Pro-growth Trump is horrible for markets

There seems to be a slight dissonance in US equity markets with positive price action and a possible pro-growth agenda by President-elect Trump. If his policies do turn out to be fiscally stimulative, it’s going to hurt equities, big league.

How so?

Pro-growth = deficit spending. Deficit spending is going to achieve two things: higher inflation and ballooning federal debt. Each of these two alone would bring about higher interest rates, in combination they’re certain to do so. So, higher interest rates. We’re already seeing this in treasury yields spiking, especially long term treasury yields. Higher interest rates will bring about carnage in bond prices, and that is no small thing, considering how long we have been at artificially deflated yields and how much has been issued and bought at these yields. But more importantly, higher interest rates will strengthen the dollar (killing US companies’ profit growth prospects) and necessitate a repricing of equities, because in relative terms, equity prices are WAY too expensive, if interest rates start to normalize. Especially, if dollar strength compounds this problem. Again, there are already signs of this with all “safe” yield equities moving down (REIT’s, telcos, consumer staples) So there’s a decent repricing of assets afoot. Maybe permanent-looking ZIRP isn’t such a bad thing, compared to this increasingly probable zcenario. Meager real returns beat galloping inflation and normal interest rates that an indebted world can’t really manage.

Started a small (~0,5% of NAV) SPY september 2017 put position, near the money.

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