A Brief Honeymoon
Unfortunately, what is being lost in the debate over the last two weeks over President-Elect Donald Trump is not how, but why. Dialogue has been focused on questions of whether a segment of America is inherently racist or sexist or many other non-complimentary labels. Barring the merits of the previous conversation, as it’s certainly a discussion worth having over an increasing intolerance of immigration during periods of low economic growth, it is also escaping from the reality that is being witnessed across the western world and that is the momentum gain of what would previously have been called fringe parties or candidates. The debate has to be shifted to why, because if anyone thinks Donald Trump is the finale of all this change, they will be just as shocked by the next mainstream media surprise headline.
The debate has already begun over the economic realities of Trump’s America. As discussed last week, the market reaction to the President-Elect was extremely positive, with the Dow Jones Industrial Average continuing to take on new highs over the last five days. Whether this has been attributable to actual perceived positive economic benefits of the incoming administration or the reaction to inflationary domestic policies triggering a selloff in the bond market and a rotation for investors into equities is up for debate.
Renowned bond investor Bill Gross argued in his latest commentary that all policies from the Trump economic platform are more capital favoring than that for labour. Meaning the tax reform and repatriation discussed will do little for spurring economic growth in an economy that otherwise lacks growing business investment. Furthermore, it will add to a trend that we’ve been watching with US corporations, which is returning cash to shareholders through dividends and share repurchases further exacerbating the divide between Main Street and Wall Street.
Additionally, notable Canadian economist David Rosenberg with Gluskin Sheff goes further to look at the idea of personal income tax cuts, and suggest they will be too marginal and insignificant on the majority of the population that actually has the ability to consume more. He too saves his excitement.
And for as many headlines the US election has demanded, we still live in a global world. Shifting overseas we’re closely watching the Brexit negotiations. Not for the factor that they are leaving as that has been settled, but the pressure it is mounting on an increasingly divided European Union. We have upcoming elections in France, Italy, and Austria, and everyone is looking to France for the next ‘Brexit’ or ‘Trump’ moment with the growing popularity of National Front Party Leader Marine Le Pen. As many seem to be suggesting we are looking at a lone Europe as they potentially lose an ally as the US become more nationalistic focused. Thus, the threat of a break up in the euro could be as high as it’s ever been.
From the aforementioned synopsis of what may be thought of as global superpowers, it’s difficult to find a takeaway for the markets when they seem so overly consumed with short term and transitory factors. Of significance is the fact the US dollar index, the greenback measured against a basket of major currencies climbed steadily this week. Amidst all this economic uncertainty we’ve seen gold break key support at $1,250 US and trend lower. Despite a supported physical market, gold ETF’s are seeing outflows reversing an accumulation trend earlier in the year. In all likelihood, we have to get past the US Fed raising rates, but we seem to be of the view that this Trump Honeymoon will be short-lived.