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November 11, 2016 | Trump It Up

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

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In the course of a week – three days, actually – the stock market went up $1.4 trillion, and bonds shed a trillion. This is seismic. Epic. Almost Kardashian in its awesomeness. It makes fools of people sitting in cash waiting for a post-election stock dump. Even bigger fools of those thinking financial volatility would boost real estate.

Twas all the doing of one dude. The unforeseen election of Donald Trump created a set of conditions and expectations which now rock reality. Equity investors are making out like lovesick caribou. Mortgage rates are already inching higher. Bonds are in a historic global selloff. And it all gets real(er) in five weeks.

Here’s why.

Bond yields have been shooting higher (and prices tanking) since Tuesday night as  investors figure the start of the Trumpian years will mean an end to the growthless ones. After all, this is a pro-business leader supported by a pro-business Congress in a combo which hasn’t been seen for decades. Trump aims to bolster US jobs through protectionism, trade barriers and tariffs, plus spending a boatload on defence, bombing ISIS back to the 14th Century, shipping off a good chunk of the labour force (undocumented immigrants), spending hundreds of billions on infrastructure (including the Mexican wall) and slashing government regulation while gutting corporate taxes.

While this is likely to balloon the deficit, it’s all hugely inflationary.

Yes, kids, inflation. Ask your gramps. That’s when demand exceeds supply and unit costs rise. It creates something called a wage-price spiral, which is kinda the opposite of MBAs working as baristas. The number of new jobs exceeds the supply of applicants and incomes rise. People with more disposable income spend more, and because Wal-Mart is less full of crap from China (and more from Toledo), it creates a virtuous circle for the American economy. Prices, wages, profits and economic growth – all up. As inflation rekindles, so do interest rates.

Bonds hate inflation and love deflation. For the past eight years the American economy has recovered at the slowest pace ever following a recession. Washington has spent trillions trying to reverse that, flushing money through the real estate market and even giving people cash to buy cars. The Fed spent more money than God buying up its own bonds, while cutting the cost of money to the bone – all to encourage borrowing and spending. For all that investment, growth has limped ahead. Interest rates could be raised only once – by a quarter point – in ten whole years.

But apparently all it took to change things was one goofy billionaire who formulates policies in tweets, says he can negotiate any world leader out of their Stanfields and will make everything great again. Because he can. So shut up.

Here’s what we know. US stock markets have soared to record highs since his election. Bondholders have been liquidating madly. Money is pouring out of fixed income and into growth assets. The odds of a rate hike on December 14th have plumped to more than 80%. Gold and commodities have been tanking, the loonie along with them as the greenback jumps. Canadian bond yields are leaping along with those around the world. Five-year mortgage rates are already creeping higher, thanks to Wild Bill’s big changes last month (more to take effect at the end of November) as lenders pass through costs. Already TD has jacked its prime mortgage, affecting millions of customers.

The benchmark US 10-year note yield swelled almost four-tenths of a point this week – massive. A Fed senior official all but confirmed the American central bank is ready to resume its tightening, with unemployment back under 5% and core inflation approaching its target – even before the Trump train starts rolling.

Virtually none of this was foreseen on Tuesday. If it comes to pass as markets expect, then growth, wages and rates – all depressed for years – will be inflating. Bonds and houses – at historic bubble levels – will be creamed. Only the scope and timing remains to be seen.

As long as you’re not an undocumented Mexican Muslim woman environmentalist pacifist bureaucrat, you can almost like this guy.

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November 11th, 2016

Posted In: The Greater Fool

3 Comments

  • Avatar Holly Hallston says:

    Yes, it’s true. YOU did not foresee it. While you whined and sniveled and pandered to the libtards who sit on their butts sweating it out as to whether or not their gender studies grant will be coming in, we voted for Trump with the FULL realization that the era of self inflicted stupidity on the US economy is about to come to a screeching halt. It never occurs to those McGill University and Queens College hipsters and feminazis that the punitive taxes on corporations and individuals here, at home, in the US, that have been piled on us by GLOBALIST liberal morons has made it easy for corporations to make the offshore
    choice. Try to have rational discussion with one of these idiots and you’ll soon find out that 20 years of very expensive “education” is nothing more than parroted indoctrination. For instance, they rant and rave about the evil capitalist Trump while never noticing that the biggest backers of his opposition are the very multi-national corporations and uber-billionaire individuals that promote the causes that create unbelievably Byzantine regulations precisely for the purpose of eliminating competition from lesser capitalized competitors and make it near impossible for even a mom and pop to flourish. That’s globalism 101 in a nutshell. You can EASILY check this out yourself, if you can pull yourselves away from your bong, by looking up how much the multinationals spend on lobbying such ultra democratic entities (sarcasm) as the EU parliament and its various councils. Hey, Clintons don’t have the monopoly on pay for play boys and girls. I’ll bet Trump has more LEGAL Mexicans on his payroll than Turner will ever meet in his entire life so give us a break with your hypocritical crap already. Why don’t you stop crying about Trump and start crying for Canada. Your the ones stuck with T2 and boy, the damage he’ll wreak on you poor bastards has only just begun.

    • Avatar bh2 says:

      Oh, give GT a break. He lives in Canuckistan and has no more clue than snowflake urbanistas who look down on the rest of the world from their high-rise apartments and believe themselves to be “average Americans”.

      The few most proven-reliable polls clocked Trump ahead all along. They were swept away in the media by the myriad establishment polls which RCP bundles together to get an average. Unfortunately, averaging errors still leaves you with an error. On average.

  • Avatar Joe Sixpack says:

    Holly Halliston has got it, she is the antipathy to the wailing cries of the snowflakes and cupcakes who will soon reap the harvest of their pleas in Canada. Canada’s economy is now in a Liberal slope to mediocrity, the leftists dream where the youth will see their futures fade away in the prop wash of a debt driven poliitically correct economy.

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