Some can make the argument the markets believe Trump will deliver on his economic agenda given the sharp increase in Treasury yields and the advance in the beaten down and unowned value and small cap stocks, entities that do best in a growing economy.
An argument can also be made there is little concern about today’s geopolitical risks. The reaction to both the assassination of the Russian ambassador and the Berlin truck massacre was muted at best.
Is today’s complacency misplaced?
I believe growth will exceed on the upside not because of any stimulus measures but just from a moratorium of additional regulations. Government has paralyzed business and capital formation. This is not a political statement but rather an observation.
About 15-16 months ago for the first time since inception, sentiment survey after sentiment survey routinely stated government is the biggest fear of business not economics. Wow! This is huge.
The sense of relief that there will be at least a moratorium on regulations is being treated with great glee. What happens if there is an actual roll back?
As noted many times, monetary velocity is virtually nonexistent. Excess banks reserves are around $2.5 trillion versus the historical level of $1 billion. Reiterating a dated Chicago Fed study, if monetary velocity accelerated to 50% of its norm, growth would be around 6% and inflation around 10%.
I am not suggesting this will be the case but only commenting that there is great liquidity where there is the potential of growth exceeding expectations, the result of greater capital, the lifeblood of capitalism, economic and job growth.
Last night the foreign markets were mixed. London was down 0.14%, Paris down 0.521% and Frankfurt down 0.08%. China was up 1.11%, Japan down 0.26% and Hang Sang up 0.37%.
The Dow should open little changed. The 10-year is unchanged at 2.55%.