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A sea of green this week. The US election finally came to an end, Donald Trump won and the markets started to fall sharply, but immediately his rhetoric changed, the extreme promises seemed to drop away and realism returned to the markets too. In the way of these things when certainty replaces uncertainty markets tend to rise, even when the certainty is not the market’s preference. The Dollar has fallen in value a little, the Euro a lot.
The end of suppressed interest rates and inflated QE?
The election this week of Mr Trump signals a number of things, not least of which is that there will be a different approach to government debt. Mr Trump’s business approach may give us some clues to his approach to running the country when he takes office in January, and whilst he runs a different country to the one we live in the UK, the choices he makes will have an impact here. Leveraging borrowing is a key facet of Mr Trump’s wealth. He borrows to invest. My Obama’s second term has been the reverse. Reducing borrowing and printing money in what some have dubbed the biggest transfer of wealth from the poor to the rich. (Low interest rates hits small savers and tight monetary policy stops spending on infrastructure, restricting lower paid jobs, whilst qualitative easing pumps money into stock markets and protects and enhances the wealth of the already wealthy).
The rise this week in the DJIA (and a fall in the S&P 500) reflects that many of the 30 industrial companies win in a world of enhanced government borrowing and spending, but the other sectors lose out significantly. If this policy change does take place there will be inflationary pressure released from the impact of qualitative easing and central banks will have to raise interest rates to seek to cap that. The end of low interest rates is now in sight, and that has implications across the world and for all our businesses.
If you are indebted, and relying on low interest rates for affordability, then debt repayment may be a sensible 2017 strategy.
Foolish moment of the Week:
Facebook had a small bug this week that ‘killed’ thousands of users of the social networking site, including its founder Mark Zuckerberg. Profiles of those users who have died can have a memorial banner added and erroneously Facebook did this on profiles of the living. Mark Zuckerberg’s profile said “We hope people who love Mark will find comfort in the things others share to remember and celebrate his life”
(Source : BBC )