8 Reasons Why Trumponomics Will Flop

Junk Bonds 2 Year Negative Divergence Signal. Echoes of 2000 and 2007.
 
Trump post election rally breaks the records. Echoes 2000
 
Trump Record Euphoria and Advisors Hugely Allocate To Equities for 2017
 
What Really Changed With Trump?
 
Fed’s latest forecast, post Trump, shows almost no change
 
Asset manager GMO sees dismal return expectations, even post Trump
 
Too much intervention for too long. Central Bankers cut interest rates 700 times and bought 24 Trillion Dollars in assets.
 
So …. What exactly did we get? In earnings?
 
And this is what happened to US per capita GDP growth. 50 year bear Market in growth to close to zero!
 
Assets went up, but it completed failed to stop growth decline. Assets no longer anchored by value
 
So what is the Trump difference? Another $1 Trilllion or so with higher interest rates, and a higher dollar? Are you serious?
 
“Will Tax Cuts And More Federal Borrowing/Spending Fix What’s Broken?” 
 
In any case higher government spending correlates with LOWER earnings multiples
 
Latest readings? Car-tastrophe
 
Housing affordability index at an 8 year low
 
Are US consumers in great shape on income and savings? Nope
 
Alternative Viewpoint
 
8 Reasons Why Trumponics will Flop
 
 
 
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Junk Bonds 2 year negative Divergence Signal. Echoes of 2000 and 2007.
The chart above shows that in both 2000 and 2007 Junk bonds diverged from the S&P 500 for 2 years prior to the collapse. This condition has also now repeted in 2016. Is it different this time?
Trump post election rally breaks the records. Echoes 2000
“This is the biggest plunge (in correlation between high beta to low beta stocks) since the peak of the panic-buying extreme risky names during the DotCom boom – right before it all fell apart.”
Inline image 2
 
Trump Record Euphoria and Advisors Hugely Allocate To Equities for 2017
 
The chart and article below shows the huge allocation bias for 2017 towards growth.
 
 
Inline image 4
 
 
 
What Really Changed With Trump?
 
So is all this euphoria so obviously justified that there is no reason to look at the details? Or should we just take a little time to see why sentiment and the markets have become so excited?
Fed’s latest forecast, post Trump, shows almost no change
Meanwhile, the Fed has made almost no change to its latest forecast. Also notice that the Fed has been too high in 6 out of the last 6 years! A dismal forecasting record, and if they are true to form growth may just continue to decline, especially as they apparently intend to continue tightening policy, and the dollar is around 10% higher over the last few months. Policy has been tightening into a long term downtrend at what is now a very weak point in long term growth!
Asset manager GMO sees dismal return expectations, even post Trump
GMO have a very good track record of accurately estimating long term return expectations. Both stocks and bonds are currently expected to have negative long term returns. High risk areas like emerging markets and timber may do better, but there is clearly enormous uncertainty and volatility attached to that. Being realistic investors need to understand that low risk returns are very hard to find.
Too much intervention for too long. Central Bankers cut interest rates 700 times and bought 24 Trillion Dollars in assets. 
 
 
 
So …. What exactly did we get? In earnings?
 
Inline image 5
 
And this is what happened to US per capita GDP growth.
 
50 year bear Market in growth to close to zero!
 
 
Inline image 6
 
Assets went up, but it completed failed to stop growth decline. Assets no longer anchored by value
 
S&P 500 has doubled over 5 years with no change in GAAP earnings
 

 

 
 
 
So what is the Trump difference? Another $1 trilllion or so with higher interest rates, and a higher dollar?
Are you serious?
Apparently, now that interest rates are rising, and the dollar is up around 10% in the last few months, which will REDUCE S&P 500 earnings by another 4% or so, just a trillion or so of deficit spending will somehow be just the tonic? Even though it is only a fraction of freshly created central bank money which completely failed to stop further deep declines in global growth as shown above? Are you serious?
“Will Tax Cuts And More Federal Borrowing/spending Fix What’s Broken?”
The short answer: if tax cuts and more federal borrowing/ spending were the cure for what ails the economy, we’d have reached Paradise long ago. Stripped of partisan politics and rah-rah, tax cuts and more federal borrowing/ spending–on infrastructure, education, defense, healthcare, you name it–have been the de facto status quo policies of both parties for the past 70 years.
 
Inline image 13
In any case higher government spending correlates with LOWER earnings multiples
Inline image 1
Perhaps animal spirits can offset all that. Let’s look at the latest readings from the biggest consumer market – cars.
Latest readings? Car-tastrophe
Just weeks after Ford idled four plants “due to slowing sales”, GM and Fiat Chrysler announced today that they will idle seven plants across Canada and US as they work to reduce near-record high inventories amid weakening sales.”
Inline image 9
Inline image 8
Housing affordability index at an 8 year low
Inline image 14
Are US consumers in great shape on income and savings? Nope
Inline image 11
Inline image 12

http://www.zerohedge.com/news/2016-12-22/savings-rate-plunges-march-2015-lows-income-growth-weakest-9-months

Alternative Viewpoint, 

Without much in the way of policy change to be so excited about in the consequences of the Trump election victory, and very little evidence supporting it, it could be worth considering other interpretations that have remained on track over the longer term. These ideas may provide a better context for investors.The video link is below, but here are the conclusions.

 

https://www.youtube.com/watch?v=5HveeOcOmqg&feature=em-uploademail

8 Reasons Why Trumponomics will Flop

1. Trumponomics has set off the most extreme one-sided high growth expectations since 2000. It is highly unlikely to be sustained against a 50 year decline in US growth from similar policies.

2. Red flags abound from historic price relationships. Trumponics can’t justify current price extremes.

From the junk bonds signal shown above.  From the  TLT vs SPY price history and many other historic inflection points,

http://chrisbelchamber.com/historic-inflection-points-there-are-no-markets-money-system-is-a-trickle-down-racket-3-investment-choices/

and German Bund yields versus Treasury yields, at a 30 year record and what that could mean for US equities.


3. Depth of the epic failure of policy over the last 10 years remains misunderstood. In this context Trumponics is a fraction of what was tried and failed before.

4. No clear sign in the latest hard data that anything has changed in the cyclical downtrend. Housing affordability is at a 8 year low and the car market has peaked.

5. No sign in the latest fed forecast that anything changed with Trump

6. Consequences of a higher dollar. Will add to pressure on the trade deficit and cut earnings as foreign earnings will decline.

7. The consequences of higher interest rates into a long term economic downtrend, which is now at a weak point, after 6 downside misses in growth forecasts in the last 6 years!

8. Continued weakening in income and savings rates.

Do you really think that Trumponomics can offset/reverse all this? Really?

Most likely this time is not different. The Trump trade remains an unsubstantiated narrative that has taken markets to extraordinary extremes, in both price and consensus. Prices seem to have no basis in value, economic growth, earnings growth, disposable income or savings rates.

I have rarely seen more dangerous conditions, and continue to recommend low risk portfolios, and long term strategies that are prepared for long term substantial under performance in US equities.

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