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Affluent Investor | April 29, 2017

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Trump Victory Causes Market Shock Then Awe

Donald John Trump, Republican candidate for United States President (Photo by Michael Vadon) (CC BY-SA) (Resized/Cropped)

Donald Trump, President-elect
(Photo by Michael Vadon) (CC BY-SA) (Resized/Cropped)

Investors are getting quite comfortable with the victory of Donald J. Trump. So much so the brief shock to global financial markets is a distant memory.

In case you missed it, when Trump clinched the highest office in the land, Dow futures plunged and gold prices spiked. Now, after nearly a week to digest the news, the Dow is hitting hit fresh records and gold has fallen back into a trading range.

Dr. John Rutledge, former advisor to President Ronald Reagan, now advisor to the Chinese, said something which I think captured an important truth: Behavioral finance shows that human natures makes us tend to overreact to breaking news when we make investment decisions. I think this is doubly true for unexpected news, and triply true for unexpected news which comes from the actions of people from outside of your social world.

For the most part the financial media (though not everybody) had repeated warnings of a dark, dystopian populist vision from fly-over country. Markets had been acting as though former Secretary of State Hillary Clinton would win. People who participate in political futures markets are often the same type of people who participate in financial markets. Perhaps that blind spot was why Predicit and Iowa Electronic Market and the rest got things so wrong.

Just as that group failed to see the Brexit victory, it also failed to see the Trump victory, which represents a similar outlook and dynamic.  Just as in the Brexit vote, markets reacted to the news with what appear in retrospect to have been excessive sell-offs, and then went on to significant gains. Those sharp moves higher came as many on Wall Street, who had never even considered Trump, started to take a closer look at him, his rhetoric and his likely political appointments.

Clinton had spent years massaging the top banks’ top brass. They knew the deal: Public denunciation, private accommodation. That’s why they gave much more money to her than they did to him. George Gilder and Peter Thiel, both Trump supporters and one a Trump advisor, have both decried excess financialization of the economy. When banks get big in a free and open market, that’s one thing. But when they get not only the big bailout of 2008-9, but the on-going bailout of near-zero interest policy, and an oligopoly of currency hedging in a world of fluctuating paper currencies, than that’s more crony than capitalism.

 

Originally published on Fox Business.

Jerry Bowyer is a Forbes contributor, contributing editor of AffluentInvestor.com, and Senior Fellow in Business Economics at The Center for Cultural Leadership.

Jerry has compiled an impressive record as a leading thinker in finance and economics. He worked as an auditor and a tax consultant with Arthur Anderson, as Vice President of the Beechwood Company which is the family office associated with Federated Investors, and has consulted in various privatization efforts for Allegheny County, Pennsylvania. He founded the influential economic think tank, the Allegheny Institute, and has lectured extensively at universities, businesses and civic groups.

Jerry has been a member of three investment committees, among which is Benchmark Financial, Pittsburgh’s largest financial services firm. Jerry had been a regular commentator on Fox Business News and Fox News. He was formerly a CNBC Contributor, has guest-hosted “The Kudlow Report”, and has written for CNBC.com, National Review Online, and The Wall Street Journal, as well as many other publications. He is the author of The Bush Boom and more recently The Free Market Capitalist’s Survival Guide, published by HarperCollins. Jerry is the President of Bowyer Research.

Jerry consulted extensively with the Bush White House on matters pertaining to the recent economic crisis. He has been quoted in the New York Times, The Wall Street Journal, Forbes Magazine, The International Herald Tribune and various local newspapers. He has been a contributing editor of National Review Online, The New York Sun and Townhall Magazine. Jerry has hosted daily radio and TV programs and was one of the founding members of WQED’s On-Q Friday Roundtable. He has guest-hosted the Bill Bennett radio program as well as radio programs in Chicago, Dallas and Los Angeles.

Jerry is the former host of WorldView, a nationally syndicated Sunday-morning political talk show created on the model of Meet The Press. On WorldView, Jerry interviewed distinguished guests including the Vice President, Treasury Secretary, HUD Secretary, former Secretary of Sate Condoleezza Rice, former Presidential Advisor Carl Rove, former Attorney General Edwin Meese and publisher Steve Forbes.

Jerry has taught social ethics at Ottawa Theological Hall, public policy at Saint Vincent’s College, and guest lectured at Carnegie Mellon’s graduate Heinz School of Public Policy. In 1997 Jerry gave the commencement address at his alma mater, Robert Morris University. He was the youngest speaker in the history of the school, and the school received more requests for transcripts of Jerry’s speech than at any other time in its 120-year history.

Jerry lives in Pennsylvania with his wife, Susan, and the youngest five of their seven children.

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