One thing that this year has made clear, there is no going back. When Trump lost to Biden, there were some changes in foreign policy, but financial policies stayed pretty much the same, and in the upcoming Harris/Trump face off, whoever wins, financial and economic policy will not change that much. Why? Well ultimately, politicians are more followers than leaders. To win, they follow the crowd. Boris Johnson when he was Mayor of London was ultra-globalist, but when he became Prime Minister, was ultra anti-globalist. The only thing that had changed was that Brexit had shown that non-elite backed policies were vote winners. It is very easy to hate on the standard bearers of the anti-elite vote - Trump, Johnson, Orban, Farage, Le Pen etc. They are all deeply flawed people. But they do politically well despite their flaws tells you that that its the message and not the messenger that people want (as they are deeply flawed people, they believe that people believe in the messenger rather than the message - which is why all populists fail eventually). The key message is that “labour” will not take the brunt of economic adjustment anymore. Initial Jobless Claims remain at striking low levels - and are likely to remain so.
For me this means, unemployment based macro signals will now fail repeatedly. Historically, rising yields worked on the US market by weakening housing and capital good demand, causing unemployment to rise, and a deflationary impulse. This is no longer the case, and much like the late 1970s, the yield curve can become very deeply inverted. Or in other words, old school macro indicators will not work anymore.
The US has run a large trade deficit with the rest of the world. This gives it some huge advantages. Tariffs allow it to exert pressure on trade partners, and incentivises firms to bring factories and jobs back to the US. It also places tax burden on foreigners. If the focus is on maintaining full employment, then I expect tariffs to rise across the board.
President Trump had no intention of ever balancing the fiscal deficit, and has hence boxed in his rivals to follow suit. Perhaps revenue raised from tariffs could compensate, but that remains to be seen. US fiscal deficits are likely to continue.
I think this is clear, and generally understood. And this informs the GLD/TLT trade that is working well.
The more interesting question, if this is the “action”, what is the reaction?
