Monday, November 14, 2016

Trump, taxes and US economy

It is a Trump victory then, how are you placing your bets? But what about the commodity trade?

I suspect oil would probably not go down because people will be worried about war and some of the things he might do. I am long on the US dollar. Mr Trump says he is going to have trade wars. Trade war usually makes a currency go up at least for a while. Gold I suspect may go down because people will be worried about what he might do and agriculture I suspect will stay the same, may be even rise.

Do you think a new cycle has started for commodities because suddenly the prices of the major commodities are up by about 50% to 70% from the recent lows?

Whether it is a new cycle or continuation of the old cycle, I do think commodities will be going up for a while. All bull markets and all bear markets have big consolidations. Commodities have been consolidating and they are rising again.

For the longest time we have identified that China is a real problem for the commodity bull market. Not that the data points from China has changed, but one is getting a sense that at least the worst of the contractions for the Chinese economies is behind us. Do you think China once again will play the lead role in determining where commodity prices would move?

Remember, China is one-third the size of the US economy or less than one-third the size of the European economy. Yes they are important but American, European and Japan economies are much more important to all markets and certainly to commodity markets.

If China starts buying a lot of commodities that will help but if Europe and America drop their demand, it really would not matter. Two of the bigger points -- I expect most of the world will have economic problems in the next couple of years and that would mean China will have economic problems. China is a very large trading country now and if their customers have problems, they have problems.

Trump is talking about cutting taxes and jumpstarting the US economy. So I wonder. Wall Street which always wants lower taxes and more stimulus , are so anti-Trump?

They are anti-Trump because Mr Trump has said there will be trade wars. Everybody who knows any history, knows trade wars lead to bankruptcy and economic problems, If Trump wins, the market will go down in panic but then he will come out and say do not worry I have tax cuts, I have this that and the other and then there will be a relief rally later in November or December until people realize it cannot work.

Bond yields have inched higher from the recent lows. They are still at historic lows but they have inched higher. German bund is in positive territory, US 10-year paper is now above 1.5%. Do you think the rally in the bond market is over?

Yes, I think the bull market has been going up for 35 years, you have big big long bull and bear markets and bonds in United States. In my view that 35 year bull market has come to an end and now bonds will be going down for a long-long time. But I am not sure about bonds, there are mainly junk bonds in the United States.

Give me a five-year structural trade long or short. You can pick and choose?

Buy agriculture, short junk bonds in the US, long those two.