The Trump election has ignited a market mania, but in economic terms, nothing real has changed and the relief probably won’t last long, posit Rudi Fronk and Jim Anthony, cofounders of Seabridge Gold.
The Trump election has ignited a market mania, to everyone’s surprise. Our sense is that it reflects an enormous relief that the Obama years of deadlock and do-nothing have finally ended. It’s how you would feel if, after eight years, someone finally stopped hitting you with a hammer; you would probably feel pretty good. But in economic terms, nothing real has changed and the relief probably won’t last long.
Risk-on versus risk-off is critical once again. Risk-on is when investors take more risk, buying higher-risk stocks and selling bonds and gold. Risk-off is when investors become more risk averse, selling stocks and buying bonds and gold.
Risk-on is what’s happening now. The election of Trump has suddenly convinced investors that the economy is going into a period of higher economic growth and higher inflation. Investors are mobilizing their money and credit to buy stocks, particularly junior stocks and companies that supposedly could benefit from a Trump economy, such as construction, military contracting and “inflation plays” including some commodities. Bonds and gold have been sold hard and money is leaving the developing economies to return home to what is expected to be a U.S. economic miracle, resulting in a stronger dollar. Expectations are that the Federal Reserve will now have to be more aggressive in its monetary policy, which has also boosted the dollar.
In fact, we think that risks are rising, not falling, but that’s not what the markets think and there is no point arguing with an ongoing train until it derails. And it will derail. Although Trump’s victory is an immense change in the political sphere, we think it …read more