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A Better Economy Under Trump Seems Unlikely

080519_USEconomy1My Comments: I want our economy to improve. It needs to improve. There are problems that are an existential threat to the continued welfare and wellbeing of my children and grandchildren.

Some of these threats result from the natural evolution of societies across the planet, things like demographics, the improving longevity of our species, and global warming. Others will result from decisions made by our elected leaders that regardless of party, will have an inevitable bias that limits a favorable outcome.

The next four years will reveal a very different bias than what we’ve experienced so far this century. It happens. Those of us who care have to work to make sure that the pendulum does not go too far so it can again swing back the other way, to the benefit of ALL OF US.

Updated: November 27, 2016 | Mark Zandi

Americans voted for change when they made Donald Trump president, and they are going to get it. What this means for the economy is uncertain, but under most scenarios, it ultimately will be diminished.

Financial markets have adjusted surprisingly well to the prospect of a President Trump, at least so far. Stock prices have rallied, the value of the U.S. dollar has strengthened, and interest rates have jumped.

Investors expect the Trump administration to adopt an expansionary fiscal policy. That means deficit-financed tax cuts and increased government spending.

With the economy near full employment, investors anticipate inflation to pick up and the Federal Reserve to increase interest rates more quickly. Outsize gains in financial and health-care stocks imply that investors also believe Trump will scale back Dodd-Frank regulatory reform and Obamacare.

If financial conditions hold firm, the election should have little immediate economic fallout. It also helps that Mr. Trump is inheriting a fundamentally strong economy. Job creation remains robust, and with near-record open job positions and few layoffs, it would take a severe shock to derail things.
But how well financial markets and the economy hold up in the coming year will depend on how quickly the new administration articulates and implements its economic policies. The Trump campaign wasn’t very forthcoming about those policies, likely in part because they weren’t well-developed. The campaign’s economic-policy team was thin, as nearly all establishment Republican economists decided not to participate.

And it remains unclear who will take the key policy positions in the administration, let alone where the teams of economists, financial analysts, and lawyers needed to formulate legislation will come from. They will come, but it could take an uncomfortably long time, particularly for impatient financial markets.

Still, a Republican-controlled House and Senate will smooth the way for more policy to become law, particularly since the Senate filibuster is no longer the legislative fetter it used to be. The president also has significant authority over trade and immigration policy.

So what will economic policy be under President Trump? It is highly likely that two pending trade deals, the TTP with the Pacific Rim and the TTIP with Europe, will be shelved. Labeling some countries, such as China, currency manipulators can’t be ruled out. Presumably this would result in some form of action, such as higher tariffs.

It is a good bet that fewer immigrants will be allowed to come and stay. To satisfy his campaign pledge to require the undocumented to leave the country, President Trump will increase enforcement and may more aggressively implement the e-verify program used by employers to determine whether potential employees have appropriate work visas.

Tax cuts seem likely, albeit with a much smaller price tag than he proposed during the campaign. The corporate tax code will probably also be brought more in line with those of other countries, and there will be a one-time lower tax rate for repatriation of foreign profits now held overseas. More government spending on veteran benefits and the military seem likely, and while more infrastructure spending isn’t as sure, given skepticism among some congressional Republicans, President-elect Trump is openly supportive of it.

It is difficult to see how President Trump will pay for his tax and spending policies. They will likely add significantly to the government’s already uncomfortably large deficits and debt load.

If all this is approximately right, then the economy over Trump’s four-year term will fall meaningfully short of what it would have if there had been no changes in policy. Eventually, it will suffer weaker GDP and job growth, higher inflation and interest rates, and a heavier government debt load.

Behind this poorer performance is a smaller workforce, as some undocumented workers leave and fewer legal immigrants come. Global trade also suffers, given the greater skepticism around our relationships and what is likely to be a somewhat stronger U.S. dollar, particularly against the Chinese yuan and other emerging currencies, like the Mexican peso.

