Markets and inflation

Posted: November 14, 2016 in Uncategorized

Contrary to everybody opinion the market were very happy about President Trump, most likely as it did not expect a completely Republican Congress).

So the Trump (defense, banks, healthcare, infrastructure) and reflation trades were the big winners.

To that effect I think they were a bit too much of a winner – almost as if President Trump could do whatever it said. Also inflation is made of a lot of components, but the primary one is higher wages – which is quite a stretch of the imagination.

In reality is a part of the Republican party so whatever he says there are a lot of things that he will not be able to do.

Think about infrastructure – it is mainly financed with debt…but already the US debt is at stellar level (plus he wants to cut taxes).

It is a good strategy, but it will have quite a lot of hurdles. Plus inflation will increase, but we could really pass from deflation to stagflation (stagnation with inflation).

But a bit of inflation is good as it is always the perfect way for the government to decrease its debt burden – in the long run.

Government bond sold off 0.35% in a week – which is really a lot (the sell off just accelerated as it started in September)

So still too early to call. Also soon the market will start focusing on the Italian referendum.



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