Thursday, November 17, 2016

Bill Gross is Wrong, Trump’s Policy Right for America at this Time

In his most recent newsletter, Populism Takes A Wrong Turn, Bill Gross, Portfolio Manager-Global Macro Fixed Income, argues that President elect Donald Trump’s policies will not actually remedy America’s problems, and will actually lead to lower GDP growth and higher inflation.  His negative assessment is summed up in the following quote, which actually blames the “idiot electorate” in his opinion, for the result:

“The Trumpian Fox has entered the Populist Henhouse, not so much by stealth, but as a result of Middle America's misinterpretation of what will make America great again.”

His argument against the Trump economic plan is as follows:
“Trump’s policies of greater defense and infrastructure spending combined with lower corporate taxes to invigorate the private sector continue to favor capital versus labor, markets versus wages, and are a continuation of the status quo.”

His argument totally discounts any simultaneous actions to create “fair” trade pacts which Trump campaigned on.  He portrays this activity as “negative policies revolving around trade.”  I suppose the idiot electorate sees this issue a little differently from the ground level.

Bill Gross obviously gets what is happening from an economic and government standpoint; but, unlike Trump's outrageous statements on the campaign trail that were successful in tapping many supporters in America, Gross is not connecting with many in the investment community with his rants, and certainly not many Americans who voted for Trump.  Maybe he should get on-board and ride the wave that is about to be created, rather than complain so much that things are not fixable.

Thursday, November 3, 2016

Stock Market Risk Measure Hits Caution Zone – 2016 Election Driving Volatility

This blog is an update to the article I published on October 25th, 2016: How Worried Should You Be about Your Investments Now?  The update is based on a review of the Financial Relativity Index metrics at market close at the end of October.  The changing metrics are both interesting and potentially ominous given the breadth of historical data on which the model has been derived.

The Financial Relativity Index as of October 31st shows the following:


The two changes in the index since the end of September are an increase in market risk to cautionary from green light status, and a continued degradation of the credit market indicator.  I wrote at length in my previous article on the credit market signal and how the deterioration in this particular metric has forewarned many business cycle driven economic downturns, and usually is a good leading indicator of a stock market correction.

The focus of this update is on the sudden jump in market risk as measured by the Financial Relativity Index.  Given the downward pattern which has formed off a new all-time high of 2190 in the S&P500 (SPX) on August 15, 2016, less than 3 months ago, there is a very good chance that the market is about to roll over into a much deeper decline for a much longer time period than it has in the previous 7 years.  The perfect storm to bust the market bubble formed over the last seven years may now be in place.