Stock Market: The Trump Rally

This honeymoon is going on, and everybody thinks this is great and the narrative is feeding on itself but people are ignoring the big rise in interest rates and assuming none of it matters. All of a sudden higher rates do not matter because we are going to get all this extra growth from the tax cuts and from the government stimulus. Well, the rarity is if interest rates rise it does not matter about the stimulus, the sedative that will result from higher rates will more than offset it, plus the markets are assuming that higher interest rates will have no effect on U.S. asset prices or the economy. They are wrong on both those counts.

Rising Oil Prices & Interest Rates Will Negatively Impact Stock Prices

Crude oil prices and long term interest rates are continuing to surge, yet stock market traders and investors are completely ignoring what this will mean for corporate earnings and stock valuations. (SPDR S&P 500 Index ETF (SPY), iShares Russell 2000 Index ETF (IWM), SPDR Dow Jones Industrial Average ETF (DIA), Nasdaq 100 Index ETF (QQQ))

U.S. Dollar: The Bearish Case

Right now everybody is talking about how the Federal Reserve is going to tighten, how they will be raising interest rates and they have not connected the dots that all of this is impossible with what Donald Trump and the new secretary of the Treasury are proposing to do. None of this can happen against the backdrop of rising interest rates, it is impossible! It can only happen if the Federal Reserve prevents interest rates from rising by stepping into the market with massive rounds of Quantitative Easing (QE). If people understood that, the Dollar would be falling and not rising.

Commodity Prices Are Going To Rise

I think that you are going to see a move up in commodities because of increased inflationary pressures brought by central banks all around the world. There will be a lot more inflation and commodity prices are going to rise substantially as paper currencies lose value. (Nymex Crude Oil Futures, United States Oil Fund LP ETF (USO), SPDR Gold Trust ETF (GLD), Market Vectors Gold Miners ETF (GDX), Market Vectors Junior Gold Miners ETF (GDXJ), Nymex Copper Futures, iShares Silver ETF (SLV))

If Mortgage Rates Keep Rising Real Estate Prices Will Drop 20 to 30%

Mortgage rates can certainly keep rising. I would not be surprised to see the rate north of 5 percent by the time of Trump`s inauguration and maybe we can be at 6 percent or more early next year. I think we will have a 20 to 30 percent decline in real estate prices if mortgage rates are at 6 percent and what is that going to do to the banks? (Bank of America (BAC), Goldman Sachs (GS), J.P. Morgan (JPM), citigroup (C), Wells Fargo (WFC), Deutsche Bank AG (USA)(NYSE:DB))

Bond Market: The Beginning Of A Huge Collapse

Just look at what happened to the long end of the curve after the election. This can be the beginning of a huge collapse in the bond market. (iShares Barclays 20+ Year Treasury Bond ETF (TLT), U.S. Treasuries, iShares iBoxx $ High Yid Corp Bond ETF (HYG))

Investors Should Be Selling The U.S. Dollar, Not Buying

People who are buying U.S. Dollars are doing the wrong thing, they should be doing the reverse. The U.S. Dollar is making 13 or 14 year highs, it is more than a decade high. I think the U.S. Dollar is in very dangerous territory up here. A lot of speculators maybe are being caught, maybe they are being stopped out of their trades, because again, more inflation is not good for the U.S. Dollar, the dollar will lose purchasing power.

The Bearish Gold Narrative Is False

What people are saying is that because we are going to have a higher inflation, the Federal Reserve is going to have to raise interest rates to fight that higher inflation and those higher interest rates will be bullish for the U.S. Dollar and a strong dollar is going to hurt gold prices. But even if we do get one or two interest rate hikes over the next several years, that will not be sufficient to restrain the inflationary forces that will be building in the economy.

So even if interest rates go up slightly, inflation will go up much more and so real interest rates in an inflationary environment will be falling and not rising and that is very negative for the U.S. Dollar and it is extremely positive for gold. (Barrick Gold (ABX), Market Vectors Gold Miners ETF (GDX), Market Vectors Junior Gold Miners ETF (GDXJ), SPDR Gold Trust ETF (GLD), Newmont Mining (NEM), Goldcorp (GG), NovaGold (NG))

Higher Inflation Is Bullish For Gold

The idea that higher inflation is somehow a negative for gold is completely wrong. I do agree that the markets are correct in that inflation will be increasing, especially given the stimulus that a Republican Congress and President Trump may in fact deliver. But that is a good thing for gold, not a bad thing for gold. (SPDR Gold Trust ETF (GLD), Market Vectors Gold Miners ETF (GDX), Market Vectors Junior Gold Miners ETF (GDXJ), Newmont Mining (NEM), Barrick Gold (ABX), Goldcorp (GG))

For How Long Can The Market Be Oblivious To Higher Rates?

For how long can the stock market be oblivious to higher interest rates? Because not only do higher interest rates dramatically slow the economy, they crush the housing market, but stocks themselves, you value stocks based on interest rates. You discount earnings based on interest rates.

Even if the earnings go up a little bit, you have to discount them by a higher amount and the PEs (price to earnings ratio) are already very high and the justification for the high PEs was not the growth rate, it was the discount rate. (SPDR Dow Jones Industrial Average ETF (DIA), SPDR S&P 500 Index ETF (SPY), Nasdaq 100 Index ETF (QQQ))