By Tim Price – The Price of Everything (Great Britain) –
The mainstream financial media called it wrong, of course. But what does a well- respected and highly credible economics commentator make of it all ? Before we go there, let’s see what the FT’s Martin Wolf thought. ‘Donald Trump embodies how great republics meet their end’ he wrote in a reflective and soberly considered manner back on March 1st; “It would be a global disaster if Mr Trump were to become president”.
Not quite a disaster so far – other than for Generation Snowflake Cry-Bully Millennials who still hadn’t recovered from the shock of Brexit and who minced along at full speed right into this one. Or for confused Marxists opining ridiculously in our national media on behalf of a readership that we doubt exists.
The US stock market, after early jitters – it had been wrong, too – swiftly recovered its poise.
The Committee for a Responsible Federal Budget, having analysed both candidates’ spending plans, reckoned that a Clinton presidency would increase the national debt by $200 billion a decade over current law levels, whereas a Trump presidency would increase it by $5.3 trillion. In other words, US debt to GDP would rise to over 86% under Clinton, and 105% under Trump.
To that extent the sell-off in bonds is entirely warranted. Yields had already started to back up during the summer, but the election of Donald Trump – it’s still difficult to articulate the phrase without smiling – may well have finally killed off the long bond market bull. Robin Wigglesworth for the FT points out that 10 year and longer US Treasury bonds on Wednesday last week suffered their worst sell-off since at least 1991 – a period that includes the infamous bond market crash of 1994 when a Fed rate hike (remember them ?) took the market by surprise.
In other respects, we’ll have to wait until the US more conclusively experiences ‘Soft Trump’ or ‘Hard Trump’ before assessing the prospects for specific equity market sectors or for the dollar. But it’s plausible to anticipate not so much “global disaster” as a potentially huge US reflationary stimulus from lower taxes and higher infrastructure and defence spending. Good for stocks, bad for bonds would seem to be a crude but fair summation. Our strong preference for real assets over paper ones remains absolutely unchanged.