Donald Trump campaigned to become US President on conflicting promises about big banks.
One minute, he was climbing onto the populist soapbox and promising to go after corrupt financial insiders. These were the guys who had wrecked the economy and destroyed the wealth of the middle class.
The next minute, he was pledging to free business and banking from the crushing regulations imposed by the Obama administration.
Some of the populist talk followed Trump into office. But clearly, actions speak louder than words. The steps taken by the new government have been towards pure deregulation.
This is how the cycle repeats. Cycles, Trends and Forecasts editor, Phil Anderson, sums it up brilliantly in his book, The Secret Life of Real Estate. You can get it on Amazon.
Firstly, stock markets and particularly real estate markets go up to unsustainable levels, just as they did in 2007. The fuel is some new form of credit creation.
Then the bubble bursts, markets collapse and the banks get into trouble. The authorities then come to the rescue and bail out the banks in order to save the system.
Once the dust has settled, the government introduces new laws and regulations to stop a crisis from happening again.
Problem solved, the markets recover. Real estate prices bottom out and start to go back up. Stock markets once again get on with the business of becoming bull markets.
Then the banks contact the lobbyists, who then get in touch with important members of Congress.
‘The rules are too restrictive,’ they say. ‘We need to get on with the business of making money and getting the economy working again.’
The government steps up to the plate. The rules are re-examined. They’re deemed too onerous.
This is a re-occurring cycle
As Phil says in his book and at Cycles, Trends and Forecasts, it’s happened every generation in the US going back to 1800. This is when land was first sold by the US government to the public.
And Phil doesn’t just say this happens ‘once a generation.’ He accurately forecasts when the peak will occur before a collapse. And he tells you when the crisis will be over, years ahead of the event.
It has some of our editors here at Port Phillip Publishing scratching our heads, wondering, ‘How does he do it?’
It’s simple, really. He studies history. Not just recent history, but the annals of history from way back in time. And even if history doesn’t exactly repeat, Phil knows that it certainly rhymes with themes that happen again and again.
The GFC was case in point. Just as Phil predicted, it had happened again, just as it did in the past.
After the stock market crash bottomed out in April 1932, the Banking Act of 1933 (commonly known as Glass-Steagall) was written into law. Provisions of the Act banned commercial banks from trading in stocks and bonds. Investment banks were banned from taking deposits. Conservative banking was kept separate from ‘risky’ investment banking.
Affiliations and sharing employees was also banned. You’re a bank and you want to own a stock broker? Sorry, it’s not allowed.
More importantly, a bank was not allowed to trade in the stock market. Proprietary trading, or using the bank’s capital to trade, was banned. Modern-day millionaire bank traders would be horrified.
As the stock market boomed into the 1960’s, regulators allowed banks to cross the lines. You see, once there’s money to be made, restrictive regulations only stand in the way.
Glass-Steagall was finally repealed in 1999. President Bill Clinton publicly declared, ‘The Glass-Steagall law is no longer appropriate.’
We move forward to June 2009, after the stock market low in March of that year. President Barack Obama proposed ‘a sweeping overhaul of the United States financial regulatory system.’
Next to Obamacare, the former president’s greatest legacy was the most significant change to financial regulation since the great depression.
On 21 July, 2010, Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into federal law.
The major components included:
- A new council to look at systemic risk
- Comprehensive regulation of financial markets, including derivates
- Consumer protection including a new agency and uniform standards
- Tools for financial crises including extensions of credit from the Fed
- Increasing international standards and tighter regulation of credit rating agencies
There was a whole lot more. The Act ran for 2,300 pages. For the banks it was too much. And President Trump agrees.
Trump’s grand plan
As we can see from the actual names of US laws (like Glass-Steagall and Dodd-Frank), it takes particular people to propose change and make a difference.
President Trump vowed to do ‘a big number on Dodd-Frank.’ Which is easier to do when opponents are out of the way.
Chief hawk of banking supervision was Federal Reserve Board Governor, Daniel Tarullo.
He was nominated by Obama and took office in January 2009, just as Dodd-Frank was beginning to take shape. Opponents of banking regulations are thankful he resigned last February.
And it helps to pack your team with like-minded individuals. In June last year, Trump nominated Randal Quarles to take a key position at the Fed. He was picked as the vice chairman of the board overseeing the banking system and took up the post in October.
Trump-appointed Treasury secretary, Steven Mnuchin, is a former Goldman Sachs executive. When Quarles was nominated, Mnuchin announced a review of regulations stemming from Dodd-Frank. Naturally, the review called for laws to be relaxed.
Bank traders want looser restrictions. And banks want the Fed to ease up on annual stress tests of their ability to withstand financial shocks.
After the GFC, the Fed warned banks to expect strict scrutiny if they paid out dividends worth more than 30 percent of earnings.
When banks passed the latest stress tests, the Fed announced that the biggest US banks can resume paying out more than 100% of earnings in dividends to shareholders. Or they can use the funds to make stock buybacks.
On Friday, Randal Quarles gave his first speech on bank regulation. He praised the post-crisis reforms but said now is the time for greater ‘efficiency, transparency and simplicity.’
Quarles wants to streamline capital rules. He argued for further disclosure and clarity in the Fed’s stress testing procedures.
He also said that regulators were working on creating a Volcker rule 2.0. The Volcker rule was introduced to ban banks from placing market bets with their own money.
The rule is reviled on Wall Street. Quarles said it was a Fed priority to reform the rule but cautioned that change would not come soon.
In order to solve the puzzle of when events like these will occur in the future, Phil Anderson came up with the Grand Cycle Theory.
The Grand Cycle Theory is the perfect tool for forecasting market moves, especially real estate and global stock markets.
Phil has summed it up in a picture that’s worth a thousand words:
Phil has used his theory to accurately predict market moves time and time again. History proves that his foresight is remarkable.
Go here for a brand new video demonstration of how you can use the theory to predict market moves.
Lead Researcher, Cycles, Trends and Forecasts