There are important long-term economic benefits from lower marginal tax rates and a reformed corporate tax system, but these changes are too small to have a significant impact on growth, at least not quickly. And then there are the tax and spending policies that result in larger budget deficits. Expansionary fiscal policy makes sense when the economy is in a recession, but it makes little sense when the economy is operating near full employment, as it is today. It only fuels inflation, and higher interest rates.

Mr. Trump’s election also arguably has a deeper, potentially more ominous meaning for the global economy. On the heels of the Brexit vote in the United Kingdom, it indicates that antiglobalization populist political sentiments are more widely held across the globe. Populism’s next victim may be the eurozone. And if it fractures, so too will the global economic expansion.

Economic policy under President Trump can go in many different directions. But to believe that his anti- globalization, deficit-adding policies will result in a better economy is misguided.

Mark Zandi is chief economist at Moody’s Analytics.

Don’t Make These 5 Social Security Mistakes

My Comments: My time these days is consumed by holding Social Security Benefits workshops and the resulting strategy sessions held with those who attend these workshops. I’m busier than I’ve been in a long time.

What follows are the 5 points made by the author in the referenced article. Some you may already know about, but as today is Tuesday, it’s my weekly effort to bring some light to this complicated issue.

1. Not planning for retirement, including Social Security income

2. Filing for benefits at the wrong time

3. Assuming you won’t get benefits

4. Not maximizing your base benefits

5. Not coordinating with your spouse

To read the full article, which is not very long, go HERE…

Emerging Markets Are In Jeopardy

My Comments: Why, you might ask, is this relevant? Here is my answer:

If you are retired, or making plans to retire, it could greatly influence the amount of money you have to spend and live on during the next decade. And with Trump promising to cede economic leadership to China by killing the TransPacific Trade Partnership, the chances of this happening are real.

Like it or not, globalization is here to stay. Emerging markets (where things are made and sold) across the globe will continue to influence the stock and bond markets that we Americans use to build our wealth in support of retirement.

The source of this blog title comes from Leo Nelissen and was published on November 27, 2016. It follows the recent surge of the US dollar (USD) as a currency of choice across the planet.

USD denominated debt has more than doubled since 2009. Today it represents 17.5% of all such debt in emerging markets, which is up from about 1% just 30 years ago. The real increase has happened in the last 7 years. Here’s a key takeaway from his article:

“A stronger USD means that the debt load soars. This sounds very simple – and in fact, it is very simple. However, the outcome can be extreme.” To read the full article, go HERE.

The World Is Getting Better and Nobody Knows It

CharityMy Comments: For me, the glass is always half full. I try to live today and worry only about the future. I am easily ticked off by those who try to live in the past, or try to re-litigate the arguments of history. It’s a waste of time in a world, that for me, is getting shorter. You can argue that I see the world through rose colored glasses, and maybe I do, but I am who I am and will probably remain so.

Johan Norberg | Friday, October 14, 2016 | FEE.org

A couple of years ago, I commissioned a study in which 1,000 Swedes were asked eight questions about global development. On average, every age group and every income group was wrong on all eight questions – because they all thought the world was in bad shape and getting worse. Large majorities, for example, thought that hunger and extreme poverty have been increasing, when they have in fact been reduced faster than at any other point in world history. And those who had been through higher education actually had less knowledge than the rest.

It’s not just Sweden. In Britain, only 10 per cent of people thought that world poverty had decreased in the past 30 years. More than half thought it had increased. In the United States, only 5 per cent answered (correctly) that world poverty had been almost halved in the last 20 years: 66 per cent thought it had almost doubled.

Bad News and the Media

Why do we make these false assumptions? Many of them are formed by the media, which reinforces a particular way of looking at the world – a tendency to focus on the dramatic and surprising, which is almost always bad news, like war, murder and natural disasters.

A study from Baltimore, where crime has been falling rapidly, showed that 73 per cent of those who watched the news every day were careful not to stay out too late in the city, compared to 54 per cent of those who watched it no more than twice a week. Almost everybody thought that crime was prevalent – but they all thought it occurred somewhere other than where they lived. The environment they had first-hand knowledge of felt safe, but the places they heard about on the news seemed very risky.

