Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24
How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - 17th Feb 24
Why Rising Shipping Costs Won't Cause Inflation - 17th Feb 24
Intensive 6 Week Stock Market Elliott Wave Training Course - 17th Feb 24
INFLATION and the Stock Market Trend - 17th Feb 24
GameStop (GME): 88% Shellacking Yet No Lesson Learned - 17th Feb 24
Nick Millican Explains Real Estate Investment in a Changing World - 17th Feb 24
US Stock Market Addicted to Deficit Spending - 7th Feb 24
Stocks Bull Market Commands It All For Now - 7th Feb 24
Financial Markets Narrative Nonsense - 7th Feb 24
Gold Price Long-Term Outlook Could Not Look Better - 7th Feb 24
Stock Market QE4EVER - 7th Feb 24
Learn How to Accumulate and Distribute (Trim) Stock Positions to Maximise Profits - Investing 101 - 5th Feb 24
US Exponential Budget Deficit - 5th Feb 24
Gold Tipping Points That Investors Shouldn’t Miss - 5th Feb 24
Banking Crisis Quietly Brewing - 5th Feb 24
Stock Market Major Market lows by Calendar Month - 4th Feb 24
Gold Price’s Rally is Normal, but Is It Really Bullish? - 4th Feb 24
More Problems in US Regional Banking System: Where There's Fire There's Smoke - 4th Feb 24
New Hints of US Election Year Market Interventions & Turmoil - 4th Feb 24
Watch Consumer Spending to Know When the Fed Will Cut Interest Rates - 4th Feb 24
STOCK MARKET DISCOUNTING EVENTS BIG PICTURE - 31st Jan 24
Blue Skies Ahead As Stock Market Is Expected To Continue Much Higher - 31st Jan 24
What the Stock Market "Fear Index" VIX May Be Signaling - 31st Jan 24
Stock Market Trend Forecast Review - 31st Jan 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Will Trump Bring Inflation to America’s Shores?

Economics / Inflation Dec 29, 2016 - 11:05 AM GMT

By: MoneyMetals

Economics

By Stefan Gleason: Something is brewing in the economy. Since the election of Donald Trump, interest rates have spiked, copper prices have surged, and various sectors of the stock market have swung “bigly” on speculation of what “Trumponomics” will bring.

Scores of triumphant Republican commentators are already painting a bullish picture of the Trump economy. The GOP – which will control the White House, Congress, and most state governments – has a rare opportunity to implement a pro-growth agenda.


Republicans squandered their last great window of opportunity. George W. Bush and his Congressional allies grew government spending at a faster clip than the economy and saddled the country with trillions of dollars in new debt.

It’s too early to tell whether Republicans will finally get serious about fiscal responsibility. No one knows exactly how Donald Trump will govern or how the economy will perform under his presidency. But one trend that is now being signaled by markets is a pick-up in inflation.

Bonds and Base Metals Are Signaling Future Inflation

The yield on the benchmark 10-year Treasury note spiked from 1.9% on Election Day to as high as 2.5% by Christmas. For the bond market to move that far that fast is unusual. In fact, it was the sharpest yield surge in 15 years.

What may be worrying the bond market is the potential for the government’s borrowing needs to grow under the Trump presidency. Rising debt means rising credit risk and inflation risk, which means higher bond yields.

“Trumpflation is coming,” declares Forbes columnist Kenneth Rapoza.

The president-elect proposes a combination of tax cuts and spending increases that could swell the deficit. The Committee for a Responsible Federal Budget claims that Trumponomics will add $5.3 trillion to the federal debt over 10 years.

Of course, Trump disputes that figure. He says that faster rates of economic growth will add to federal revenues and pay for the tax cuts. It’s possible. But you have to be a committed optimist to believe the deficits won’t grow at all over the next four years.

At the core of Trump’s domestic spending agenda is an ambitious infrastructure program. Stocks related to building and construction have boomed since Trump’s election win. So, have the prices of copper and palladium. These economically sensitive industrial metals moved in the opposite direction of gold and silver post-election.

Inflationary and Deflationary Forces Competing with Each Other

Are rising base metals indicating rising inflation dead ahead? Or does the recent slump in gold prices suggest disinflationary pressures to come?

Let’s take a step back and consider the larger trends. Gold and silver prices still show positive gains for 2016. The recent selloff occurred as a result of a rising U.S. Dollar Index and investor optimism on the prospects for the Trump economy. Base metals tend to benefit from optimism, while precious metals tend to thrive more on pessimism.

The early stage of a rising inflationary trend tends to be associated with positive things such as rising demand for raw materials, new job creation, and increased economic output. Only later do concerns over rising price levels and rising interest rates cause investors to react fearfully and seek the protection of precious metals.

Gold and silver would also be expected to perform well when economic indicators start turning down and investors seek safe havens from cyclical assets.

Trump May Use Government to Stimulate Growth If Free Market Doesn’t

If a recession starts in the months ahead, it’s unlikely that Donald Trump would be the sort of president who takes a hands-off approach and lets the economic downturn run its course. After all, he made bold promises to the effect of being “the greatest jobs president that God ever created.”

If his grandiose job growth touts don’t materialize through the free market, expect President Trump to try to generate jobs by other means. He’ll go to Congress for new stimulus measures. He might instruct government agencies to embark on new spending and hiring spree. He could even pressure the Federal Reserve to better fulfill its “full employment” mandate by pumping out more cash into the economy.

Then there’s Trump’s trade policies. He vows to pull the U.S. out of the Trans-Pacific Partnership and raise new import tariffs. Those tariffs could well help protect U.S. manufacturing jobs. But they will also make imported goods more expensive for U.S. consumers.

Some worry the forthcoming Trump administration could pursue a high-stakes trade and currency war with China and other major exporters. Trump has repeatedly accused Beijing of being a currency manipulator. He has said in so many words that he favors a weaker dollar to make U.S.-produced products more competitive in the international marketplace.

A weaker dollar tends to exert inflationary pressures in the economy. So far, however, the post-election trend in the dollar versus foreign currencies is up. The dollar can gain against other fiat currencies while still losing value against hard assets.

But gold bugs and “Trumpflation” forecasters will be looking for the dollar index to reverse course and confirm the other signals markets are giving for rising inflation during the Trump years ahead.

Stefan Gleason is President of Money Metals Exchange, the national precious metals company named 2015 "Dealer of the Year" in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.

© 2016 Stefan Gleason - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in