Market trumps alleged experts on the Donald effect

THREE of the critical factors that will drive your investments in 2017 are now in place, writes Terry McCrann.

US Federal Reserve chair Janet Yellen testifies on Capitol Hill in Washington.

THREE of the critical factors that will drive your investments in 2017 are now in place.

The first is, as I have noted, the election of Donald Trump. One month in — and still more than a month before he moves into Trump House, formerly known as the White House — it has turned out rather differently to what the, ahem, “experts” predicted.

Importantly, he will continue to impact “differently” all the way through 2017.

On that momentous Wednesday afternoon Down Under — into the early hours of the previous Tuesday, the same sort of, that word again, “experts”, who manage your savings, just with a different accent, were putting their money behind their belief in the coming end of the world.

In trading in Asian markets that were open, and then in early Wednesday morning in Europe, the Dow Jones index was heading for a thumping 800-point fall.

The “expert” of “experts”, former Nobel prize winner Paul Krugman, when asked when the market would recover, responded: “Perhaps never.” This joins his similar instantaneous “expert” assessment of the consequences of 9/11 in terms of the reduction in Lower Manhattan floor space to exactly bookend his hysterical inanity. And I use that word “hysterical” in both the colloquial and Freudian senses.

And they say, Bob Dylan’s Nobel prize was controversial.

Krugman’s “never recover” Wall St lasted barely a few hours. Since Trump’s election, the Dow has risen more than 3 per cent, setting multiple successive all-time highs.

The rise has been in fact closer to 8 per cent from that initial end-of-the-world fear and loathing.

Something very similar had happened to our market. It’s up more than 5 per cent since the US election; and closer to 8 per cent from that mid-Wednesday bottom when it had led the world in reacting to the — expert-expected — Trump disaster.

Nobel prize-winning economist Paul Krugman.

We’ve gone up in tandem with Wall St. We’ve also gone up with the easing in the Aussie dollar against a rampaging US dollar. And we’ve also gone up on the back of surging commodity prices.

All of those elements are part of the “Trump ascendancy”. But they also point to the other two factors which will shape the environment and drive actual outcomes for investments in 2017.

The first of those is that whether she will be leading or getting pushed by her colleagues, Fed head Janet Yellen now absolutely will raise the US official rate for the first (and last) time this year just before Christmas, making just two rises in the eight years since they were cut to zero at the height of the GFC fear and loathing.

Absent only the most cataclysmic “event” over the next two weeks.

Yellen was always almost certain to hike anyway. But the Trump impact has actually worked proactively as one of three things that have made the hike certain.

Trump is unequivocally positive for, most importantly, business and probably also consumer confidence in the US. He also promises to embark on economy-boosting infrastructure spending. That alone makes a near-zero official interest rate most inappropriate.

The second thing has been exactly that surge on Wall St.

Yellen has shown herself to be the “great blinker”: every time she’s pointed to a coming possible rate rise and Wall St has had a fit of the vapours, she’s immediately backed off.

If indeed the market had tanked post-Trump, she would probably have backed off again. She can now “press the rate button”, comfortable that Wall St’s multi-trillion dollar profits are secure (for the moment). The final factor is that, on the substantiative front, the latest US jobs numbers overnight on Friday showed an economy zipping along. Indeed the unemployment rate has dropped to just 4.6 per cent, the lowest it’s been since before the GFC, back in 2007.

The Fed’s near-zero rate is way, way too low.

Now the third big factor from my opening sentence is what’s been happening to commodity prices and, in particular, the role of China in the global economy and so particularly relevant to us.

A combination of Chinese demand and its “adjustments” — cuts — to domestic Chinese supply have driven almost all commodity prices higher; and especially of course coal and iron ore. Then OPEC did its deal to restrict oil output and the oil price has joined in.

So these are the key drivers for investment in 2017: a US stock market that did not plunge; at least an initial hike in the US official rate (accompanied by a big increase in longer-dated bond yields); and the China-driven surge in commodity prices.

To state them should also make clear that they are working now and so into the opening months of 2017; you cannot assume they will persist all the way through the year.

Further, these are the big global forces; we have a very special additional one: all the factors driving our property market. All of them also “interesting”.

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Originally published as Market trumps alleged experts on the Donald effect