From Birch Gold Group
Leading up to the election on November 8, pundits warned of a major market drop in the event that Donald Trump were to win the presidency. But reality ended up proving them wrong. Markets are soaring on hopes that the Trump administration will breathe new life into the U.S. economy. Major indices are breaking 20-year records, and the Dow is up 800 points since Election Day, setting an all-time high.
But will the Trump rally last? If so, it’ll have to overcome some major hurdles. Here’s why Americans should be cautious of the sudden spike.
Inflation Risk
Big infrastructure spending and protectionist trade policies, two key pieces of Trump’s economic plan, could end up doing more harm than good if they increase inflation – as some fear.
Trump’s plan to spend nearly $1 trillion on infrastructure, while potentially beneficial for stimulating growth, would likely throw inflation into overdrive. The purchasing power of low and middle-income Americans would immediately drop, forcing them to spend more money on fewer goods. The overall value of the savings of these Americans would decline as well.
No doubt, Trump’s policies will likely bring economic benefit. The question is, at what cost? This remains to be seen.
Climbing Long-Term Interest Rates
Since Trump’s election win, interest rates around the globe have been trending upward. Rates on 10-year U.S. treasury notes have risen 2.85%, and rates on U.S. bonds have seen a similar increase.
According to Patrick Gillespie at CNN Money, this could be the beginning of a long-term trend:
Increased spending could cause inflation to rise faster, which would cause interest rates to go up more too. It would also make America’s debt less of a safe haven for global investors. Higher risk can push up rates too.
Rates are also rising because many anticipate the Federal Reserve will hike interest rates next month [December] for the first time in a year. And if Trump’s policies end up causing growth and inflation to tick up, it could cause the Fed to raise rates faster than previously planned.
The danger here lies in the fact that rising rates put pressure on anybody interested in borrowing money to get a car, buy a home, or fund a business. And if rates climb too quickly, it could put Americans in a pinch.
Catch-22 in a Strong Dollar
On a cursory level, growth in the dollar’s value seems like a no-lose situation. But while a stronger dollar has benefits, it comes with downsides too.
First of all, an expensive dollar strips the appeal of American exports for foreign buyers, a circumstance that risks stagnation and hindered growth in the U.S. economy, not to mention the potential for job losses.
On top of that, a rising dollar also makes domestic goods and services more costly for Americans, a losing proposition for a working class that’s already struggling.
Forecasters See Upside for Gold
No matter how long the Trump market rally ends up lasting, there’s a definite shift in the saving and investing strategies of Americans, and it could end up offering a great opportunity for anyone interested in real assets like gold.
Jeffrey Gundlach of DoubleLine Capital – who voted for Trump and accurately predicted him as the winner earlier this year – explains:
There is going to be a buyer’s remorse period… The dollar is going to go down, yields have peaked and will move sideways, stocks have peaked as well and gold is going to go up in the short term… People want something real… No more on this ‘man behind the curtain’ stuff. Industrials, materials… They want cement.
Let’s look back when Obama came into power and the money that was spent on things that didn’t make a hill of beans difference. They were just throwing money to states that were occupied by the buddies. Now Trump isn’t even in office yet and the cry is out how inflation is going to go crazy and the 10 year treasury is up 38%. We make fun all the time about the govt corruption and the BLS how they lie and they we want to believe the lies when we know it should have happened a decade ago.
I’m tired of all these warnings that none of Trump’s agenda will work. How about shutting it until they find out the actual plan, otherwise it just makes all of us nervous and anxious.
Actually there was a start of a crash down about 600 points before the opening. However the banks in collusion with the FED Plunge Protection Team bought bank stocks and the index main stock drivers to reverse and hold it up. The rise since has been one of keep it going until Trump is in and get the max bonus for the banksters. The year end will be positive to help the Obama legacy, which is a pile of lying shit anyway. Then the crash will happen, as all of the banks and big money will be placed on negative items like puts to protect themselves, and the blame will be put on Trump policies by the media who still hate him. The current fly in the ointment is Italy that votes possibly to go the Brexit way. France, Greece, and Spain will follow. This could collapse the European market and be an avalanche crushing banks all over the world. It will happen anyway, but this could be the snowflake needed. Get Prepared!
Actually there was a start of a crash down about 600 points before the opening.
going into the election day i hoped Trump would win but realized it was a long shot
as soon as i saw that 600 point drop i knew my prayers had been answered
“The market can remain irrational longer than an investor can remain solvent” is attributed to some famous economist. Sooner or later, and at a time no one will find convenient, we are going to see other shoe drop. Right now, the market players are pretending that bonds will be paid in un-inflated currency, that pension and social security underfunding can be corrected without cutting benefits or steep tax increases, and that producers will continue to support people who do not produce. Sooner or later, it will stop. Then what?
“Sooner or later, it will stop.”
Brilliant.
The inmates must have got in the computer room again.
BTW: Do you sell gold too ?
Sooner or later, it will stop. Then what?
RYCWX and DOG TO THE 6000 LEVEL
Just another gold salesman. What did you expect ?
Caveat emptor.
If this guy wasn’t flogging gold to put bread on his table I could take him more seriously but a strong dollar is bad for ‘Murican made goods no matter how you slice it. Trump is going to have to devalue the dollar to jump start manufacturing and exports. That will be good for metals and bad for holders of cash.
I’m beginning to whittle down my cash supply to equal my fixed rate debt plus a little cushion and moving the balance into more metal and hopefully, into a local business.
Inflation is devaluing the dollar, more dollars compared to the same production means the dollar is worth less.
Tariffs to equalize the value of our produced goods with foreign produced goods, based on equitable labor and regulatory costs involved for each, is what we need to make our goods and their goods competitive on a “level playing field” (as the left likes to say about inequities, but not do).