Trumpenomics, Inflation and Bonds

in trump •  2 years ago

Before the election all market participants heard was, if Trump wins, the market will go down, period.  Well thus far we have seen the exact opposite to be the case.  What are the reasons for this exactly?  Many are attributing this to what has newly been coined as Trumpenomics.

Trumps main selling point during his campaign was infrastructure rebuilding and jobs.  The creation and spending of and on these two things have triggered a rally in sectors that had previously been hurting due to low rate induced buy back program investment over CAPEX investments.

This is the main reason why we are currently seeing cult/high growth tech stocks pull back and stocks like DRYS experiencing the short squeeze of a lifetime.

Mind you this is all pure speculation gone wild.  But here is how it is looking like it will work in a nut shell.  Jobs will be created, that is number one, corp taxes will be lowered and corporations will be enticed to bring their operations back to the US due to regulations or penalties distributed by the Trump administration.  When we are talking about companies that produce goods over services this is thought to be a very promising outlook for the US overall.

In addition, people that are party to Trump's presidency are mainly focused on policies that would lead to economic conservation.  Therefore, they are looking to do things like increase GDP and reduce debt.  Get the Federal reserve's balance sheet back down to a conservative number, rely less on other nations and exportation of dollars to cover things.  This last thought bubble has caused a sell off in bonds for the moment.  

One piece that many are overlooking here is, yes I am going to say it, is China.  While Chinese data has not been all that bad of late, their currency valuation has been going down the tubes with other emerging market currencies as the US dollar has risen to yearly highs.  This would not be such a big deal, except for the fact that China is our largest foreign creditor and to balance out their currency situation, they have to sell pieces of the loans they have given the US and not by choice.  

On top of all that, speculators are just about 100% confident that the FOMC will be hiking rates on Dec 14th by 25bp and they may very well do just that, or not.  At any rate, it is extremely important to remember exactly what it is Trump is looking to do here and keep in mind that this will all take time.

While it is pretty obvious that what we have been doing is not sustainable, a bond crash and out of control rate rally will not solve things either.  

I think that Trump realizes that, while he is pushing for inflationary policies, he also wants to open up the credit markets, achieving this balance will not be easy and will probably need to be started off with yet another massive borrowing program.  

So, don't go buying DRYS at recent highs thinking its going to the moon, would be my personal recommendation, we aren't quite out of the weeds yet.  But, I do think that we have good reason to be positive about the changes a Trump administration can bring to the United States and world economy.  


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