Many journalists and editors acknowledge this tendency. The American public radio journalist Eric Weiner says: “The truth is that unhappy people, living in profoundly unhappy places, make for good stories.” When the Swedish TV journalist Freddie Ekman was asked about the biggest news stories during his half a century in the trade, he responded by listing the murder of Prime Minister Olof Palme in 1986, the sinking of the cruise ferry Estonia in 1994, and the terror attacks of 9/11. When asked about any positive stories during this period, he answered, “One doesn’t remember them, because they never get big.”

Data vs Emotion

From a broadcaster’s perspective, this makes sense. If a plane crashes, we want to hear about it. But this also means that we shouldn’t be content with getting our information from the news alone; we need background and context, history and statistics. What is really impressive is the fact that 40 million planes take off every year, and almost every one of them lands safely. Since the 1970s, the number of passengers has increased more than ten-fold, and yet the number of accidents and fatalities has halved – but you would never know it from following the news.

Max Roser, an economist at Oxford University who collects data on the world’s development, puts it this way: “Things that happen in an instant are mostly bad. It’s this earthquake or that horrible murder. You’re never going to have an article on the BBC or CNN that begins by saying: ‘There’s no famine in south London today’ or: ‘Child mortality again decreased by 0.005 per cent in Botswana’.

There are many benefits to the kind of instant news that global TV networks and the internet have brought us. At last we have learned about the conditions under which people live in other parts of the world. But it also makes it easier for someone, somewhere to find something truly shocking to report on. There is always a war, and there is always a child murderer on the loose, and that is what will top the news cycle – all the time. And, of course, political parties, campaigners and pressure groups always exploit our fear to promote their own ideologies.

It is our own fault. If we didn’t want to read about, listen to and watch bad news, journalists would not report it. Indeed, when something terrible happens anywhere, two billion smartphones will nowadays make sure that we find out, even if no reporters are on the scene.

It’s Evolution

This obviously has long-term consequences. The psychologists Daniel Kahneman and Amos Tversky have shown that people do not base their estimates of how frequent something is on data, but on how easy it is to recall examples from memory. This “availability heuristic” means that the more memorable an incident is, the more probable we think it is, so we imagine that horrible and shocking things, which stay in our thoughts, are more frequent than they are. We are built to be worried. We are interested in exceptions. We notice the new things, the strange and unexpected. It’s natural. We have been hardwired this way by evolution. Fear and worry are tools for survival: the hunters and gatherers who survived sudden storms and predators were the ones who had a tendency to scan the horizon for new threats rather than those who were relaxed and satisfied. If the building is on fire, we need to know about it immediately.

Steven Pinker mentions three particular psychological biases that make us think that the world is worse than it really is. One is the well-documented fact that “bad is stronger than good” – we are more likely to remember losing money, being abandoned by friends or receiving criticism than we are to remember winning money, gaining friends or receiving praise.

Another emotional bias is the psychology of moralisation. Complaining about problems is a way of sending a signal to others that you care about them, so critics are seen as more morally engaged. A third bias is our nostalgia about a golden age when life was supposedly simpler and better. As the cultural historian Arthur Herman observed: “Virtually every culture past or present has believed that men and women are not up to the standards of their parents and forebears.”

The fact that things have in fact been getting better – overwhelmingly so – does not guarantee progress in the future. After years of easy money and debt financing of companies and governments, a large-scale financial crisis is possible, when all the bills come due. Global warming may threaten ecosystems and affect the lives of millions. Large-scale war between major powers is possible. Terrorists could wreak havoc on a massive scale if they get access to our most powerful technologies, but they could also co-ordinate a large number of smaller attacks on civilians.

But more than that, people led by fear might curtail the freedom and the openness that progress depends on. When Matt Ridley, author of The Rational Optimist, is asked what he is worried about, he usually responds, “superstition and bureaucracy,” because superstition can obstruct the accumulation of knowledge, and bureaucracy can stop us from applying that knowledge in new technologies and businesses.

Yet in our era of globalisation, more countries, in more places, now have access to the sum of humanity’s knowledge, and are open to the best innovations from other places.
In such a world, progress no longer depends on the whim of one emperor. If progress is blocked in one place, many others will continue humanity’s journey.

