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.
Possible long term vs probable short term
My base case for the long term outcome of the giant ZIRP/NIRP experiment being conducted on all of us (to bring about growth and moderate inflation), is that NIRP will not succeed, but will eventually lead to helicopter money that will do the trick (and overshoot on the “moderate inflation” part enough to make a lot of central bankers whisperyell “I told you so!” behind closed doors).
A little bit insight into what kind of asset classes i like and don’t like. Things to keep in mind:
- Safety of cash flows is paramount.
- Capital preservation is more important than capital growth.
- This is not other people’s money so messing up and moving on isn’t really an option. You have to get more right than wrong, constantly.
- My investment horizon is years to decades. The longer, the better. Liquidity for capital deployed is relatively unimportant, but money management is not.
- Something that doesn’t provide a relatively predictable cashflow while maintaining it’s value, is not really a possible investment instrument. At best, it’s a hedging instrument. At worst, it’s a zero sum game with me as the lemur in a room with 700-pound gorillas who are smarter than me.
- I operate in – and exclusively invest in – safe regions, where bureaucratic, tribal and warlord relations don’t affect property rights.
The economy needs low interest rates to recover
So, at some point after the crash of 2008-2009 both business and consumer confidence are dismal, investment and consumption are awful. There’s a decent debt overhang in the west, public and private. So naturally, growth is subpar. We need growth to float more boats, both literally and figuratively. To get it, we need investment and consumption. If the private sector doesn’t want to invest and consume, the public sector (both governments and central banks) can in theory incentivize it. Usually, it’s in the form of fiscal (budgetary measures like easing the tax burden) or monetary (central bank policy measures like lowering interest rates) easing. However, since most OECD governments are heavily indebted already and political undercurrents all but preclude lowering taxes in any significant manner, the burden of getting the economy moving again lies squarely with the true masters of the universe – the central bankers. So they do what they think might get people to consume and businesses to invest again. Interest rates go down and – as conventional wisdom would have it – the wheels of the economy should start moving again. But they don’t. Or they do, but it’s clearly not what everyone is hoping for.