If I Were Trump’s Advisor, Here’s What I’d Tell Him

Characteristically, stocks and bonds rendered diametrically different verdicts on Donald Trump’s victory in last Tuesday’s presidential election.  While the Dow Jones Industrial Average enjoyed its biggest rally in five years, jumping 5.4% or 969.38 points to close at a record high of 18,847.66, yields on 10- and 30-year Treasuries jumped 32 and 34 to 2.15% and 2.94%, respectively.  The S&P 500 jumped 3.8% on the week to 2165.45 and the Nasdaq Composite Index rose 3.79% to 5237.11.

While global equities added $1.3 trillion in value, however, global bonds shed $1.0 trillion according to Bloomberg estimates.  President-elect Trump is expected to bring higher GDP and corporate profits, which are good for stocks, but also higher inflation and interest rates, which are bad for bonds.  Bonds were already toxic, offering negative real (inflation-adjusted) returns, before the election; now investors are going to see exactly how much damage feckless central bank policies inflicted as the $1 trillion of losses of the last week are just a small down payment on what is coming.

Mr. Trump is inheriting a complicated and very volatile situation.

And if I were advising him, here’s what I’d suggest.

President-Elect Trump Should Prepare for A Seismic Shift

It appears highly likely that the Fed will move forward with a 25 basis point interest rate hike in December.  The futures market is putting an 84% probability on such a move and the stock market rally will certainly embolden the chicken-hearted Fed governors to move.  But futures are only pricing in one additional 25 basis point move in 2017, suggesting how little credibility the world’s most important central bank retains after years of failed policy.

If I were advising President-elect Trump, I would advise him to ask for the resignations of every member of the Federal Open Market Committee (starting with Janet Yellen and Stanley Fisher).  I would replace these intellectuals-yet-idiots with men and women with real world experience running companies and exclude from consideration professional economists and academics.

Of course, that is only one piece of a very delicate balancing act.

The question now is whether the stock market can overcome rising bond yields and keep rallying.  As Gluskin Sheff’s David Rosenberg points out, equities’ reliance on central banks’ easy money meant the difference between the S&P 500 trading at 1700 or 2100.  Cheap debt was used to finance record levels of stock repurchases and the biggest M&A booms on record while companies struggled to generate organic earnings.  The expected shift from monetary policy to fiscal policy stimulus may not be all good news as it brings higher inflation and higher interest rates to a highly leveraged corporate sector.

Even if lower tax rates and repatriation of the reported $2 trillion of offshore corporate cash can offset the effects of higher interest rates, this won’t solve the threat of the exploding federal deficit.  America cannot affords trillions of dollars of stimulus even if it comes in the form of tax relief, regulatory relief and infrastructure and military spending (and most of the infrastructure spending should be focused on military and similar areas) because these activities will not sufficiently increase the economy’s ability to pay the debt that will be incurred to pay for them.  Bond markets will balk at the trillion dollar deficits that are likely to return if entitlement reform is not addressed.  While it is difficult to bet against stocks rising further at the moment, we need to see how the new administration prioritizes its economic plans before making a determinative judgment on the direction of the markets.

Investors should buckle up for more volatility in the weeks and months ahead.  Markets were both rooting for and assuming a Clinton victory. Ironically, however, a Clinton victory probably would have also meant more spending, higher interest rates and more inflation.  Markets were largely on hold for the last few months, however, as the weakness of the Clinton candidacy and the obvious failures of the Obama administration (i.e. Obamacare, etc.) created the possibility of a Trump victory. On the plus side, the death of the Clinton dynasty also means we can bury Barack Obama’s economy-crushing regulatory assault on American business, which will be good for markets in the long run.

Markets will now adjust but it will not be a smooth ride.  But it will be a breath of fresh, politically incorrect air. God bless America!



32 Responses to “If I Were Trump’s Advisor, Here’s What I’d Tell Him”

  1. Excellent analysis and suggestions. And this is a pure classic: “On the plus side, the death of the Clinton dynasty also means we can bury Barack Obama’s economy-crushing regulatory assault on American business, which will be good for markets in the long run.” Thanks. We all, reasonable human beings, share your opinion and bear high expectations

  2. 1. Make Ron Paul- Secretary of Treasure and get rid of the Federal Reserve.
    2. Find the real truth about the hoax of CLIMATE CHANGE and have real scientist debate the facts.
    3, Look into all the Government contracts in Iraq and Afghanistan that are employing foreign workers for cheap labor, our tax dollars should be for American jobs only!
    4. All companies that are hiring foreigners under the foreign worker visa program should be given a tax credit to encourage companies to hire college graduate’s to be trained by the foreigners to eventually learn the job and send the foreign workers
    5. Rebuild our military to be as strong as ever.
    6. Get rid of Common Core, EPA and the Education Department and give them back to the states.
    7. Expose the Clinton Foundation for what it is.
    8. Support our Judeo Christian values that made our country what it is morally!
    9. Break up the big banks.
    10. Undo everything Obama has done.
    11. Stop big government spending, balance the budget and pay down out nation’s debt.
    12. If you create jobs, it will curb the racial divide.
    13. Drop the interest on student loans to 2 or 3%.
    14. Build the Wall and get rid of illegal immigrants.
    15. Provide a way for farmers to get easy access to worker visa’s for Mexican agriculture harvesters.
    16. Term limits for congress is a good thing.

  3. TAKE DOWN, soros , ruin him financially an then send him out of the country , like Russia. word has it on the street , Mr.Putin, would like to have him as guest, an I,am assuming long time gulag visitor, an then Get on with the business at hand, but take the money out of the hands of the worthless cry-babies.

