Weekend Reading: Trumponomics

By Lance Roberts of Real Investment Advice
Friday, December 2, 2016 7:00 AM EDT

trumponomics2

What a change a couple of weeks can make. As my colleague, Michael Lebowitz, wrote this past week:

“Following Donald Trump’s surprise victory and the violent market reactions, many investors are left scratching their heads. As shown above, the consensus narrative warned that a Trump victory would spell doom for the markets. Days later, the narrative flipped and Trump’s economic policies, all of which were known prior to the election, are deemed beneficial for share prices.”

The question which remains, however, is whether tax reform and infrastructure spending will have the impact the markets are currently betting on?

As I penned in yesterday’s missive:

“The problem for Trump is that we no longer reside in the 80’s where a large group of ‘baby boomers’ were entering the workforce and driving a massive wave of innovation and productivity changes.  Today, we are on the wrong side of the demographic trends combined with falling productivity and labor force growth.”

laborforce-productivity-growth-113016

As Dr. Ed Yardeni noted:

“In any event, the horses may already be out of the barn. Only 8.5% of payroll employment is now attributable to manufacturing, down from 10.3% 10 years ago, 14.3% 20 years ago, and 17.5% 30 years ago. Bringing factory jobs back to the US may bring them back to automated factories loaded with robots. Even Chinese factories are using more robots.”

And from Harvard Business Review:

“Slow productivity growth is the main cause of slow economic growth, and slow economic growth makes it all but impossible for everyone’s boat to rise. No wonder angry citizens want dramatic change. But while voters may see the problem in a political establishment that is out of touch, the populist politicians who are challenging that establishment are unlikely to fare better.

In the short term, they may be able to medicate the economy with a big tax cut or a dose of deficit spending. When the effects of that treatment wear off, though, the effects of slow productivity growth will linger.”

But beyond the productivity problem is simply debt.

While Trumponomics has fostered a furious rally in asset prices, the impacts of rising interest rates, inflation, and a surging dollar may provide headwinds of the wrong type. In fact, the current combination of events is similar to what we saw previously – in 1999. (yellow highlights)

(Click on image to enlarge)

sp500-marketupdate-120116

Also, notice there have only been three sell signals since 1999 as well which have coincided with major market peaks.If you look closely there is a high degree of similarity in the markets actions between today and the “exuberance” in 1999.

While I am not suggesting the market is about to “crash” in a fiery mass, I am suggesting the “ebullience” of the markets over the last 8-years has likely priced in any real net effects of fiscal policy changes at this point.

In other words, changes to fiscal policy will likely only offset retractions of monetary policy. 

Just a thought.

In the meantime, here is what I am reading this weekend.

Trumponomics

Markets

Interesting Reads

“I am altering the deal. Pray I don’t alter it any further.” — Darth Vadar

Disclosure: The information contained in this article should not be construed as financial or investment advice on any subject matter. Streettalk Advisors, LLC expressly disclaims all liability in ...

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Gary Anderson • 7 years ago • Contributor's comment

Nice chart and resources, Lance. I wrote about Trumponomics, Bannonomics and I guess you could say the new Trump team idea: 100-yearbondonomics. Clearly, there are limitations to each of these, with Bannononomics being dreadful, but the 100 year bond may help on the edges.