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Trump, stocks and the dollar, the impossible equation

SPX News by Allie Longford on 04:46 November 24, 2016 EST



It's now two weeks after the election of Trump as the next leader of the free world and nothing that was anticipated as the likely scenario in the, then, unlikely event of him winning has materialised in terms of stock markets and the dollar.

Trends in both the stock and forex markets have been maintained after the knee jerk reaction when the news broke in the election night. Only bonds appear to have changed course.

In fact, the dollar index is making multi year highs while the Dow Jones Industrials Average and the S&P 500 are smashing all time highs.

Trump's program for the US revolves around a Keynesian model based on massive expenditure in rebuilding infrastructure financed by the government combined with a more conservative approach of reducing -drastically- taxes on both corporations and individuals.

With that in mind, even if these actions did invigorate the US economy in the medium term the most likely result in a shorter time frame is even greater public debt served, probably, by more fresh money from QE programs. More money printing at the end of the day which is something that, by the way, Trump himself has criticised during the present administration.

In this context, the dollar should give way and, because big corporations would benefit from the massive public projects combined with the resurgence of inflation as a result of all that new money in circulation and stocks should be propelled to even higher highs.

For now, we can see that both the dollar and stocks are up which, having to reluctantly use an almost completely appropriated word by progressives, is unsustainable.

A higher currency and rising stock prices should be the reflection of a thriving economy. But the US's GDP is stagnant, labour participation is at record lows, while claimants of food stamps are at record high.

Stock indices in the US, unlike in the rest of the world, have been in a one way street for almost a decade now with hardly any correction and the appreciation of the currency in which they are denominated, the dollar, makes stocks additionally extra expensive to foreign investors.

Something, either the dollar or stocks, or both, will have to give way soon but, for the time being, the trend is your friend, do not fight it.


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