Quotes Of The Week – Trump On The Markets
What a week! There was a lot going on in the world this week as markets continued to react to the Trump election. Our Weekly Wrap gives you a worldwide wrap up of the ramifications this week. It’s definitely worth a listen today.
Rather than us rabbiting on today let’s see what the ‘experts’ had to say.
Here’s our quotes of the week:
Firstly, Ray Dalio is the head of the world’s biggest hedge fund and twice voted Forbes’ Top 100 most influential people. Here’s what he had to say:
“As for the effects of this particular ideological/environmental shift, we think that there's a significant likelihood that we have made the 30-year top in bond prices. We probably have made both the secular low in inflation and the secular low in bond yields relative to inflation. When reversals of major moves (like a 30-year bull market) happen, there are many market participants who have skewed their positions (often not knowingly) to be stung and shaken out of them by the move, making the move self-reinforcing until they are shaken out.
The question will be when will this move short-circuit itself—i.e., when will the rise in nominal (and, more importantly, real) bond yields and risk premiums start hurting other asset prices. That will depend on a number of things, most importantly how the rise in inflation and growth will be accommodated”.
Jeffrey Gundlach is head of the $100 billion DoubleLine fund and who Barron’s famously called the “King of Bonds”. He also publicly predicted the Trump victory back in January. Via Reuters/Fortune:
“Trump "does not have a magic wand" to rapidly improve the economy. He [Gundlach] said federal programs take time to implement, rising mortgage rates and monthly payments are not positive for the "psyche of the middle class and broadly", and supporters of defeated Hillary Clinton are not in a mood to spend money.
"Maybe liquor sales will go up," Gundlach said on the regular investor webcast. "The Trump win is not positive for consumer spending." Gundlach also said that in the short-term, "It's way late to be selling bonds and buying stocks. Probably should be doing the opposite."
“But even though Gundlach was right about Trump, he still thinks the President-elect spells doom for the market. “The Trump win is economically negative in the near term,” Gundlach said, noting that investors are underestimating how much the “despair of Clinton supporters” will be a drag on consumer spending…..After economists falsely warned that Trump’s victory would cause a stock market crash, investors have now gotten too caught up “in this very bizarre 180 that Trump is the best thing ever for the stock market,” Gundlach said, predicting that “we’re going to see some backlash of negativity.””
For those still trying to figure out this whole fiscal stimulus / bond market thing, legendary analyst/commentator Bill Bonner puts in his usual straightforward manner:
“In the long run, an easier fiscal policy will be catastrophic. The world economy now depends on ultra-low bond yields. And that depends on ultra-low inflation rates. You can get ultra-low inflation with easy monetary policies but not with easy fiscal policies.
The Treasury market is already anticipating rising inflation. Bond prices are falling; yields are rising…exactly what you’d expect if investors were no longer worried about deflation.
When consumer price inflation starts to spike in earnest…bonds will fall hard…and all Hell will break loose.
What will the feds do?
What could they do? The responsible thing would be to raise interest rates to head off the inflation. But that would bring on the correction that they’ve worked so hard to avoid. Instead, they will do what all irresponsible governments do.
More spending…more stimulus…more inflation.
Buenos Aires, here we come!””
Finally, the man himself, President Elect Donald J Trump, from his first debate with Clinton:
“Believe me, we are in a bubble right now, and the only thing that looks good is the stock market, but if you raise interest rates even a little bit, that’s going to come crashing down. We are in a big, fat, ugly bubble.”