Daily Management Review

Citi Economist says Investors have Fallen for 'Fairy Dust' Since Trump’s Win


12/27/2016




Citi Economist says Investors have Fallen for 'Fairy Dust' Since Trump’s Win
While some market watchers may say the rally has gone too far, too fast since the election of Donald Trump, it is a fact that stocks have soared to all-time highs since that time.
 
Riding on hopes that financial services regulations will ease and the government will spend bigtime on infrastructure under Trump's administration, the markets have gotten "way ahead of themselves", opined William Lee, head of North America economics at Citigroup, during a recent television interview on the issue.
 
"Everyone is sprinkling around the word 'infrastructure' like some fairy dust. Like somehow, infrastructure is going to make the world better. Yes, it could, but not the kind of fiscal infrastructure spending that President-elect Trump is talking about," Lee said.
 
The infrastructure investment projects that Trump has been primarily referring to are mostly associated with major toll roads and bridges, Lee said. Such investment project however represents less than 1 percent of all roads in the U.S., he added. And therefore, based on this data, Lee believes that only but a minor dent in the "infrastructure rebuilding we really do need" by such infrastructure spending when compared ot the entire infrastructure expenditure and scope in thee U.S.
 
In the days following the U.S. election, the price of industrial metal copper was sent to a 16-month high on the prospect of increased infrastructure spending by the U.S. government under Trump’s presidency.
 
Investors — and market commentators — are pricing in far too much optimism heading into the new year, believes Lee and that belief is not only based on the proposed or expected spending on infrastructure and this is not the only facet of market sentiment postelection that Lee is considering and seems concerned about. Lee said he has in fact marked down his 2017 GDP growth projection from over 2 percent to 1.75 percent with the U.S. dollar surging, hitting its highest level in over 13 years since the election, along with higher interest rates.
 
"Monetary policy is really on hold right now because everyone is trying to figure out exactly what the fiscal contour is going to look like. Our best guess is that there's going to be a positive fiscal impulse that stimulates the economy. But with all of the haggling that's going to go on in Congress, that probably won't hit until 2018," Lee said.
 
While the market watchers are taking for face value the prospect of fiscal stimulus meaning more GDP growth, for Lee, the immediate implementation and the near term impacts of a "massive fiscal stimulus program" under Trump Presidency that investors are anticipating eagerly, seems far-fetched.
 
But, he points out, "the timing of fiscal stimulus matters, and the timing is going to be further out than investors think."
 
(Source:www.cnbc.com) 






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