Sunday, December 4, 2016
The Economist photo
We are three weeks into a new era.
President elect Donald Trump continues to cause alarm among many as he goes about his business of staffing a cabinet. Most of his picks seem intentional to cause further divide amongst a divided electorate in the United States.
The antics and blunders of Trump also cause alarm around the world. China relations being the latest example.
An initial rally in the stock market and selloff in bonds seems to anticipate increased federal government spending. At the same time there appears to be a coalescing of efforts to rescind many of the social safety nets, and thus a new cause for discord.
Trump raises questions about the role of the President of the United States with his personal intervention in the United Technology/Carrier deal. What will the role of the new federal govt be with regard to market forces?
The bond market seems to anticipate government borrowing and currency devaluation even as the U.S. Dollar strengthens. I think the dollar rally will be temporary as the uncertainty over Trump administration policies increases.
Brexit was the epitome of uncertainty. Trump is reinforcing the tenets of his policy that lend to global uncertainty. How long this uncertainty lasts is up to those in control of influencing Mr. Trump and his policies. And, upcoming elections in Europe have the potential to add to the influence of nationalist and populist sentiments, leading to a general decrease in international trade. To my mind populism and protectionism means higher prices.
Rising interest rates were something that the right wing in the U.S. have been actively encouraging. The Tea Party movement was strident in its criticism of the Federal Reserve and central bank policies worldwide. It remains to be seen how they temper their criticisms in the face of actual Fed tightening with a Republican in power.
It could be that we are at a moment where winds change in a direction that precipitates a storm. Probably centered on the bubble in bond prices that has taken hold over decades.
My sentiment has turned bearish for the short term to medium term. There is much uncertainty about the future and I think this must have a bearing on those who control the largest purse strings.
Rising interest rates will surely weigh down asset prices, stocks included, and the stock market has a huge influence on mass psychology in our financial economy where savings are defined by stock and bond holdings.