Trump Pol­icy Favours Wealthy; Strong Dol­lar Will Hurt Ex­ports

Cor­po­rate sec­tor’s an­i­mal spir­its may soon give way to pri­mal fear

The Economic Times - - Finance & Commodities -

There­cord-set­ting­stock­mar­ket rally that fol­lowed Don­ald Trump’s elec­tion vic­tory will soon peter out as in­vestors re­alise the eco­nomic neg­a­tives in his po­lit­i­cal agenda vastly out­weigh the pos­i­tives, ac­cord­ing to cri­sis-famed econ­o­mist Nouriel Roubini.

“It is lit­tle won­der that cor­po­ra­tionsand­in­vestor­shave­been happy,” the pro­fes­sor wrote in an opin­ion piece for Project Syn­di­cate. “This tra­di­tional Repub­li­can em­brace of trick­le­down sup­ply-side eco­nom­ics will­most­ly­favour­cor­po­ra­tions and wealthy in­di­vid­u­als, while do­ing al­most noth­ing to cre­ate jobs or raise blue-col­lar work­ers’ in­comes.” He cites a study from the non­par­ti­san Tax Pol­icy Cen­ter showing nearly half of Trump’s pro­posed tax cutswouldbe­di­recte­datthetop 1%high­est-in­comeAmer­i­cans.

“Yet­thecor­po­rate­sec­tor’san­i­mal­spir­its­maysoon­give­wayto pri­mal fear: the market rally is al­ready run­ning out of steam, and Trump’s hon­ey­moon with in­vestorsmight­be­com­ing­toan end,” Roubini con­cludes. As markets be­came hyped up Econ­o­mist about the pos­si­bil­ity of a fis­cal stim­u­lus that is still un­de­fined, they have pushed up bond yield­sand­mort­gager­ates,mak­ing it more costly for firms and con­sumers to bor­row. The dol­lar strength that ac­com­pa­nied Trump’s vic­tory is harm­ful to thev­ery­man­u­fac­turing­ex­port­sec­tors­the Repub­li­can pres­i­dent has promised to help. Bill Gross, who man­ages Janus Capital’s to­tal re­turn strate­gies and un­con­strained bond fund, says the $12 tril­lion now held by cen­tral banks is a per­ma­nent fix­ture of global fi­nance, act­ing a bit like methadone. Methadone man­ages the crav­ing, but does lit­tle to end a pa­tient’s ad­dic­tion. He said the 10year Trea­sury is now at 2.45% be­cause of QE-like mea­sures at the Euro­pean Cen­tral Bank and the Bank of Ja­pan. With­out it, the 10year would be at 3.5% and the US would be in re­ces­sion. –

Busi­ness In­sider

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