  4. Mr. Lewitt: The Sarcasm is clearly apropos, justly incisive and absolutely right on. As a member of the Federal CORPORATE Government, and one who is directly aware, your appraisal of the mechanics in this skewed economic system is correct. However, positive changes are now being planned to alter, correct the equities’ marketplace. Please maintain your analytic prowess, you are to be lauded. Thank you, Roger S.

  5. I agree with your analysis. I’m concerned about the lack of acceptance for a honestly elected President.to.be The constant protests and planning for more marches/protests show a part of our American family who are disruptive, and possib,y malignant. The press, President Obama and our elected officials should band together to demanded that respect should be shown and civility be restored. Indirect threats have been made, both on social media and in call.ins to Channel, One cable . When will these dissenters realize that the people have spoken. Accept it.

  6. Larry F Silbaugh

    Great perspective! Right on! I don’t kow how plugged in to Trump/Repubs/etc you are but I hope to hell they start listening to someone in your neighborhood. I’m 82 and years ago I was studying for a phd in economics but finally threw up my hands and quit – it finally dawned on me that solving math equasions out to the fourth decimal place based on dubious underlying theories of, at best, questionsble validity was eventually going to be a damned fine road to disaster. The only dimmer wits in the firmament than the academics are the politicians who listen to them.

  7. First tell the American people the truth the Government is Broke, and we have raise taxes on everybody
    to get out of Debt tell Europe, Japan, and South Korea, that if they want us to defend them they will have to pay us to keep our troops there not to break even but to make a profit, We must stop playing Santa Clause to the world giving our money away that we don’t have.

  8. Stop giving our money away that we do not have any way, raise taxes tell the American people the debt is to high and we are on a verge on financial collapse. Bring jobs back , make IRAQ pay us 34 Trillion in oil for freeing them.

  9. purge the god squad from the army!
    pass glass steagal II(a tougher version)
    retire any senator over 70!
    tell the house that he won’t sign off on any tax repartriation plan unless they abandon the paul ryan voucher plan(swindle plan) for medicare/medicade

  10. You gave 2 bits of advice and the rest generalized comments/prestidigitation.
    1. “I would advise him to ask for the resignations of every member of the Federal Open Market Committee (starting with Janet Yellen and Stanley Fisher).
    2. [I would advise him to ] “replace these intellectuals-yet-idiots with men and women with real world experience running companies and exclude from consideration professional economists and academics.”
    He has 4000 jobs to fill, apply.

  11. The only valid reason to increase military spending is because of a likely war. Do you expect a war between the USA and China, or Russia or Mexico? Failing this military spending must be slashed and most of the money saved spent on drastically needed productivity increasing infrastructure. Things such as Ports, Airports, Bridges, Roads and Rail. The remaining savings can be used to chip away at the debt.

  12. Unless you expect an impending war (then you must increase military spending), military spending should be slashed. The savings should be used on productivity increasing infrastructure, such as ports, airports, bridges, roads, rail etc. In Australia we use a combination of public and private money to build these things and private companies get some of the upside in tolls, fees and land value increases. This type of Government expenditure is good for society and the economy.

  13. In 2015 the debt of all US economy grew by almost 2 trillion while the GDP by about 600 billion. To avoid a major slowdown (and long awaiting correction) the economy will have to “create” at least same 2 trillion of new money. With no monetary “stimulus” were will this money come from? Individuals and corporations are indebted up to their teeth. The government is already on track of a 750 billion deficit with no new “infrastructure projects”. And is expected to run a 1 trillion deficit by 2018, with no new spending. So just to keep the levels of spending as they were in 2015 the government will need to take on an extra 750-1000 billion in deficit, running the annual deficit to around 1.5-2 trillion. If Trump will want to “stimulate” he will probably need to increase spending by more than 1 trillion. So:
    1. If the Republicans go with this they lose forever any credibility
    2. Will the bond market even enable the U.S to take out this debt or it will be “Fed created” money?
    3. If interest rates go up even 1% the extra cost will be around 200 billion more per year only on the government debt, and will eat up most of GDP growth on the economy at large. Slowing the entire economy down even further

  14. What about the puts ON SCTY/ECA and DB you think they are going down like your Alert?????

    What about the puts ON SCTY/ECA and DB you think they are going down like your Alert?????
    Since I bought the Puts that you recommended the stocks just going UP UP UP …….

  15. You forgot to remind Trump that he was electoraly nominated as an outsider. That means not filling the empty seats with long term insiders! The French have a saying for that “Plus ca change…..” He has already floated some foxes to guard the henhouses.
    If he can work on removing Congress/lobbyists/defense industry from the military appropriations, the budget could be less than what it is. Also provide more money to the troops and VA benefits. The DOD can’t even balance their books each year. Lord knows how much waste is there!
    Infrastructure spending is a temporary solution, like the WPA. There are certainly some improvements that could be productive, but most is just delayed maintenance. No velocity in that.
    How about Trump inviting the big banks to a new game show where one of them will definitely get fired each year? That would be both entertaining and productive! Put a little fear into their tiny brains, maybe they would begin acting in the country’s best interest. Or at least stop costing taxpayers and savers so much.

  16. I agree with Mark Foster about eliminating common core, but we also need to teach real American history, kids today don’t know the roots of our county.
    They need to study our founding documents and their Christian roots. They also need to know that Abraham Lincoln was one of the founders of
    The Republican Party, and that the NRA was started to arm black people from the civic war thru the KKK. Time period. Learning these things alone
    Should help improve race relations, they would also be interested to know that the democrat party claimed to be the party of the Klan.

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