It's As If Everything Has Been Forgotten

Well, Donald Trump won the presidency, the markets did not crash (they did fall overnight but quickly surged back) and now we have reached new all time highs... Me personally, I am not convinced by the rally. I am actually more fearful.. We have seen a tremendous push up in the markets since election day.... But electing a new president does not erase the last 7 years of near zero interest rates and their consequences, manipulative central bank policies, and record global debt levels. All of sudden its like everyone forgot about how 25% of the worlds GDP comes from countries with negative interest rates. How our economy is nearing 7 years on its expansion... How the business cycle peaked years ago, corporate profits have been on a significant decline and the dollar has reached a 13yr high... How debt from the four main domestic non-financial sectors (households, business, federal and state/local) has increased by 2.2 trillion over the latest statistical year while GDP grew by roughly 450 billion.... It is as if none of this is relevant anymore thanks to the election....... Wrong....

Unfortunately this is all still important and the seeds for the next crisis/downturn, whatever you like to call it are already put in place all around the world and certainly here in the U.S.. President Trump can not avoid it, he can only maybe prolong it.... And while it seems a shift from monetary to fiscal policy could very much happen under President Trump it doesn't undue years of off the chart central bank measures and record debt levels everywhere we look... I do believe a Trump presidency can most certainly get things back on track for America but things like that take time...  The markets have surged to all time highs breaking records along the way with the idea that everything is going to be rosy for the next few years.... Probabilities dictate otherwise and uncommon sense (I've learned common sense is not that common) ...  One thing that is quite interesting are the results from a study by Raoul Pal on elections compared to the economy.
One of his findings was:


         "Since 1910, the US economy is either in a recession or enters a recession within twelve months in every single instance at the end of a two-term presidency.... effecting a 100% chance of a recession for the new President"(1)


While I do believe nothing is a guarantee when it comes to markets and the economy, this is one powerful statistic and should be kept in the back of the minds of investors and those in the markets.... Can President Trump break the streak?!
I look forward to what the future has in store for us with the new President and as always with the markets and economy. But right now, I believe it is suicide to be buying into the markets and this rally. While I believe in focusing on the fundamentals more than anything else when it comes to investing in businesses, it is always good to stay aware of the big picture. And in my opinion the big picture is not rosy or bright. Not to mention buying into all time highs in one of the longest bull markets in history can never be a great idea....
-AB

(1)- GMI Update 2 No.154 November 2016



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