Just five months ago, I wrote that "Brexit changes nothing for Chicken Little".
In sharp contrast, the election of Donald Trump is a big change for Chicken Little. However, the central economic issue in the world remains unchanged.
Why President Trump will have a big impact on markets
Republicans control the White House, the Senate and the House. Furthermore, Republican control of the Senate is likely to increase in 2018. Most of the Senate seats that will be contested in 2018 are currently held by Democrats.
Republicans are likely to be in control for 4 years. Many Republican ideas will become law including a significant tax cuts. Lower corporate tax rates will increase corporate profits.
The election of Donald Trump and Republican House and Senate is great news for US companies, and, as compared to Hilary Clinton, good news for the stock market. Thus, a Trump rally in stocks is rational.
The election of Donald Trump and Republican House and Senate is great news for US companies, and, as compared to Hilary Clinton, good news for the stock market. Thus, a Trump rally in stocks is rational.
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| Tax cuts are coming |
The more things change, the more they stay the same.
"It's the economy stupid" was the mantra of Bill Clinton's first Presidential victory. The Clinton campaign repeated this mantra to keep the big picture in mind.
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| The Global Debt Crisis remains center stage |
The big picture in 2016 is that we are in a global debt crisis. The magnitude and scope of global debt dwarfs any individual leader. The world has attempted to delay the debt crisis by issuing more debt. These efforts have made the problem worse not better.
Debt crises end when the market stops lending. The market may be closing off government borrowing as the thirty year bull market in US and Non-US bond markets may be ending.
Debt crises end when the market stops lending. The market may be closing off government borrowing as the thirty year bull market in US and Non-US bond markets may be ending.
ReplyDeleteI would lump the opportunities for next year as be careful what you ask for. I believe it is particularly interesting time to be a contrarian. I could start with the financials and question if Dodd Frank has been so bad, why is JP up 200 percent from 09 (more from the exact low) and at all time highs?
On the macro level, November 9th 2016 bookends the November 9th 1989. On that day the Berlin Wall came down and ushered in a generation of growth based on inclusion: free flow of ideas, capital and people as well as a peace dividend It also launched the golden age of central banking. The loop is now closed by building walls and excluding people, capital and ideas as well as the expectation of increased defense spending . For reference, the Dow was around 2650 and bond yields 9 percent in 1989.
I am not suggesting that markets are heading at all toward those levels, but the first substantial correction, in my opinion, since 2011, is far more likely than not.
You are a student of history. I like the symmetry of noting the fall of the Berlin Wall on November 9th.
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