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I have a saying “Weird begets weird.” Usually I use it during periods in the markets where normal relationships seem to hold no longer. It is usually a sign that something greater is happening that is ill-understood. ?In the financial crisis, what was not understood was that multiple areas of the financial economy were simultaneously overleveraged.
Well, we can say the same for many aspects of world affairs, including the US election. ?Many people?benefit from free trade, more than get hurt. ?Those who get hurt vote with greater probability. ?Though immigrants are actually a net help to the US economy, because many people think they hurt the economy, they vote accordingly.
After Brexit, there are related effects. ?People are less willing to surrender local advantages for matters that would be larger broad advantages. ?Who knows? ?Maybe the EU will break up next. ?Nah. ?Nothing good happens to continental Europe.
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Tomorrow, I will be a buyer. ?I don’t expect anything good out of Trump, but there is nothing worse from him than Clinton. ?I have 15% cash on hand for clients and me, and I will buy as the market falls.
So much for the market selloff. There will probably be a recession by 2018. The probability is not much impacted by the occupant of the White House. Higher wages will hurt profit margins (probably) and while they will help reduce leverage ratios in the household sector, they may not lead to much expansion in revenue, though over time it should lead to lower leverage and therefore more spending capability. Probably, though there will be another reduction in asset prices first, since what is restraining growth right now is the cost of transferring fixed assets, e.g. housing and the related consumption restraint necessary to acquire said assets.