Gold and Equities Reconsidering; Bonds Sell-Off Slows

We are still in the midst of watching the dust from last week’s presidential election settle. We’d like to remain neutral on the general character and abilities of President-elect Trump, but we can see a conflict between Trump and much of his party.

He would like to spend and spend big on infrastructure, education, space and other pet projects, but he is not offering to offset them with tax hikes. The trade-off between spending and taxes has always been difficult, but it has been Republican gospel not to pass new spending initiatives without cuts elsewhere, or, heavens forbid, raising taxes.

Trump wants to spend more money and cut taxes. This probably won’t fly and it may cast the democratic minority in the Senate as the unlikely lead player in stopping such profligacy.

Traders and investors necessarily see the Trump contradiction as inflationary. But inflation of any sort will trigger more interest rate hikes from the Federal Reserve. The bond sell-off we are experiencing is the tip of that iceberg and indeed of a whole field of ice floes adrift on the economic ocean.

Perhaps calmer voices will tell Trump that it’s either tax cuts or infrastructure spending. Both are not necessary and may hurt one another by making project prices soar and alienate lower-income white voters, Trump’s main body of supporters.

As if cued onstage in perfect timing, it was reported today that consumer spending. Retail sales rose 0.8% in October, after an upwardly-revised 1.00% gain in September, the Commerce Department said Tuesday. The two-month increase was the largest since the spring of 2014.

We’re reasonably sure there will be a rate hike on December 15. Now we get to watch out for the size of the rate hike.

Wishing you as always, good trading,