Given the unpredictable nature of Donald Trump and the lack of a well-articulated platform and ideology that he adheres to, it has become a cottage industry to predict how the US government over the next several years--at least until mid-term elections in 2 years--will behave. I don't like Donald Trump, his policies or the people he surrounds himself with--Steve Bannon, the ex-Goldman Sachs banker/ex-film producer and almost-far-right proponent, and Bill Walton, the former Allied Capital CEO who some of you may recall being profiled by David Einhorn over a decade ago with some employees eventually being convicted of fraud come to mind (it's almost farcical that Trump would put Walton in a role to influence the policies of the SEC and SBA when those two agencies contributed to the conviction of wrongdoing by Walton's firms)--but as I have mentioned in the past, unlike most other countries, the US President has far less power than many imagine. Having said that, since the Republican Party controls the House and the Senate, and will likely pick key justices for the Supreme Court, Trump will likely get through quite a number of his policies (unlike the Obama presidency where he couldn't get the Republican House to agree to anything substantive (except foreign wars)).
If you are a pure value investor then you should just ignore what is happening in econopolitics and focus on companies. Otherwise, if you are more macro-oriented like I am, it's worth contemplating some scenarios.
The market has rallied strongly over the last couple of weeks but I see all sorts of conflicting behaviour. For instance, I think the movement in the US$, equity prices and inflation expectations are contradictory with each other to a large degree. I think one of these elements will overpower the others.
Some have suggested the market is starting to price in high inflation. It's not clear to me that this is the case. There is definitely more inflation being priced in but not "high" inflation. If you look at the TIPS breakevens (10yr here; 30yr here), it doesn't look like a drastic change. The chart below of the 10yr breakeven:
Tags: bonds and credit instruments, econopolitics, global