US is in a slow growth/
full employment stage of cycle and Trump announces fiscal stimulus in
form of infrastructure spending and sending home illegals further
tightens labour markets.
Fed is constrained from
hiking. Libor is nearly 1% so even if Fed hikes to 1% it will have no
impact anyway. Dont think they will hike beyond that.
USD
will become a weak currency. Im waiting for a market liquidation to
sell my USD longs and go long EURO and EM. Staying short Sterling for
now though.
Inflation/ Wages/ Nominal GDP start to
rise and although the government increases its deficit from a sectoral
perspective, corp profit margins fall, but not enough for a recession,
just growth scares and an increase in defaults. I think you should
consider what happens to CLO equity if there are sustained 4 or 5%
default rates. You might be better off in BB or B.
Bond curve steepens.
If
there is a recession this could temporarily reverse a lot of this, so
USD and bonds up, but I think that that is temporary and we are back to
inflation fairly quickly .
Dont forget in the 16 years preceding Volker inflation eroded 90% of the USD purchasing power.
You
want to be long cheap economic assets and short debt for that. However
most equity is overvalued at the moment, need it to crash first. It will
crash as margins come down, discount rates and inflation go up.
...EM has crashed already and yields are high in private credit.
As for Trump, I think he will make George W look like Abraham Lincoln, and Bush invaded Iraq while allowing Rumsfeld to ignore Colin Powel's State Dept's plans to administer the country afterwards, and he oversaw the Fed pumping up real estate leading to the GFC.
https://www.youtube.com/watch?
https://www.youtube.com/watch?
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