jay_beckner

I play poker and trade options, seeking edges from study, reflection and analytics.

The Election's Big League Issue

The Election's Big League Issue

The U.S. Presidential Election has been a difficult and divisive process. It will be good when it appears in the rearview mirror so Americans can start healing and working together for positive change.

To put the event in proper context is important, however. It's consensus in the financial community that we are in the midst of something much bigger: The End of the Global Debt Super Cycle. The ultimate outcome is widely debated.

I just linked to an interesting article by Etai Friedman who, from what I can tell, is a bearish trader/money manager. The piece, that draws a significant political distinction, was written in March of this year before the headlines were dominated by Hillary vs Trump.

Net (corporate) debt pulling ahead of earnings is one troubling signal pointed out by Friedman.

Net (corporate) debt pulling ahead of earnings is one troubling signal pointed out by Friedman.

Friedman talks about the Fed's reaction (chaired by Greenspan during the Reagan administration) to the '87 stock market crash and how monetary policy and related economic structures have unfolded since. Reading his analysis, it's easy to think fiscal and broader government reform is the biggest issue facing America in the next four years.

"Major fiscal policy adjustments will be needed and this will depend on who takes the White House in 2017. A Democratic win would be a negative while a Republican win by certain candidates may pave the way for major fiscal policy changes. For instance, Ted Cruz’s flat tax would be particularly beneficial and soften the blow of the economic contraction as more money will be directly put into Americans’ hands."

I agree with Friedman's implication that perpetuating the status quo is negative, possibly turning the recent Great Recession into something worse that we don't have the monetary policy tools to combat. With an America-first agenda (e.g. tax, entitlement and immigration reform, repatriation of capital kept abroad by U.S. companies and revised trade deals), there's a chance for domestic resilience in the face of a global debt unwind.

Regardless, volatility is on the horizon.

Lead image source: Google Search. Assuming Creative Commons license until I learn otherwise.
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