“…the Nature of Capitalism”

world economyMy Comments: There are changes afoot, and our President Elect seems to have no clue but then Hillary missed it too. In all fairness I didn’t see it either until I read this and it served to crystalize some thoughts I’ve had related to the income inequality so many of us are worried about.

Income inequality is the disparity between what those at the top of the economic food chain get paid every year, and the rest of us get paid who are not at the top.

It’s linked to the anemic job growth numbers across the nation, to the rise in disaffected people who showed up at the Trump rallies, to the tension in so many communities between law enforcement and the people they are supposed to be protecting, the tension between rural and urban populations, and on and on. Sometimes it is racism, but at a fundamental level, it’s the threat posed by the absence of economic opportunity.

There are huge implication for people with years of retirement left to navigate. These thoughts below come from a highly credible source are critical in my judgement in our preparations for the future.

by Oscar Williams-Grut | November 5, 2016

Lord Adair Turner, the former vice chairman of Merrill Lynch Europe and ex-head of the Britain’s financial watchdog, is “increasingly worried” that advances in technology are undermining capitalism and stopping the global economy recovering from its “post-crisis malaise.”

In an interview with Business Insider, Lord Turner said: “We have an economic malaise where the capitalism system is not delivering as well or to enough people to maintain its legitimacy.

“There’s a certain sort of equality of citizenship that requires that everybody does OK. I think that may breakdown. I think it may breakdown because of the fundamental nature of technology. You have to be aware that the way that capitalism works will vary depending on the different stages of technology that we’re in.”

‘Huge returns for them and relatively low and precarious returns for an increasing percentage’

Lord Turner ran the Confederation of British Industry (CBI) in the mid-1990s, before becoming vice chairman of Merrill Lynch Europe from 2000 to 2006. He then served as head of the UK’s former financial watchdog the Financial Service Authority from 2008 to 2013, taking the jobs on the eve of the global financial crisis sparked by the US mortgage security bubble.

Lord Turner is now chairman of George Soros’ economic think thank the Institute for New Economic Thinking and this year authored “Between Debt and the Devil” on the global financial crisis.

He told Business Insider that businesses like Facebook, Uber, and Airbnb are focusing huge amounts of wealth in the hands of relatively few people and generating fewer jobs than previous technological breakthroughs. This is undermining the fundamental promise of capitalism that advances in technology and the wider economy will bring some benefit to everyone.

He said: “Look at Facebook — it now has a market cap of about $370 billion. It only employs 14,000 people and it had to do very little investment in order to get there. The reason is this technology has this extraordinary feature that once you develop one copy of software, the next billion copies don’t cost you anything.

“There’s zero marginal cost of replication. That is just completely different from the world of electromechanical machinery. Once Henry Ford had built one factory, if he wanted another he’d have to build it all over again. He had to put in lots of millions of stock.”

Technological innovations, such as industrialisation, have traditionally generated more jobs than they destroyed. But research by Citi and Oxford University earlier this year found a “downward trend in new job creation” from the 1980s onwards, with technology generated fewer, lower-skilled jobs than past revolutions.

The World Economic Forum has already forecast that 5 million jobs could be eradicated by technology by 2020 and 57% of all jobs across the OECD are at risk of automation, according to research by Citi and Oxford University.

Lord Turner says: “The problem is this: I think we probably are on the verge of a wave of automation and robotisation and the application of big data etc., which will tend to create an economy of huge returns for the people clever enough to create the software, do the big of data analytics, create the computer game, create the new business model or the data system that sits at the centre of Airbnb or Uber. “Huge returns for them and, for a variety of reasons, relatively low returns and precarious returns for an increasing percentage of the population.”

‘One of the things is it does seem to be driving inequality’

Multi-billion dollar tech platforms like Airbnb and Uber pitch themselves as part of the “gig economy,” which they say helps people earn extra money through either flexible work or renting out their assets.

