Friday, December 30, 2016

Jim Rickards: Trump’s Stimulus Plan Not Happening

Economist Jim Rickards appeared on CNBC’s “Squawk Box” outlining his 2017 predictions for rate hikes, Trump stimulus, and the coming US recession. Rickards believes the markets are unwittingly pricing in a stimulus plan that will never materialize.

“Trump wants to cut taxes. Steve Bannon is talking to his advisors about a trillion dollars of infrastructure spending, cutting regulations. All of these things are viewed to be highly stimulative. That’s why the market is going up. Pharmaceuticals are going up on the repeal of Obamacare, banks going up on the repeal of Dodd-Frank.”

The markets and the Fed have the perception that tax cuts and spending will continue despite the realities of a fiscally conservative congress, a $20 trillion of debt and a 104% debt-to-GDP ratio.

“But here’s the point,” Rickards states, “the stimulus is not going to come… Congress has already said tax cuts have to be revenue neutral. That’s going to take away the simulative effect. They’re going to balk at more spending.”

While a March rate hike is likely, according to Rickards, the Fed will backpedal when the market corrects or when the next recession hits. “Then the Fed will backpedal from there, starting with forward guidance and perhaps a rate cut later in the year.”

In such a situation, the scramble to move assets into wealth-preserving instruments like physical gold and silver will begin again. 2016 saw this movement many times by investors looking for safe havens. If Rickards is correct in his predictions, 2017 is likely to be a repeat of the same.