“Financial Earthquake”

I said this expression referring to the US election on my last appearance on BNN on December 6th.

Some might have accused me of exaggerating or hyperbole at the time. But as of last night the numbers are in and the move in the equity and bond market, worldwide, have been BIG!

Have a look at this chart by Deutsche Bank Research looking at the extent of the moves in both equities and bonds since the US presidential election on November 8th.


That’s right, Deutsche Bank calculates that both equities and bonds have made/lost $3 trillion in market value EACH! Again, this is a worldwide estimate.

Over the last eight years, the central banks of the world have been reducing interest rates to zero (and negative) in much of the industrialized world. Also, they have been buying assets, sovereign government bonds, government backed mortgage bonds, high grade corporate bonds and equities with freshly printed money to ensure asset values are stable or even levitated to the point that valuations don’t make a whole lot of sense when doing traditional security analysis.

The central banks the world over wanted inflation and was willing to do non-traditional activities to achieve its goal but unfortunately little to no inflation was produced over the last eight years and the effect was lower and lower bond yields.

What to do, what to do? The central banks answer was MORE OF THE SAME! Engineer negative interest rates so holding cash would be a cost not only to the average consumer but also business. Force consumers to spend and businesses to invest in plant and equipment. And if you wanted to hold cash in your home safe, instead of being charged a negative interest rate on your cash pile in a bank account, well the government would just have to ban actual paper cash and go digital.

Further and further down the rabbit hole we go…

And then the US election happened changing ‘the game.’

What’s ‘the game’ you ask?

Inflation expectations!

Trump got elected and based on his rhetoric and pseudo promises i.e., a trillion to spend on infrastructure and fiscal deficits for the next ten years; the market has moved BIG TIME!


See the bond market, since election day, is telling you inflation is on the way…folks this is better than deflation and that’s what the bond market has been communicating loud and clear to all that will listen for the last few years.

The markets are now pricing in inflation expectations, thereby increasing interest rates in the bond market – that’s a good thing – along with stronger economic growth in the coming years for equities – another good thing. The markets are pricing in less financial regulation repression of the money-center banks in the future. The markets are pricing in increased earnings and dividends in the coming years with more credit creation, lending, and economic activity in the US economy as a whole.

It takes BIG credibility to move markets without fundamentals staring market participants in the face. And the market moves we have seen so far are enormous. Central bankers have been talking and acting for eight years and the markets have been not impressed. As a matter of fact one could make the case that financial repression has been WORSE with every act or spoken word by a central bank official. And with one man elected, in a surprise election result, did more to move markets than the ‘high priests’ of central banking.

You can say what you want about the Donald and the “Main Stream Press” has not held back in expressing their displeasure about the election results and his tweets, but the man, singlehandedly and without action… after all he still is President-elect, has moved markets in a unprecedented way and probably never seen before in financial history of the United States.

The markets are pricing in all this good economic news stuff in other countries as well. Yes, the US is the largest economic engine of world, but rarely have I seen the international markets change so positively and moved so much with one election and the ‘potential’ change in direction of a new government.

Yes, people think Trump is a blow-hard. Yes, people can’t stand that he is now the President-elect of the United States. Yes, many of the ‘elites’ have criticized his various stances on economic matters and foreign policy. But I think it’s possible that he has UNDERPLAYED his impact on the worldwide financial markets that have moved TRILLIONS of dollars of market value merely on ‘expectations’ – the RIGHT EXPECTATIONS OF PUBLIC POLICY – of what his presidency will deliver. Yes, the Donald, in my humble opinion, is being ‘modest’ or ‘understated’ on his positive impact on US and world financial markets… Well so far anyway!

When will the ‘Main Stream Press’ give him kudos for this amazing and positive move in the markets?

I guess when hell freezes over…

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