Now
that the Trump presidency is about to inhabitat the White House, or maybe migrate to
his eponymous Manhattan tower, the financial and real estate world is thumbing through campaign soundbites and tweets to reconcile them with what might
really happen.
It’s
not an easy job. To build a wall or not—maybe just a fence here or there? NAFTA
and TPP in the trade agreement trash? Dodd-Frank out, freewheeling bubble
boosting bank lending back? Forget climage change-let the Chinese worry? Crank
up the coal mines? Full speed ahead with infrastructure projects and never mind
budget deficits? Throw out or fix Obamare, or not?
These
are a few of the imponderables as the president-to-be muddles through post
inauguration matters—and various analysts wrestle with candidate Trump’s often
conflicting “policy” tidbits of the past campaign to guess at the possible or
impossible, the implausible or improbable.
As a Trump victory emerged the evening of Nov. 8 the international financial markets appeared in freefall panic with futures
dropping by multiple 100s. Then, the next few days things began to settle down.
In
the Wednesday to Wednesday week that followed the S&P 500 Index (.SPX) rose
1.75% and the Dow Jones average by 2.02%. Both averages had been climbing the
day before when most polls were actually signaling a potential Clinton victory.
Some big bank stocks rose double digits, such as Citibank up 11.1% through Nov.
15, along with the KBW bank stock index, ahead by 13.6% in the same period.
The
S&P 500 Real Estate Sector index (.SPLRCR) dropped by 2.56% in the first
week after the election. But S&P 500 Financials rose by 9.31%.
Some
money managers believe the Trump administration will act swiftly to ease
banking regulations including the Dodd-Frank legislation enacted after the
collapse of the housing market and related slump of numerous lenders that began a
decade ago. Others say that could take several years even with control of
Congress in Republican hands.
With
the concurrent implosion of the mortgage backed securities market that resulted
from bad loans surviving banks have been required to maintain adequate capital
and more closely scrutinize loan applications. Residential lending requirements
of the Consumer Finance Protection Bureau initiated under Dodd-Frank a year ago
have served to tighten the loan process.
As
for interest rates, there is a growing consensus that the era of cheap money
coupled with similarly low inflation may be coming to an end. This is tied in
part to the reasoning that Trump’s stated embrace of a trillion-dollar
infrastructure program (the number casually floated in the campaign) will
necessarily drive rates up.
One
harbinger of interest rate moves was a dramatic downturn in bond values the
week following the election, a classic example of the inverse relationship of
rates and values. For the week after the election the 10-year Treasury bill
yield was 2.23, up from 1.80 a month ago.
Of
specific importance to the housing market, bankrate.com reported the benchmark
30-year fixed-rate mortgage rose to 4.01%, a jump of 28 basis points (0.28) for
the post-election week.
On
Nov. 17 Federal Reserve chairman Janet Yellen raised the possibility of a rate
hike “relatively soon,” noting that failure to begin the tightening process
gradually could result in more dramatic rises in the future if inflation begins
to edge upward.
Yellen
also forecast the prospect of “gradual increases over time” to insure economic
stability and dampen excessive risk taking in a low rate environment.
The
Fed chairman also expressed support for “safeguards” in place with Dodd-Frank
that mitigate practices that dragged the financial system into recession,
adding she would not want, “the clock to be turned back on those.”
