Saturday 5 November 2016

Trading Trump

My view now is that Trump wins a landslide and that maybe both houses go Republican.

US is in a slow growth/ full employment stage of cycle and Trump announces fiscal stimulus in form of infrastructure spending and sending home illegals further tightens labour markets.
Fed is constrained from hiking. Libor is nearly 1% so even if Fed hikes to 1% it will have no impact anyway. Dont think they will hike beyond that.
USD will become a weak currency. Im waiting for a market liquidation to sell my USD longs and go long EURO and EM. Staying short Sterling for now though.
Inflation/ Wages/ Nominal GDP start to rise and although the government increases its deficit from a sectoral perspective, corp profit margins fall, but not enough for a recession, just growth scares and an increase in defaults. I think you should consider what happens to CLO equity if there are sustained 4 or 5% default rates. You might be better off in BB or B.
Bond curve steepens.
If there is a recession this could temporarily reverse a lot of this, so USD and bonds up, but I think that that is temporary and we are back to inflation fairly quickly .
Dont forget in the 16 years preceding Volker inflation eroded 90% of the USD purchasing power.
You want to be long cheap economic assets and short debt for that. However most equity is overvalued at the moment, need it to crash first. It will crash as margins come down, discount rates and inflation go up.  
...EM has crashed already and yields are high in private credit. 

As for Trump, I think he will make George W look like Abraham Lincoln, and Bush invaded Iraq while allowing Rumsfeld to ignore Colin Powel's State Dept's plans to administer the country afterwards, and he oversaw the Fed pumping up real estate leading to the GFC.

No comments:

Post a Comment