But British economist Guy Standing argues that most of the people who work on these types of platforms are part of what he terms the “precariat” — low-paid workers with precarious job security. He claims these types of platforms that connect workers with employers are part of a wider trend of low-paid agency work.

Tech platforms’ role in society has been in focus recently, with a British employment tribunal ruling that Uber drivers were in fact staff rather than freelancers on the platform. As a result, they are legally be entitled to things like holiday pay and sick pay.

Lord Turner says: “I think we’re just at the beginnings of understanding what deep things this [technological change] does. One of the things is it does seems to driving of inequality. This information and communication technology enables huge wealth creation with very little investment for some categories of people in the economy and creates jobs that are very low pay for others.”

Lord Turner thinks this tech-driven inequality has contributed to the popular resentment for elites and mainstream politics that drove the Brexit vote and support from Donald Trump in the US elections.

He says: “I think we may be at a turning point in the nature of capitalism. Our assumption for the last 200 years has been that although there are ups and downs year by year, broadly speaking decade-by-decade capitalism delivers an increase in GDP per capita and although it’s not an equal system, some people do better than others, on average over a couple of decades everybody does OK.”

‘I am increasingly convinced and worried there are more fundamental forces at work’

Lord Turner suggested that a solution the tech-driven equality could be a universal basic income — a flat wage paid to all citizens that is enough for them to live on. Experiments with this are being carried out in Holland and Kenya.

An alternative could be that the government ensures people are paid a “living wage” for essential human roles such as health and social care, Lord Turner says.

He told BI: “There are many jobs that we need to do in our society, care etc., that you can’t automate and you wouldn’t want to automate. They need to be done but it may be that if you leave those entirely to the private sector or the state in trying to buy them, using competitive bidding processes to continually drive the price down, those things where we do need people to do the job will be at rates so low that it doesn’t give people enough income and dignity.

“Does that mean that we just have to accept that the state has to say through the social care system and health care system it’s going to employ people and pay people at a rate which it considers reasonable — a living wage or whatever — rather than at the lowest rate at which it can put it out to competitive bidding?”

But Lord Turner added: “I think it’s a fundamental social issue that we will increasingly have to debate and I think we don’t really know what the policy levers there are.”
Lord Turner believes that finding a solution to the problems presented by the new tech economy are essential not just to repairing global trust in capitalism but also in repairing the global economy itself.

Lord Turner argued in his book, “Between the Debt and the Devil”, that the global economy’s painfully slow recovery from the 2008 crisis has been caused by the huge debt overhang created by a half century of loose credit conditions in the run up to the crash.

But he told BI: “Whereas soon are 2008 I felt our problem was fundamentally just an enormous debt overhang generated by an out of control credit boom, I am increasingly convinced and increasingly worried that there are some more fundamental forces at work which is why it’s taking so long to get out of, and why we’re still not out of, this post-crisis malaise.”

Women Failing To Max Out Social Security Benefits In Retirement

SSA-image-3My Comments: Social Security is well named. It provides financial security and because it is so pervasive, it carries a social legitimacy that is hard to argue against.

Looking after the elderly has been a social mandate among humans forever. And given that women tend to outlive men, the social needs of women after a certain age carries a special mandate.

This country, in keeping with social norms found across the globe, introduced Social Security in the 1930’s. It is a complicated and diverse project, one that needs to be understood to fully benefit from what it offers. This might help.

Warren Hersch on October 13, 2016

When to begin taking Social Security is an important decision for all soon-to-be retirees, but more so for women than for men.

That’s because women receive (on average) reduced lifetime earnings and income from retirement accounts like 401(K)s and company pension plans. Add to this one other important fact: Women tend to outlive their male spouses, forcing many to rely on their own financial resources in retirement.

That brings us back Social Security. The longer women wait to begin receiving benefits, the higher their income stream will be. On this score, most female retirees are failing to maximize the payout, one that can ensure a large enough nest egg to carry them through the proverbial Golden Years.

