The Election is Over, so What’s Next?

The resounding victory of President Donald Trump over Vice-President Kamala Harris has opened up the biggest economic question of the modern era:

Now what?

The bond market, unfortunately for the new administration, might be providing some clues.

One example which observing is the action of the US 10 year Treasury on the day after the election, which skyrocketed to almost 4.48% in one day.

The reaction was actually logical. The truth is however, the equity and many other credit markets did not behave in a rational manner.

In fact the dis-inversion of the 2 year and 10 year US Treasuries is potentially at hand again, which would be a very negative indicator for the future price stability of US markets, regardless of the US Presidential election results.

The prevailing thought is that the bond market no long matters and the equity market’s speculative frenzy is the correct angle to analyze what is next. In fact, until the over-extended prices are corrected back into a normal channel of reality, the theory might well be correct.

Unfortunately, there is another train of thought which might cause a tad bit of concern. That idea is that the new Trump administration via fiscal and taxation policy may well become more inflationary over the short to intermediate term.

Jim Bianco expressed himself quite clearly on November 8th on Bloomberg’s Surveillance program, where he openly stated he’s a “no-lander” as far as the economic conditions for the future.

One can view the entire interview where he states the risk of needing rate increases in 2025 and inflation via over stimulation below or at this link.

Me on Bloomberg TV discussing the markets, the Fed, and what the election means for the economy. pic.twitter.com/oXBKlszbee

— Jim Bianco (@biancoresearch) November 8, 2024

As these pages warned last week, the violent action in the MOVE index, which measure bond volatility could be a warning for the future. If, and I think the probability is fairly high, the Trump administration pursues a course of higher tariffs, more tax relief, and pressuring the Fed to keep a low rate structure, inflation with slow to no growth is in the cards for 2025. Unfortunately for the American people, that is the best outcome based on our country’s current private and public debt structure.

The reality that markets have not realized yet is that the current economic programs being promoted by the incoming Trump administration are highly inflationary, which ultimately puts pressure on semi-finished and consumer goods to have prices move higher, but ultimately squeezes margins on the service economy which comprises over 70% of our economy creating price pressure in that arena also.

Thus ignore the reactionary equity market, the talking heads about “happy days are here again” and the insane speculative frenzy one is witnessing. Follow the smart money and stay conservatively concerned that the Federal Reserve and its arrogance will be repeating the errors of 1980, ultimately leading to a repeat of the 1970’s Arthur Burns style disaster which these pages have been warning about for over a year now.

Stagflation for the next 4 years or longer is the path that the Fed and our political elites have put our nation on as the only solution to the national debt crisis. There is no alternative but to inflate it away while tolerating limited spasms of consumer inflation and short term periodic downturns to pay down the bills that are coming due

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