#6 – Monitoring for Inflation and Trump Economic Indicators

After analyzing and monitoring a couple key indicators (e.g., oil, mortgage rates) that we laid out in the previous post on what a Trump presidency will mean for your personal finances, I am further of the belief, that many of these impacts will be fairly pronounced. To recap some of the biggest near term considerations that may impact your personal finances.

  • Interest rates will rise (and are rising), which will impact the demand for housing prices, which should normalize the  housing market and likely mitigate a housing bubble (less buyers willing to spend $$ on higher interest rates), but challenge’s the overall timing of whether to buy or rent.
  • Money will be spent, and a lot of it. Monitor where these infrastructure projects will be undertaken, and where an additional impact on the real estate market will occur (as a result of new railroads and infrastructure projects)
  • Rising tide of equity prices – driven by infrastructure spending, tax cuts and Trump’s de-regulation agenda (get into equities! and have some exposure)
  • Rising yield curve and impact on Fixed Income investments (reduce allocation in Fixed Income)
  • Monitor appetite of US debt securities (from foreign holders of US debt – e.g., China) (keep an eye on this)
  • Monitor Tax deduction / credit changes and how you can optimize to meet these potential changes

Below is a brief update of those indicators and some analysis to support the above observations.

Figure 1: Update of Inflation Indicators

Reviewing the last year (and namely in the last month) of Inflation Indicators, since Trump was elected we can see a marked increase in the yield curve and change in mortgage rates (3% increase month over month) and the ten year treasury yield curve (up 14%)

nov22

Figure 2: Correlation of Indicators

As Treasury Yield Curves have increased or decreased, Gold has moved in the opposite direction (-.90 strength)

As the Baltic Index has decreased or increased – Crude Oil has followed a similar path (.87 strength)

As you would expect as mortgage rates  increase they are highly correlated with the same direction moves from the Treasury Yield Curve (.92 strength), and a decline in

correlation

Figure 3: Summary of Foreign Holdings of US Debt

holdings-of-us-securities

 

Figure 4: Top Holders of US Debt

China and other countries including Japan continue to trim there US Debt Holdings. Will be key to watching as Trump spends more, whether appetite for US treasuries will change.

top-holders

Source for above data is US Treasury Reporting and Bloomberg.

 

 

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