These were the conclusions reached by the Nationwide Retirement Institute in a new online survey of 909 U.S. adults over age 50. People in the survey pool were either retired now or plan to be in the next 10 years. The “2016 Social Security Study,” conducted by Harris Poll on behalf of Nationwide, included online interviews with 465 women, among them 301 who are currently retired and 164 who plan to retire in the next 10 years.

The report finds that women, on average, expect Social Security to pay more than half (56 percent) of their expenses in retirement. But among those currently receiving Social Security, only 17 of the survey respondants, or 5 percent, maximized their monthly check by waiting to claim at age 70 or later. In contrast, 8 in 10 retired women now collecting Social Security benefits took those benefits early, locking in a lower lifetime income.

“Too many women retirees have no retirement income outside of Social Security,” Nationwide Retirement Institute Vice President Roberta Eckert said in a press statement. “And even for women that do, the fact that they live longer makes maximizing Social Security benefits extremely important.”

Among the report’s key findings:

  • More than a third of women (35 percent) were kept from doing the things they wanted in retirement. One reason: health care expenses, which prevented nearly one in four (24 percent) women from pursuing retirement objectives.
  • Looking back, nearly 1 in 5 (17 percent) of women who are now drawing Social Security wish they could change their decision and file later. Of those who would not change their filing decision, 39 percent say an unforeseen life event compelled them to take it early, including unplanned health problems (17 percent).
  • More than one in four women currently drawing Social Security (30 percent) say their Social Security payment is less than they expected. Women who have yet to collect Social Security, on average, expect to get $1,527 in monthly benefits.
  • On average, women retirees are currently collecting $1,153, and those who started taking Social Security early report receiving just $1,084.
  • Only 13 percent of women say they received advice on Social Security from a financial advisor. However, nearly 9 in 10 women surveyed who work with an advisor (86 percent) say their Social Security payment was as expected or more than they expected.
  • About three in five women (61 percent) admit that if their financial advisor could not show them how to maximize their benefit, then they would switch to an advisor who could.

‘Believe Me, We’re In A Bubble Right Now – A Big, Fat, Ugly Bubble’ – DJT

bear-market--My Comments: Part of me wants to believe the Laws of Physics (and economics) have been reversed, that gravity no longer means ‘what goes up must come down’. The other half says gravity is still here.

Wednesday afternoon, right after the election, I got a raucous tweet from someone making fun of my having said the market might crash soon. He/she was gloating as the market had risen solidly that day despite the expected woe and gloom. I’m probably going to get some more adverse comments from this post.

If you really think ‘it’s different this time’, I think I can find you some really nice real estate just east of Daytona Beach? At a great price!

There’s a ton of uncertainty going on across the globe these days, and if you really need your money in the coming years to sustain you, then it’s buyer beware time. The threat level is high, and I’m retreating to my cave.

Nov. 12, 2016 by Gary Gordon

  • Stocks have been trading at exorbitant prices across a wide range of historically reliable metrics.
  • I have argued for nearly two years that a bull market predicated on the expansion of the Federal Reserve’s balance sheet cannot rise in a meaningful manner when the balance sheet itself stops growing.
  • You may want to keep a healthy dollup of cash in your pocket to protect against the realistic possibility that risk assets struggle to stay at current levels.

Six trading weeks ago, on September 26, 2016, a famous businessman warned about risk in the investing environment. He declared the following: “Believe me, we’re in a bubble right now. The only thing that looks good right now is the stock market and if you raise interest rates even a little bit, that’s going to come crashing down. We are in a big, fat, ugly bubble.“

Care to take a stab at the prominent voice responsible for the admonition? It was President-elect Donald Trump.

Perhaps ironically, Trump was a long-shot candidate aiming for an upset bid to win the White House when he made the remark. Now he is the President-elect. Yet the question remains… were the remarks little more than bluster at the initial debate with Secretary Clinton or did they accurately reflect the risk of financial loss moving forward?

We can begin answering the inquiry by taking a look at traditional valuation measures. Doug Short from Advisor Perspectives aggregated the average of four popular valuation methods through the end of October. Not only are U.S. equities more overvalued on the average of these indicators than they were in October of 2007 before the financial crisis – not only are stock valuations close to two standard deviations above the collective mean – but the current circumstances have only been surpassed by the bull market tops in 1929 and 2000.








