Though Cohn would argue the rally is justified on fundamentals, his Trumpish boasts are just what a good melt-up needs. The final leg in a rally, the one where proverbial taxi drivers banter about their tech plays, requires a big infusion of mom and pop dollars eager not to miss out on the fun. Arguably, some of that FOMO flow has thus far been surging into cryptos. But there are still plenty of ordinary retail investors out there with a few extra bucks in their pockets just dying to be plowed into index ETFs or Amazon shares or whatever.
You might argue that the Trump White House isn't the first to encourage stock-buying – Obama did so in March 2009, as Sam Ro reminds us:
But the differences here are pretty obvious. We're at the top of the cycle, not the bottom, and we're now subject to a constant onslaught of stock blather from the White House, not a single offhand comment.
Is a melt-up really imminent? I don't know. I'm not paid to know; in fact I'm pretty much paid not to know. This is Dealbreaker. But if the argument for a melt-up wasn't convincing before, it's certainly more so now that Gary Cohn and the rest of the White House talking head brigade have begun to channel Ralph Acampora.
Programming note: Today, sadly, is my last day as a full-time Dealbreaker reporter. Later this month I begin graduate studies in economics at the New School for Social Research, where I'll no longer have the pleasure of writing things with words like “clusterfuck” and “grundle” in them. If you'd like to say good luck/riddance, please do so in the comments or @odavis_.