President-elect Donald J. Trump may be the one left holding the bag when the next recession hits because of years of credit expansion.
“He may be the unluckiest man in the world to win this job at this particular time,” Grant Williams, the author the research letter “Things That Make You Go Hmmm” and co-founder of RealVision Television, told Yahoo Finance in the video above.
“Because, we were for a long time, 7 years, without a recession in the US,” he continued. “We are overdue one. And some of the data that’s been coming out in the last couple of quarters suggests that we are very close to one.”
Following the 2008 financial crisis, central bankers unleashed ultra easy monetary policy. One of the efforts involved the Federal Reserve making large-scale purchases of bonds, aka quantitative easing. In the eight years since the crisis, interest rates remain at or near zero, and in some parts of the world they’re negative.
The Fed’s policies were meant to encourage the consumer to spend and thus stimulate the economy.
“It seems to me at the grassroots the consumer is not doing too well. As goes consumption, so goes the US economy. I think [Trump] definitely needs to be weary of this.”
Williams told Yahoo Finance that if Trump is aggressively stimulatory and we get some reflation “maybe he can hold it off.”
Even though Trump led the Republicans in a sweep of Congress, putting the party in control of both the House and the Senate, it will take a while for policies to materialize.
“Even though he has control of the House, control of Congress. It takes a while to get these things through. I would be surprised if, with the exception of a few token projects, they get anything up and running until the end of 2017,” he said, adding, “Realistically, people jumping in day one to buy copper, for example, up 6% because of this is a little too premature I think there’s too much uncertainty around this to place all of your bets right now.”
On election night, as it became clear that Trump would win, Dow Jones Industrial futures dropped 5%. Overnight, those futures roared back to finish the day up 6%. Investors seem to interpret a Trump presidency as a positive for the market.
Williams expects that there will be volatility.
“Any market that goes down 5% and up 6% on the same news is inherently unstable.”
Julia La Roche is a finance reporter at Yahoo Finance.