The new administration is expected to lower taxes, reduce regulations, and increase deficit spending thereby flooding the market and economy with cash.
Remember all there is in the markets are the assets traded; whether stocks, bonds or commodities such as crypto. Money goes in and out of investors pockets. When the amount of new money exceeds the supply of stuff to buy; prices go up. That is a Bull Market.
Money printing was the key tool to fixing the economy after the Covid epidemic stalled the US economy and markets. Money printing has become the most popular tool for boosting the markets. That’s why the new administration believes that reducing taxes and regulations will boost the economy.
However, at some point the expected Spike in Deficit Spending will Eventually Crash Both Bonds & Stocks
Yes, the markets and overall economy have been at record highs. Yet, despite the booming markets, Trump won because half of Americans do not own stocks or housing. Those on salaries who are renters and don’t own stocks are doing worse now than before. The half without stocks and homes are taking home less after inflation and are pissed watching record stock prices. Add higher home prices with a doubling of mortgage rates and add all the goodies being distributed to immigrants and minorities and no wonder Trump won.
Unfortunately, the bottom half will not be helped by Trump’s expected largesse of lower taxes increasing take home pay of high earners, higher taxes disguised as tariffs on imports and destroying the wealth created by immigrants he wants to kick out.
Economic growth is a function of increased labor plus technological breakthroughs. The myth is that so-called illegal immigrants have a negative impact on the economy. The opposite is true. Illegals are willing to take jobs the natives don’t want earning minimum wages. Reducing the number of immigrants will spike wage inflation an even reduce agricultural activity.
Indeed the US Treasury collects $ billions in social security payments that illegals pay as a result of giving employers a fake social security number to get a job.
Mass deportations will crash the US economy.
As will massive tariffs. A 25% surcharge on imports helps US producers. But the costs of imported goods will spike hurting the very voters who elected the current administration.
Bottom line. Over the first few months of the new administration more money chasing relatively less stocks and crypto will boom prices.
Eventually however, lesser government revenues, fewer workers, higher inflation due to tariffs and higher prices due to relatively limited supply of assets will crash the markets and the economy.
In other words, a Bear Market.
The current $ trillion deficit will surge. At some point – probably by at least mid to late 2025, bond and mortgage interest rated will spike and stocks will crash.
Charles Biderman