Wednesday, November 16, 2016

Wacky Unstable Markets Worrisome Sign Of The Times

Markets Becoming Wacky And Unstable 
A word of caution to those who don't know what to make of the wacky markets we have seen since Trump has assumed the position of President-elect. Do not be surprised if the markets remain unstable for some time. On election night as results came in markets in America and across the world plunged only to reverse by morning and then surged higher. This resulted in new all-time market highs that left many traders stunned. We are forced to wonder if the move was because of traders caught sideways ran for cover or some other force put in place prior to results being reported were unleashed against those positioned for falling prices.

Simply put too many variables are in play and now busy interacting to allow for much in the way of sound decision making. More than a few wild cards are being played and the impact of things like China adding liquidity to its banking system is very important and has consequences. This money is rapidly flowing outside its borders distorting markets across the world. Predictions are often wrong and this influx of endless reactions to crazy policy swings make them no more than guessing. 

It is also important to remember that not all traders are enjoying a post-election bout of glee. Many shorts and bond holders have been hammered. This week has started with the dollar continuing its surge and  pushing the DXY above 100 for the first time since December of 2015. We are seeing global bond yields soar and emerging market currencies tumbling. Where the action is different from last week is that reality is starting to set in over growing concerns that a spike in yields will cap the upside of any rally in equities.

Do not be surprised if  much of the market action we are witnessing proves to be unsustainable. One example is the action in copper where it blew through resistance and sent bears running to cover even though fundamentals have not changed. While speculation of a coming boom in building moves prices in fact nothing has really changed and we have a long way to go before promises that Trump made during the election can take place. The power of the President is not unlimited and is in many ways dependent upon a larger consensus that results in action.

The Trump victory has added a great deal of material to the debate of where this economy is headed, however, much of it is inconclusive and will have to play out over time. To those of us who have become clinical and question the underpinnings of this economy it may bring some relief but it appears an uphill battle to set right all the ills that confront global growth going forward. Cutting taxes while increasing spending on infrastructure and  building up the military does not guarantee success.   Unfortunately, such spending will quickly add to our wall of debt. Trump has pledged to rebuild the military and America's infrastructure, a major problem of a war based economy is the issue of sustainability.

As a taxpayer, I would be more reassured if there was more talk about cutting waste and how we are going to pay for the programs being proposed.  It is expensive to maintain an army and war is a destructive force. Long gone are the days of conquering your enemy then raping and plundering your way to glory and riches. Glaring examples of just how expensive war can be remain fresh in our minds from our recent and continuing excursion into the Middle-East. Infrastructure also has the potential to become a boondoggle with huge cost overruns and is just a waste of money if allowed to be driven by political motivations rather than necessity.

1 comment:

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