China Will Stop the Trump Rally Dead In Its Tracks

Phoenix Capital Research's picture

The market reaction to the Trump Presidency win has been excessive to say the least.

Trump won’t take office until January 20th 2017. And he will likely not be able to engage in any of his proposed reforms until this time next year (it’s possible he might be able to ram through a few bills via “reconciliation” in Congress, but the odds are likely that any major reforms will take a year).

And yet, the financial media are abuzz with the idea that somehow GDP growth of 5% is going to hit in January. And investors are acting as if they believe this!

Let’s run through Trump’s proposals quickly.

1)   Tax Reform: Trump wants to simplify the tax code, lower the corporate tax rate and offer multinationals the ability to repatriate their offshore cash with a one-time tax charge of 10%.

Long-term, all of these moves are positive for the US economy. They will increase competitiveness and will allow large firms to put more money to work in the US.

However, NONE of these items will have a major impact on the markets. Yes, a lower tax rate opens the door to greater corporate profits… but:

a.     As Tom Lee noted on CNBC, NO ONE gets excited about investing in a company because said company is going to be paying less in taxes.

b.     Any benefits from tax reform would take at a minimum six months and possibly a year to really begin trickling into corporate results.

c.      More importantly, most large corporations are already paying little if any taxes due to various gimmicks and loopholes. The Government Accountability Office found that in 2012 more than 43% of large corporations (those with $10 million in assets or more) paid no corporate income tax.

2)   Deregulation/Infrastructure Spending/ etc.: None of these will likely be implemented until late 2017. A large-scale stimulus is a controversial measure that might not get through Congress. Even if it did, we already know such policies have minimal effect on GDP particularly late in an economic cycle (Bush’s Stimulus act of 2008 and Obama’s Stimulus of 2009).

My point with all of the above is that any policies Trump implements will have minimal impact on stocks in the short-term. They CERTAINLY do not warrant the absolute mania we are currently experiencing in the stock market.

Meanwhile, China, the second largest economy in the world, is on the verge of a banking crisis. 

In the last three weeks, China has:

1) Been forced to issue emergency loans to financial firms.

2) Halted trading in its bond market multiple times.

3) Has aggressively defended the Yuan.

The fact is, stocks are poised for a sharp correction (at least) based on what's happening in China...

Another Crisis is brewing… the time to prepare is now.

If you've yet to take action to prepare for this, we offer a FREE investment report called the Prepare and Profit From the Next Financial Crisis that outlines simple, easy to follow strategies you can use to not only protect your portfolio from it, but actually produce profits.

We made 1,000 copies available for FREE the general public.

As we write this, there are fewer than 19 left.

To pick up yours, swing by…

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research



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LawsofPhysics's picture

Sure sure...

...and just like the PBoC, the Fed will buy up all the fucking bullshit paper the government has to sell. So fucking what?

A big fucking nothing burger aside from the fact that we will have a monetary system just as corrupt as everyone else...

finally, a "level" playing field...

kenny500c's picture

If the Bankof China issues emergency loans to Chines firms the effect is to increase the money supply and equity prices.

Northern Flicker's picture

Graham Summers is a great strategist,  tactically his timing can be bad.

neidermeyer's picture

Nobody gives a damn what happens to the DOW30 ,, we care about the recovery of our economy... they are not the same... even if the economy takes off like a rocket I still expect the dow to decline as p/e ratios return to historic norms.

Why Bother's picture

Trump is a progressive, not a conservative. However I welcome more infrastructure spending as that will put competitive pressure on the disgusting spending on wars, bloodshed, and democide. I am anti war. I do not expect the drone assassinations to end after January 20. I do think the massive spending increases will hasten the collapse of big government as people turn to cryptocurrency to escape the capital controls that are sure to take place in the U.S. I have been stacking gold for the last 16 years (since 2001) to prepare for the financial collapse here in America. I am glad for the invention of cryptocurrency as well because it helps hide my wealth from the looters. Trump is a looter, by the way.

Why Bother's picture

"He may talk like Archie Bunker, but politically he is Barack Obama rebranded for talk radio."

floomby's picture

Defense spending is like $800 billion per year, this pales in comparison to entitlements and welfare (which run over $2 trillion on just the federal level, more if you count the ststaes). I am all about spending less on defense, but the real problem is entitlements.

richsob's picture

Whatever.  At least Hillary's Huma-smelling finger won't be on the red button.

The Management's picture

God knows she likes playing with buttons...

Money Counterfeiter's picture
Money Counterfeiter (not verified) Jan 8, 2017 8:42 AM

Did PhoenixResearch miss the 8 years of ZIRP?  

Trump is set up like Herbert Hoover. 

InTylerWeTrust's picture

This is about as credible as the doomsday blather from Porter Stansberry.

The Management's picture

I predicted Brexit, Trump and a nasty retaliatory crash from pissed fed / establishment that was going to smash the economy to spite Trump. 2/3 has happened - didnt expected all the cash on sidelines to pump in immediately after Trump won - all this post Trump gains is really just a bonus. The correction we all predicted 6 months ago is still coming in some way shape or form. I still think shortly after Trump takes office they will stage some bullshit - then hike fed hardcore, or pop an overdue bubble - and blame the shit out of Trump. You can bet bloomberg/slim/bezos cant wait to get their pet publications to plaster Trump 24/7.

Storm Chaser's picture

Has anything Phoenix Research harps on pan out, ever?