Are Markets Getting Suckered By Trump's Truth Socials? | Diving In

Well, here we go again. President Trump just announced that
he's calling off tonight's scheduled bombing of Iran. If you're
keeping count at home, that's literally the fifth time he's
done it so far during this war. He posted on
truth Social the discussions with Iran were going so well
and they're at the highest levels of Iranian leadership that
he's going to call off the strikes, and he reassures
us that peace is just about to break out. The
Iranians are finally coming to heal. Now, I collected the
most extraordinary data set. This sounded sort of familiar, so
I went looking for how many times in the past
President Trump has told us we're on the cusp of
a deal, And it's a pretty extraordinary list. In fact,
two weeks before the war started, he said Iran wants
to make a deal very badly. Then, of course he
started the war, and each and every day, not every day,
he's taken a couple of days off, but every few
days he's come out once again and told us we're
on the cusp of indigna war. In fact, at this
point I counted fifty separate occasions over roughly twenty five days.
Separate days in which he's told us we're on the
cusp of a war. In March, he said, we have points,
major points of agreement. I would say almost all points
of agreement made. If that's true, what's taken so long?
In April he said it should be days, not weeks. Well,
it wasn't days. In May he said, we're getting close
to making a deal. Well, Sunshine, it's quite a bit
later right now. Later in May, the end of May,
he said the US is close to a deal. Well,
we're almost halfway through June now, And a couple of
days ago he said we are very close to a
final deal with Iran. In fact, if you collect all
of the quotes, it's several pages of the president, day
after day, time after time, reminding us that we're on
the cusp of victory. I want to juxtap that with
something else. What we saw today. It was actually a
pattern we've seen throughout this war, which is anytime the
president de escalates, the American stock market goes up. And
if you think about that, people are buying and selling
stocks based on a bed about the future profitability of
large American companies. And so if you see the price
of stocks go up when we de escalate. That's markets
saying that they believe that the future profitability of American
firms will be higher if we don't escalate the war.
And the flip side, by the way, is also true,
which is every time the President has escalated, American stocks
have fallen quite substantially. It's what led me to suggest
that markets are reacting as if they believe that the
Iran war will take a trillion, possibly three trillion dollars
off the value of American equities, which is a huge,
huge effect. Now today what happened was the President announced
for the fiftieth time, literally the fiftieth time, that we're
on the cusp of ending the war, and American stocks
rose by one percent. A natural question that I get
from some people is why do markets keep getting suckered
by this? And I think I want to give you
a different lens for thinking about this. Maybe it's not
that markets are being suckered. In fact, that markets understand
that the President only occasionally tells the truth. That then
means that when the President speaks, there's a good chance
it's noise rather than signal that it's nonsense rather than
something to respond to when you speak, This way, of course,
that provides an incentive for markets to respond less. If
there's only a one tenth chance that what you say
is going to be true, then the markets should only
respond one tenth as vigorously as it otherwise would. Now,
if you think about that, the consequences actually are terrifying.
So a known liar says something that could be good
news or could be a lie, and markets rise enormously.
The only way that that makes sense is if it
turns out to be the truth, very very valuable for
American corporations, and so that markets respond as much as
rising one percent based on a statement from a known
layer is another way of saying markets are behaving as
if they believe if they were told for sure the
war was going to end soon, that American stocks would
be worth a whole lot more. So, I think the
right way to think about this is in fact, that
markets once again are doubling down on the idea that
this war is very economically expensive for the United States.
And I've talked before, the question here is not how
much of the Bobom's going to cost. The question is
what sort of crater will this war leave in the
global economy, What sort of ongoing damage. How long will
the stratophim WWS remain closed. How will Iran use its
leverage that it now knows that it has over the strait.
How much will this affect future US defense spending. How
much will this change our role in the world. How
much will this affect our ability to cooperate with others
around the world and reshape future economic opportunities. And the
stock market And again I'm not saying the stock market
is the economy, but the stock market is responding as
if this is an intensely important moment for the US economy,
that the number one story that matters for the US
economy is what happens in Iran. Anyway, I find that
sort of interesting. We're also going to see over the
next few hours foreign markets respond probably even more. And
that's because this is a war that doesn't just rewire
America's place in the world, but actually has even bigger
effects on other countries. And that's because the US is
largely oil independent, other countries much less so, and so
the suffering that we're seeing in the United States is
not quite as bad as we see in other countries.
And then I want to give you one final note
that worries me a lot. We've actually seen versions of
this two step before the president moves forward on some
policy that he believes deeply and not based on analysis
but his gut, and then American stocks tank, and then
what he does is he walks it back. We saw
this happen a lot during the tariff wars. Look, here's
the thing I worry about. That's a reasonable feedback loop
some of the time. But if you're a known liar,
then that then means that markets are not going to
believe anything that what you say. That in turn means
that markets are going to moderate how much they respond
after you say something. And that in turn means that
you could say something wildly foolish and markets might think, yeah,
he's probably going to walk that back. He probably didn't
mean that, If he probably didn't mean it, if half
of what he says is garbage, then we don't need
to respond. And if we don't respond, that breaks that
feedback loop from the president to Wall Street and from
Wall Street to the president. That's that problem that the
president does a liar, not a reliable source of truth,
which markets to underrespond. That's separate from a related issue,
which is If the president responds to the market, and
the market understands that the president responds to the market,
then this is something people worried a lot about during
the trade was Then if the president does something stupid,
the market understands that if the market falls, he'll undo
the stupid thing, given that the market doesn't need to fall.
If the market doesn't fall, then that feedback loop is broken,
and the president persists with the stupid thing. Look, let
me step back. There's actually two really big points that
I wanted to make here. The first is, in an
information environment in which the president has moved from taking
communication with the American people and with investors seriously to
lying in an ongoing and repeated way, that fundamentally changes
how we should think about any form of communication. The
extent to which the President is repeated lies this time
would be funny if we weren't talking about something so serious.
And the second thing is, once you take that into
account and you still see markets responding, then you should
understand that's market's really saying, hey, look out, we think
this is really really dangerous, so dangerous that we respond
to it. Even if we understand there's a pretty good
chance the president's lying