What does the Trump factor mean for inflation?
''Trumpflation is coming. Everyone knows it. It means higher interest rates in the U.S. It means the end of QE, negative and zero interest rates in Europe and Japan. It potentially means tariffs that will make prices of goods imported into the U.S. more expensive. And, if president elect Donald Trump gets his fiscal stimulus pass the deficit hawks in congress, it means more money for the economy which could lead to wage inflation. No American worker will complain about that.
But what do fixed income investors do now? Especially after sitting on lousy yielding U.S. Treasury bonds for years? Imagine those guys in Europe, holding negative yielding debt. How on Earth do you sell that stuff?
The question was asked by Schroders investment bank on Monday. On a blog post on its website today titled How to Prepare Your Portfolio for Inflation, writer Ben Arnold reminded investors of one important caveat: inflation erodes the value of capital. Americans haven't dealt with inflation for so long now that it may be something lay investors forget. Trump's promise to invest in American infrastructure and "strike deals" with multinationals looking to relocate to Mexico may be good for American employees of those companies, but the goods they produce are going to cost more money.
This pending expectation of inflation is impacting markets, especially bonds.''