In a Frank Talk last week, I discussed the surge in small-cap stocks since Donald Trump’s election. A bet on smaller domestic stocks, I wrote, is a bet that Trump will deliver on his promise to ‘make America great again.’ He plans to lower taxes, streamline regulations and spend big on infrastructure – all of which has led to a rally in the small-cap Russell 2000 Index and the 10-Year Treasury yield.
The ramifications of government policy change under Trump, especially fiscal policy, have the potential to be huge. Since Election Day, we’ve seen the strong U. S. dollar hurt gold, while the Canadian dollar and Chinese renminbi have dropped.
The question now is whether Federal Reserve Chair Janet Yellen will put the brakes on the so-called Trump rally. She asserts that Fed policy is not politically motivated, but I wonder how many people actually believe that. She’s already criticized Trump’s plans to tear up or at least significantly weaken Dodd-Frank Wall Street Reform.
Both former Fed Chair Alan Greenspan and billionaire investor Warren Buffett have recently suggested Dodd-Frank needs to go, with Greenspan telling CNBC that he’d love to see the 2010 law ‘disappear.’ Buffett, meanwhile, commented in an interview this month that the U. S. is ‘less well equipped to handle a financial crisis today than we were in 2008. Dodd-Frank has taken away the Federal Reserve’s ability to act in a crisis.’
This post was published at GoldSeek on 29 November 2016.