10 Nov WAS YESTERDAY A HARBINGER OF THINGS TO COME?
Most thought equities would be crushed with a Trump rally. Treasuries however were decimated, plunging the most in five years. A gauge of inflation expectation climbed to the highest since July 2015 amid speculation a Trump administration and a Republican Congress will boost growth.
The basis for this view is the possible repeal of Dodd Frank, the restrictive financial reform bill that in my view has crushed growth. Capitol is the lifeblood of capitalism and if capital is restrained in any manner, including regulatory over reach, growth will suffer.
As noted a gazillion times, excess bank reserves are over $2 trillion versus the historical norm of $1 billion (no typo). Moreover because of Dodd Frank capital formation via the traditional means has been sharply curtailed.
Many times I have referenced the lack of monetary velocity or the turnover of money, commenting according to the Chicago Fed if velocity accelerated to 50% of its norm growth could potentially reach 6% and inflation over 10%.
Yesterday the most known mega capitalized growth issue sold off while the financials advanced considerably.
I think the combination of the repeal of Dodd Frank and Obamacare, accompanied by regulatory reform has the potential for a 4%-5% growth rate with the smaller capitalized and value companies greatly outperforming the mega cap issues.
If yesterday was a harbinger of things to come, the above outlook is indeed highly plausible.
One other thought. Yesterday ETF assets exceeded that of hedge funds. As widely known, ETFs are low cost passive investment strategies focused primarily on size not analysis. Hedge funds are high cost active managers utilizing economic thought.
Are the days of ETFs now numbered?
What will happen today?
Last night the foreign markets were up. London was up 0.02%, Paris up 0.72%, and Frankfurt up 0.51%. China up 1.12%, was Japan up 6.72% and Hang Sang up 1.89%.
The Dow should open moderately higher on speculation that Trump’s policies will benefit business. The 10-year is off 18/32 to yield 2.12%.