In truth, the above-described findings are not particularly shocking. You can even replicate the findings with scores of less popular valuation techniques – market-cap-to-GDP, margin debt, price-to-sales, household equity percentage, household net worth as a percentage of GDP and so forth. Stocks have been trading at exorbitant prices across a wide range of historically reliable metrics.

There is one “justification” for current stock prices. Specifically, bullish optimists maintain that ultra-low interest rates justify higher-than-normal stock prices. The argument is twofold: (1) Stocks are supposedly attractive when the earnings yield (E/P) is greater than the 10-year treasury yield, and (2) Stocks are attractive when dividend prices exceed the yield on the 10-year treasury.

Unfortunately, as I have written about at length in the past, the “Fed Model” does not hold up particularly well in a historical context. First of all, there’s no such thing as an earnings yield in stocks. For instance, you do not actually lock in an earnings yield of 5.6% should the S&P 500 present a Forward P/E of 17.8. The E/P is entirely theoretical.

Perhaps more importantly, those who have been arguing that the dividend yield is higher than the equity yield of the S&P 500 may need to reassess. The 30-day SEC yield for the S&P 500 SPDR Trust (NYSEARCA:SPY) is 2%. The 10-year yield? 2.14%.

I do not agree with Trump’s notion that we are in a “big, fat ugly bubble” that is doomed to burst in spectacular fashion. I view the current environment as having very little upside reward for a whole lot of risk. I visualize a balloon that is not capable of taking in a whole lot of additional air, but one that may (or may not) see the gas leak slowly out of the rubber. It may even reflate after some leakage such that an epic balloon popping does not come to fruition.

In this vein, I have argued for nearly two years that a bull market predicated on the expansion of the Federal Reserve’s balance sheet cannot rise in a meaningful manner when the balance sheet itself stops growing. Indeed, since the Fed ended the creation of new dollar credits in the 4th quarter of 2014, the total U.S. market in the Russell 3000 has barely gained ground. And the broad-based New York Stock Exchange? The NYSE Composite has actually lost ground over two years.

Let me come back to a portion of the Trump comment again. He said, “The only thing that looks good right now is the stock market and if you raise interest rates even a little bit, that’s going to come crashing down.”

By most accounts, the Fed intends to raise rates a little bit (0.25%) in December. More noticeably, the bond market itself has seen to the 10-year treasury yield rocket 50 basis points (0.50%) since Trump first made the declaration. So why haven’t stocks come crashing down yet? How far do those bond yields have to rise before stocks really do falter?

Keep an eye on the U.S. dollar. If the Fed raises its overnight lending rate in December as most expect them to do, and if the dollar pushes above resistance levels as they did last year, an imperfect storm may develop. Specifically, an elevated dollar would hamper corporate earnings at a time when borrowing costs are moving higher. That may not be a pretty picture for equity enthusiasts.

It has been fascinating to watch the mainstream media change its tune about the ways in which Trump would adversely affect the stock market. The truth? There are certain industries that may benefit from the President-elect’s proposals (e.g. defense contractors, resources, financials, etc.). There are other industries that may fare poorly (e.g., technology, alternative energy, hospitals, etc.).

Nevertheless, U.S. stocks are still exceptionally pricey and higher bond yields may be difficult to overcome. Live by the rate manipulation sword, die by the rate manipulation sword.

It is also is worth remembering that year-over-year job growth peaked (2.3%) near the time that the Fed finished its QE program. It is down to 1.7% today. A similar peak occurred in job openings near the tail end of 2014.

The bottom line? Those who did not see their livelihoods improve during our slow-go economic recovery may hope that President-elect Trump can deliver the goods. And investors may hope that a Trump presidency will enhance their portfolio prospects for years to come.

On the flip side, hope has a whole lot of headwinds in its path. Exorbitant valuations. Fed policy uncertainty. Interest rate pressure. You may want to keep a healthy dollup of cash in your pocket to protect against the realistic possibility that risk assets struggle to stay at current levels.