The market has talked a big game about the global reflationary trade after Donald Trump’s victory in the US presidential race, but there is very little evidence to suggest that the new president’s policies will materialise in the way he has promised, Hodges argued.
That’s why he has ignored the flurry of headlines urging investors to buy US Treasury Inflation-Protected Securities (TIPS).
“It’s been over 100 days of Trump, and I still don’t fully understand what his reflationary policies are going to be,” said Hodges.
“And the market obviously doesn’t fully appreciate the level they are going to be, otherwise government bond yields would be materially higher.”
After Trump’s victory was secured, investors instantaneously changed their expectations about the global economic backdrop, predicting higher inflation, stronger growth from the US and fiscal stimulus from the populist president.
But as others have noted, it will take much longer than markets are suggesting for additional fiscal stimulus to come through in a meaningful way.
And despite announcing he would unveil his corporate tax plan weeks ago, Trump has yet to say anything meaningful on the subject.
“Yesterday, it was revealed that the US now expects the future level of inflation to be around 3%. In response to that news, inflation levels did nothing,” he said.
And the level of inflation implied in every single asset class is lower now than it was at the end of November just weeks after the election, said Hodges.
“There is no way you would have generated any material returns as a longer-term or shorter-term investor by buying TIPS.”
