Too Early for ‘Inflation Bets’?

After 35 years of waiting…so many false signals…so often deceived…so often disappointed…bond bears gathered on rooftops as though awaiting the Second Coming.

Many times, investors have said to themselves, ‘This is it! This is the end of the Great Bull Market in Bonds!’

And then, at the appointed hour, expecting the rapture…they took the leap of faith…only to come crashing down on the rocks below.

The ‘Trump Trade’

In 2008, in 2012, in 2014… Each time, the market made fools of them.

Now, weary…wary…and nearly broke…they make their bets as though they were setting an explosive charge at a federal building.

Bond rout accelerates as Trump stimulus vow spurs inflation bets,’ reports the Financial Times.

More than $1 trillion has been clipped from global bond values in the last week.

Meanwhile, the Dow continues to move up…closing in on 19,000…and a new all-time high.

This is the ‘Trump Trade’ — the bet that the incoming administration will be good for stock prices and bad for bonds.

It will be good for stocks, they believe, because ‘The Donald’ proposes to lower corporate taxes, remove regulation that stifles certain sectors, and reward other sectors — infrastructure and the military — with more money.

It will be bad for bonds because all this new spending will have to come from somewhere.


The federal government’s budget deficit is already running at 3% (of GDP). You can see where that leads. The economy is growing at only a 1% rate. That means it is adding three times as much debt as output.


The Trump plan calls for increased spending…while cutting taxes. Let’s see… Lower taxes plus even higher spending…hmmm. We’re getting a déjà-vu feeling all over again.

As colleague Chris Lowe points, estimates for the US government spending under a Trump presidency call for an increase in the national debt over the next decade of $5.3 trillion.

Blithering nonsense?

Those are the dots that we’re looking at. And what we see are higher rates of inflation.

We’re not so sure about high stock prices, though. We suspect that the stock market is going to take a tumble in the not-too-distant future.

As to bonds, however, the ‘Trump Trade’ looks to us like a sure winner.

But wait. It can’t be that easy. Even the newspapers, major investment advisers, and cockamamie, Nobel prize–winning economists see the same thing. They’re all recommending the ‘Trump Trade’.

And when everyone sees the same thing, we must all be going blind.

One of the objections to the ‘more inflation’ hypothesis comes from our friend and colleague David Stockman, who served as President Reagan’s chief budget adviser.

He believes the ‘reflation trade’ (that is, betting that more phony ‘stimulus’ will continue to boost the market) is for chumps.


Because the fiscal stimulus program won’t happen. It will run headlong into the black hole of US government finances…and disappear.

He has a point. Just because ‘The Donald’ calls for more spending, it doesn’t mean Congress will go along. Here’s David:

Folks, the whole Trump reflation trade is based on blithering nonsense. Uncle Sam will be stimulating exactly nothing in the years ahead because he is dead broke.

Moreover, even before President Obama ambles out of the White House, suitcase in hand, the Trump-Ryan-regulars-Tea Party gang will soon be lined up in circular fashion firing vehemently.

But it won’t be at the ballyhooed stimulus; it will be at each other as the looming expiration (March 15) of the nation’s $20 trillion public debt ceiling crashes upon the [smouldering] ruins of the Beltway Establishment.

Even without an assumed recession, the updated Congressional Budget Office deficit projections will soar past $1 trillion annually by the later years of Trump’s (only) term.

Yes, the feds are broke. And yes, Republicans did block previous efforts at fiscal stimulus. But we wouldn’t give up on the ‘reflation trade’ completely.

This may or may not turn out to be the best time to refinance your mortgage and jump off…

But it is time to look for the ladder… More tomorrow.


Bill Bonner,
For Markets and Money, Australia

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.

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