Whose your Daddy !!!! Wednesday, page-2

Hi all!

I just want to add some comments on the direction of the DJIA given that as of writing FOMC places the chances of Fed raising interest rates at 93.2% tomorrow night.  The first thing that catches my attention is the sheer volume that went through the DJIA last week. I believe around $1.6B was traded last weekend which is nearly double the volume anytime in the last year at least.

This is staggering considering that interest rate rises usually dampen market rallies. The question remains, what is driving this rally and where does it end. The only logical answer is that investors are still pricing in the increase as a result of the coming Trump stimulus that promises corporate tax cuts and spending (on more than the Mexican wall!).

The problem with this logic is that the GOP in congress have spent the last 8 years complaining that President Obama was running up the deficit with reckless spending on Obamacare amongst other initiatives. How do they suddenly turn around to Trump and saying heck with balancing the budget, let's give out more tax cuts to corporations and spending like the budget deficit didn't exist.  For this to happen, Trump is either going to print money or default on the deficit because he's not going to get the money out of China given his tough stance on their currency and cheap imports.

In summary, I think the key point is actually how believable is his proposed stimulus measures especially in line with congresses stance on spending over the last 8 years. Interest rate rises are definitive. Stimulus spending on the other hand is contingent on congress and President elect Trump agreeing. I don't think the recent record highs for all the major US stock indexes properly prices this uncertainty.

Ill leave you with a chart that I cant work out how to properly attach. The graph in the link shows that in terms of the S&P 500 PE ratio over the last 90 years, we are close to exceeding every period but the Dotcom boom. Time will tell whether the US markets are currently overpriced but based on history signs are already ominous.

http://www.macrotrends.net/2577/sp-500-pe-ratio-price-to-earnings-chart

What goes up must come down!

Cheers
Maxim