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ANALYSIS: Should bears buy bond proxies on weakness?

In the days since we woke up to the realities of President Trump, markets have indeed moved in mysterious ways.

As Oaktree Capital’s renowned bond investor Howard Marks asked: “How could the expectation of a Clinton victory make stock prices rise, and then the reality of her defeat make them rise further?”

While all logic tends to go out of the window when making market predictions, there are nevertheless good reasons for a rally.

Marks is intrigued by Trump’s pro-business agenda, including reduced income tax rates on corporations and big earners and tax ‘holidays’ for corporations bringing in profits stranded abroad.

There are also promises of a reduction in business regulation, with less pressure on healthcare companies to cut prices and a softer stance on banks. Predictably, both sectors rallied immediately following the election result.

Says Marks: “At the bottom line – if everything works as promised – there will be massive fiscal stimulus; big increases in GDP growth, corporate profits and jobs; higher inflation than otherwise would have been the case; a big increase in the national debt; and more of everything for everybody”.

It’s hardly a contrarian view to suggest that one or two, or indeed all of these policies and predictions will backfire, and there are plenty of commentators nervous of a possible global recession in the next 18 months.

Part of the Bonhill Group.