I wish I could say the clouds are going to part and Trump is going to have smooth sailing into economic prosperity, but we have to recognize reality for what it is. As I write this the stock market is at an all time high, real estate has recovered it’s losses and consumer confidence is at a decade high.
I must warn you of some liabilities. Look for the stock market to plung soon after the inauguration; perhaps weeks or or a few months. Easily sooner if the Fed raises interest rates. Soon thereafter, President Trump will try to explain to America that the stock market was a big bubble and things will recover after some adjustment. The media will jump all over this and magnify it to the hilt. Many other problems are going to surface economically. Housing prices, interest rates, and inflation are all on the table. Resession is likely. All this is going to have to be delt with in the first year or two. I do hope that I’m wrong and that everything can be set on a smooth upward course, but I can’t see that happening.
Inflation is likely to be a big problem especially when economic activity increases. Here’s my explaination. The quantity of money has been drastically expanded through the bond buying programs but with reduced economic activity (or as economists call it low volocity) we have not seen very much price inflation. Oil prices have helped in that manner as well. When this volocity of money speeds up, it will multiply the money supply and price inflation will come flooding in. As this happens and the dollar begins the fall in value, holders of the dollar around the world will try to get away from it and hold other assets more likely to keep their value like gold and silver. Much like a stock panic, it’s a self feeding process until confidence is restored.
I don’t think that it’s a coincidence that the Federal Reserve dumped some 400 billion dollars of bonds it was holding right before the crash of 2008 and close to the election. In my opinion it was on purpose and initiated the collapse. They then turned right around after the collaps and started buying up assets. I know this all sound conspiritorial, but we’ll see what happens. This is the basis for my hypothisis when it comes to timing. There’s also a reason why the Fed refused to raise interest rates even though they tout that we have a great economy. That’s why I predicted that the Fed would raise interest rates only after the election and especially if Trump is elected. All this adjustment is inevitable. Only the timing is in question. It will take a catylist to initiate this collaps. It’s no secret that major wealthy players do not like Trump and would like to sabotog his presidency. If major players plan to initiate the catylist, they might wait for some of Trump’s agenda to be implimented first before they pull the lever.
I do hope we can get out of this mess pain free, but the economic fundamentals suggest otherwise.
Finally, I must mention that there might be a chance I could be wrong; though I think it’s a small one. If we see masive economic growth (and I’m talking like 8% annually) coupled with high maintained confidence in the dollar, much of these economic calamities would be greatly mitigated. If this happens, it will be the first time in history that the monetary supply was expanded to the great extent that it was without corresponding price increases. What I see, however, is a flood of inflation that sabotages the economic growth before the growth has a chance to mitigate it.
Happy Camper or Bitter Winner (My personal account of election night)
When I boarded the Trump Train (Reasons I endorsed Trump in the primaries)
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