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The "Trump Is Reagan" Fantasy Continues


The worldwide bond rout continued overnight, with negative 10-year yields basically having disappeared everywhere except for minuscule examples in Japan and Switzerland. Overnight equity markets were mixed, but I cannot emphasize strongly enough that I think our stock market is on borrowed time. It has no QE to look forward to (except in response to a serious decline), the bond market is backing up (though no one seems to care much thus far), and we have never had more uncertainty about what a new administration will mean, as we have never elected a businessman before, regardless of what you think of Trump's capabilities.

Into the Great Unknown For the moment euphoria and optimism trumps all problems, as I said on Friday, as well as the degree of difficulty for creating positive outcomes. Meanwhile, stocks are very expensive. I believe if the stock market starts to decline, that may rewrite some of the bullish script playing out in the FX market about how bright the future looks. The most important thing people need to be clear about is that there has never been more that we don't know than right now, given the election.

Turning to the action, overnight the SPOOs were higher, but the market was modestly red through midday before it bounced a little in the afternoon to close flattish (though there was a lot of selling in high-multiple tech stocks). Away from stocks, the same patterns played out that we have seen since the election, i.e., green paper was strong, fixed income was hit again, with the 10-year now yielding about 2.23% (up from 1.5% a few weeks ago), oil was flat, and the metals were hammered once more, led by silver, which was crushed for 3% to gold's 0.75%.

Jumping to Confusions I think the rout in the metals has been a function of a lot of hot money/quick action types having changed their views when people like Stan Druckenmiller and Jeff Gundlach changed their positions, but to conclude after a Trump election that while we needed metals last week we don't now is an incredible leap of faith. The only thing that is really different is that the dollar has screamed higher and the Fed may be more likely to raise rates 25 basis points. Other than that, the case is the same as it was. What Trump may be about to do could make the bull case for the metals far better or somewhat worse, but we just don't know until we see what he's going to do from a "staffing" standpoint and we get a real read on his policies.

So for everyone walking around like they know exactly what to do, I don't know how that's possible. We're justcoming off a period whereby the central banks have been conducting an experiment no one has seen before. And now the U.S. has elected a businessman, and one about whom we don't know what to believe. If that isn't a recipe for massive uncertainty, I don't know what is.