Financial crises have perpetuated a political crisis, and we've seen that with the movements sweeping Europe, and here in the United States with Donald Trump becoming president. Donald Trump is an outsider and, like him or not, he is a symptom of the deeper fundamental problems that exist.
The average guy is tired of seeing his factory job get shipped overseas. After all, nearly one-third of the manufacturing jobs have been lost since 1997. That's more than 5 million jobs, which, of course, are the lifeblood jobs for the American middle class. About 70,000 factories during this same time period have either shut down or left the United States.
People have come to believe that they are a victim of the current system, and Trump's message resonated with much of the population.
Prior to Trump being elected, the markets were pricing in a Trump win as negative, with the markets turning down when his polls were up and markets up when his polls were down. Since Election Day, the markets have decided to trade favorable in anticipation of economic strength, infrastructure spending, and a perception of U.S. strength. This has a macro implication that I will get to shortly.
Trump's plan for lowering the corporate tax rate from 35% to 15% is certainly benefiting stocks in anticipation of all of this extra money that will be hitting corporations' bottom line. Take a look at the S&P Futures (shown above) over the last three months—the back-and-forth uncertainty leading up to Nov. 8, with a massive spike downwards on election night, followed by stocks going up with a Trump victory starting to be priced in.
To be fair, the markets are massively benefiting from the ramping-up of debt during this election year, which was supposed to benefit Hillary Clinton and obviously failed. This is typical because historically, the people in power have used the machinery available to get their people elected. Since early 2016, the Federal government has gone deeper into debt to the tune of $1.6 trillion.
We've seen this reflected in unemployment, with it dropping into the 4.6% territory from 4.9% in the previous month. GDP actually grew 3.2% last quarter, which is the highest quarterly growth we've seen since 2014. Of course, many would rightfully point out the massaging and manipulating of these numbers, but nonetheless, the massive spending has had an initial impact.
Increasing government spending and going into deep debt was something that the Obama administration perfected, racking up more debt than all 43 other presidents combined, from George Washington all the way up to George W. Bush.
Unfortunately, we have been seeing a diminishing return on each dollar of debt, and are having to go into more debt to achieve the same—or even worse—results of the past.
And the greater problem, of course, is that debt is substantially outpacing growth.
What can we derive? This is ultimately bullish for hard assets, as the underlying economies of the world continue to see their infrastructures crumble.
Having said that, in light of doubling down on debt and spending on infrastructure, I believe silver will "Trump" gold in the short- to mid-term period, less some sort of black swan event.
Trump is proposing massive increases to government spending, with the majority going to defense and infrastructure, and a huge increase in Fed money printing to pay for these spending increases. He's already discussing spending $1 trillion on infrastructure, which will certainly benefit industrial metals, with silver being one.
Trump's plan is both inflationary and an injection into the industrial component of the economy, which are both aspects of where silver derives its luster. It's not to say that this sort of rhetoric isn't going to benefit gold as well, especially on the economic uncertainty front, but there are multiple upward forces in play to benefit silver.
The opportunities that are presenting themselves in the resource space are unlike anything I have ever seen, given the pullbacks that we are seeing.