The more Politician promise Change the more Things stay the same.

Monthly Market Commentary: December 1, 2016

I am assuming that all of you must feel a certain Trump election victory fatigue. Still, since so many of you asked me about Mr. Trump and his future policies I wanted to share with you an article by Edward Chancellor about the election, which reflects almost entirely my views on the topic. Chancellor refers repeatedly to the economist Mancur Olson, whose book The Rise and Decline of Nations, (published in 1982) I have read several times. Mr Chancellor is well-known for his economic-historical book Devil Take the Hindmost: A History of Financial Speculation (1999).

Chancellor concludes that, “at heart, Olson was an optimist: ‘it takes an enormous amount of stupid policies or bad or unstable institutions to prevent economic development.’ If - and that’s a big IF - Trump were to succeed in assaulting the ‘growth-retarding’ forces within American society, he could well end up surprising his legions of right-thinking critics.”

I am far less optimistic because as Noah Smith of Bloomberg writes, Even Trump Is a Keynesian. Furthermore, the stock bulls believe that stocks will move up while bonds will continue to weaken. However, higher interest rates would have a negative impact on the auto and housing sector, on commercial real estate, as well as on corporate earnings. Hence higher rates could more than offset any potential benefit of expansionary fiscal policies.

In other words, stock market bulls and bond bears may overlook the fact that higher interest rates seem to be incompatible with a strengthening highly leveraged US economy.

In view of the festive season, I am enclosing an article entitled, “Is Santa a deadweight loss? - Are all those Christmas gifts just a waste of resources?

I wish all my readers Merry Christmas and a Happy New Year. Since year-end is visiting time, remember that, "Some cause happiness wherever they go; others whenever they go" (Oscar Wilde) and that, "To keep your marriage [or a relationship] brimming, with love in the loving cup, whenever you're wrong, admit it; whenever you're right, shut up" (Ogden Nash).

With kind regards
Yours sincerely
Marc Faber 

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