I’ve got good news! The U.S. election is finally reaching a conclusion next week.
While many foreigners are particularly interested in the outcome, mostly because Trump wants stronger U.S. borders and the world less dependent on our aid, and Clinton wants to open up our borders, the mainstream media is trying to give everyone the jitters!
The Financial Times, Japanese-owned and headquartered in London, recently endorsed Clinton, saying she has experience. They denounced Trump, complaining that he’s arrogant.
The thing is, it’s not just The Financial Times. Most mainstream media are trying to scare people into believing that President Trump could be game over for the economy.
But, is Hillary Clinton any better?
She’s promised to hike taxes, expand Obamacare and other social programs, all of which will certainly put the brakes on our already slow-growth economy… and then there’s her desire to line her pockets while in the White House.
The thing is, the media and all the polls were wrong about the outcome of the Brexit vote. They may very well be wrong about our election as well! So, we shouldn’t pay them any attention. What we need to consider is the impact on the market…
A Trump win could shake up the markets, as happened following the Brexit vote… but a Clinton win could mean disaster down the road with her continuation of Obama’s policies. And if Clinton wins and Republicans also lose the House, the markets will certainly not like that option, either.
The thinking is that Trump is an uncertainty, and as Adam and Charles explained to Boom & Bust subscribers on Monday in their 5 Day Forecast email, the markets hate uncertainty. Clinton’s policies, on the other hand, are more of the same. But if Democrats win the House, the markets won’t like the threat of tax hikes and increased regulation.
Then there’s Trump’s threat to fire Janet Yellen if he wins the election…
I’m not sure if that would make a difference to their ineffectiveness. Still, the Fed has tried to be extra quiet this election. They held their scheduled policy meeting this week and, as expected, left rates unchanged. There really was no chance they’d make any moves the week before the election.
Despite trying to lay low, the Fed has been accused of being political. Since those on the Board of Governors are appointed by the President and confirmed by Congress, it seems logical that they are.
Nevertheless, the Fed does send the U.S. Treasury billions of dollars (nearly $100 billion in 2014 and 2015) every year in interest payments on the bonds they hold on their balance sheet. Maybe that’s why politicians are slow to take control of the fiscal budget.
But more important than the election outcome or the Fed’s political stance is one simple fact: Central banks, including the Fed, have tried everything in the book to prop up the markets. But none of it has worked. And now they have no more tools in their chest, even though their talking suggests otherwise.
Interest rates around the world climbed last week as markets started to price in the risk that central banks have done all they can.
After years of stimulus without real economic improvement, the markets are waking up to the fact that central banks are irrelevant when it comes to guiding economies through booms and busts. They could have saved time and money if they’d just listened to Harry.
Take a look at comparable 10-year rates around the world over the last month:
Most of the spike in yields happened in the last couple weeks.
Interestingly, all major central banks around the world left monetary policy unchanged at their most recent meetings.
The Bank of Japan (BoJ) left policy unchanged on Tuesday and warned that economic activity and prices look to be lower for some time. It’s used the most stimulus over the longest period of time (nearly two decades), and it finally seems to be throwing in the towel. Quantitative easing, including stock buying, negative interest rates and yield curve management have all failed to produce results.
The Federal Reserve, European Central Bank and Bank of England also held steady on policy. Similar policy, similar results, similar failure.
Whoever wins the election next week, the editors at Dent Research are well prepared to take advantage of either outcome in the financial markets.
And whatever the Fed does or doesn’t do, doesn’t really matter. Overreaction to what happens at the Fed or after the election affects prices and yields in long-term Treasury bonds and Treasury Profits Accelerator subscribers will be ready to profit. Will you be?