Trump and the “Reflation Trade”

http://www.trendmacro.com/system/files/reports/20161115TrendMacroLuskin-U0.pdf
Donald L. Luskin
Tuesday, November 15, 2016
The back-up in yields may signal something much greater – the end of secular stagnation.
Strategic view: 

The reaction in markets to Trump’s surprise win is all over the lot and internally contradictory – how are higher inflation expectations consistent with weak gold and a strong dollar? Supposedly the big back-up in yields is about expectations that, magically, Trump will embark on a debt-fueled government spending binge. Trump’s seeming mandate – more a symptom of shock and surprise than a true electoral mandate – may not be enough to get that done, if it’s even a priority for him. Longer term Trump may signal the end of “secular stagnation” – after eight Bush years of insecurity, and eight Obama years of self-loathing, his brash style evokes a revival of “animal spirits,” which is the deepest well-spring of growth. He has the executive power to roll back growth-smothering regulations, and facilitate the ongoing fracking revolution. In this growth environment, higher yields don’t have to be lethal to equity valuations.