Obama & Yellen’s ‘Gift’ to Trump

We start this week with the new and 45^th President of the USA, Mr Trump.  Whilst his inauguration speech was one of the shortest in history and contained some of the most negative language, it also contained some very specific promises that will be hard to deliver in the real world and may well bite next time.  You will have read various articles about this over the weekend.  What you may not have read is the scale of the financial legacy Obama leaves behind that arguably sets Trump up to fail and carry the can for past practices.

From Friday’s Weekly Wrap:

“Indeed whilst the world went gaga over the affable Mr Obama this week it seemed to gloss over the fact that he delivered average deficits of $1.3 trillion in each year of office, more than 5 times higher than any other president before him, or twice the worst on percentage of GDP terms.  And on that wage growth issue, when he took office, real average weekly earnings were growing at around 2.5% YoY. As he leaves office it is growing at just 0.2% YoY.”

Zerohedge put together 3 charts that tell the story.  Firstly despite the extraordinary amount of debt and monetary stimulus, the post GFC period is the weakest recovery in all history:

And when we say ‘all that debt’ we mean literally doubled from $10 trillion to $20 trillion in just 2 terms…

Just like the dollar amount of deficits, likewise debt needs to be put into the perspective of GDP at the time.  Ummm, still the worst since WW2

From Saturday’s Daily Reckoning:

“On Monday, Jim Rickards said that he expects the markets to be disappointed by Trump’s stimulus policy. To add fuel to the fire, the Fed will then raise rates in March, which Jim says will come at the wrong time. At that point, the market will fall out of bed, the US economy will slow down, and the Fed will have to go dovish again.”

The problem is, just like the theme of gold’s rally last year, the market could lose faith in the Fed and the realisation that the only thing supporting financial markets, post the Trump-hope-phoria rally, is artificial monetary stimulus.  Whilst Trump can blame Janet Yellen and the Fed, history would likely just note it was on his watch despite the Fed and Obama being largely responsible.

Topically, below is a photo of Trump holding gold that looks suspiciously like 3 Ainslie 1kg gold bars…