I’m going to go through a dumb analysis for you.
Biden was:
Positive for stocks
Negative for bonds
Positive for the dollar
Trump is the opposite of Biden. Therefore, Trump will be:
Negative for stocks
Positive for bonds
Negative for the dollar
See, I told you it was dumb. But the fact that you disagree with it makes it even smarter.
One thing I will say—as anticapitalist as the Biden administration was, stocks sure went up under his governance. It’s because he didn’t fundamentally mess with entrepreneurship and risk-taking. If Kamala had won and implemented her unrealized capital gains tax, stocks would have gone down.
But now, things are different.
Source: Webcomic Name
That pretty much sums it up.
Trump is going to break things. Sometimes that will be good, and sometimes that will be bad. My guess is that if you made money trading under Biden, you will lose money trading under Trump. Completely different regime. What worked in the past will no longer work in the future.
We have spent the interregnum since the election pricing in a Trump victory. The assumption is that Trump will pass a bunch of tariffs, and the dollar will go up. Ten years later, and people still haven’t figured out Trump. Yes, Trump is insane about tariffs, and we will end up with some tariffs, but it will be nowhere near as severe as people think.
Also, people are assigning a zero probability to the new administration solving the debt problem. Bonds have been getting killed, and interest rates have been skyrocketing. But we have a sharp guy as incoming Treasury Secretary, and if anyone can figure it out, he can. I’m not joking. The guy was CIO of Soros and is probably one of the best FX/rates/macro traders in the world. If Bessent can’t figure it out, then it is an intractable problem.
But I really don’t think it is an intractable problem. I think it is almost an intractable problem. If we had waited a few more years, we would have been beyond the point of no return. Bessent is no Milei with his chainsaw, but you can make very meaningful cuts to spending, not just trimming around the edges.
Trust me. I used to work for the government. Every two minutes, I wanted to call the waste, fraud, and abuse hotline. And that was in the Clinton years when we were doing more with less. The gravy train is over. You will probably get one more death rattle in the bond market, but I wouldn’t be surprised if 10-year yields were 100–150 bps lower in the next year.
This is what most people think the next four years will be like:
Source: Adobe Stock
I assure you that it will not. Look, things will be better, on balance—the debt path that we were on was unsustainable. But the devil is in the details, and the problem is with the execution. The Republicans do not have a big majority in the House. There will be defections, even about taxes. And that small majority has a good chance of evaporating in 2026. Mike Johnson has his work cut out for him.
Let’s talk about taxes—I think it is pretty much a done deal that we will make the 2017 tax cuts permanent. Great. But there is so much more we can do. What I’d like the incoming government to do is to completely rethink our tax code. Maybe a flat tax, or something approaching a flat tax. Maybe doing away with the income tax entirely (as Trump has intimated). People are dreaming big, and it is good to dream big. The United States is crushing the rest of the world in terms of entrepreneurship and growth, and we could be crushing it even further.
But there are potential own goals. I am a libertarian free trader, and I think that any restrictions on trade are a mistake. There have been historical instances where protectionism went wrong. It will probably be inflationary. I think Trump’s instincts are wrong here, and no emails sent to customer service will change my mind.
I rather liked the bad old days of globalization in the 2000s when you could get stuff dirt cheap at Walmart. So, we sacrificed manufacturing… so what? We want people in stultifying, pointless, tedious jobs? The shift from manufacturing to services and knowledge work is a good one. I don’t think we have an absolute or even relative advantage in manufacturing. Let someone else do it. We will import the goods, export the finance, and watch inflation and interest rates come down.
But we are a long way from that now. Everyone has become Lou Dobbs, arguing for protectionism. As Gartman used to say, we will get what we deserve—good and hard.
Jared Dillian, MFA
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