The bond market and President Trump

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The bond market and President Trump

Trump

By Krassotkin (derivative), Gage Skidmore (Donald Trump), Gage Skidmore (Hillary Clinton) [CC BY-SA 3.0], via Wikimedia Commons
November 15, 2016Play Quizzes 4

BY JARED DILLIAN

So, we’ve got ourselves a President Trump. Now, let’s talk about how to make money off a Trump administration.

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It is so easy, a caveman could do it.

 

Trump

By Krassotkin (derivative), Gage Skidmore (Donald Trump), Gage Skidmore (Hillary Clinton) [CC BY-SA 3.0], via Wikimedia CommonsThe bond market and President Trump

I’ve already talked a lot about this topic. Please read this before you go any further. It’s something I wrote back in April.

 

Interest rates shot up right after the election. Some thoughts:

  1. We discussed this months ago. There are a lot of bond bulls out there. What do they say now?
  2. This is the first time in forever that the bond market has actually been afraid of supply. Possibly the first time since 1994.
  3. The curve steepened massively. Trump did what the Fed has been trying to do for years.
  4. Speaking of the Fed, given the price action yesterday, the chance of a rate hike in December has to be close to 100%.
  5. Fed funds futures sold off yesterday. The market is believing in rate hikes.

Growth during a Trump presidency

As you can see from the stock market reaction, the market went from worrying about global thermonuclear war to getting hopeful about Trump’s plan for growth. Tariffs aren’t really a plan for growth, but let me tell you what is:

  1. Cutting marginal income tax rates
  2. Cutting corporate tax rates
  3. Repatriating overseas earnings
  4. Rolling back regulations (Obamacare, Dodd-Frank)
  5. Energy policy

That is assuming Trump is going to do what he said he is going to do. Which is a stretch, because Trump probably isn’t going to build a wall, and he isn’t going to send Hillary to prison.

There are a lot of promises he won’t follow through on. So I’ll believe the tax cuts when I see them.

But the market has hope.

Other Trade Ideas

I’d be a fool not to save the good stuff for Street Freak and The Daily Dirtnap. But I will say up front that, on a sector basis, a Trump presidency is bullish for the most-regulated sectors of the economy:

  1. Financials
  2. Health Care
  3. Energy

Now, here’s what I would short:

  1. Technology

This is the least-regulated sector of the economy. It’s also the sector that was most vocally anti-Trump. Big tech likes to shake hands with the government—the relationship between Google and the Obama administration is especially cozy.

So what if that comes to a halt?

Don’t worry… you’re not too late

The number one question I get from people in situations like this is: Am I too late? Did I miss it?

Interest rates go from 15% to 1.3%, and then they go to 2%, and you think you missed it?

These are trends that are going to continue for months, weeks, years. Nobody missed anything. The hardest thing to do is to buy a chart that is up against the upper right corner of the screen. It is usually profitable.

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