• Video
  • Trump Win Could Lead to Stagflation, Says JPM's David Kelly

Trump Win Could Lead to Stagflation, Says JPM's David Kelly

Show Transcript
Bloomberg Jul 1 11:29 · 28.7k Views

A Donald Trump win in the presidential election could lead to stagflation for the US economy says David Kelly, JPMorgan Asset Management chief global strategist.

Disclaimer: This content is for informational and educational purposes only and does not constitute a recommendation or endorsement of any specific investment or investment strategy. Read more

Transcript

  • 00:00 We begin with our top story stocks looking to keep up momentum in the second-half after gaining almost 15% this year.
  • 00:06 JP Morgans, David Kelly writing this.
  • 00:08 Neither consumers nor investors are behaving as if they are scared.
  • 00:12 Investors have pushed the S&P 500 to an all time record high 33 times already this year, while consumers
  • 00:19 have maintained a personal savings rate of 3.6%.
  • 00:22 David is with us around a table.
  • 00:23 David, good morning to you.
  • 00:24 Good morning.
  • 00:25 A lot of people coming on the program talking up a consumer slowdown, cracks in the labour market.
  • 00:29 Why shouldn't we be fearful of that?
  • 00:32 I don't think we should be fearful right now.
  • 00:34 What we're seeing is a small downshift in growth.
  • 00:37 We have a problem at the low, lower and middle income consumers.
  • 00:41 And if you look at consumer durable, sorry consumer non durable spending things like food and clothing and just the basics that's that was actually lower in May than it was in December.
  • 00:50 So we can see that slowdown, but at the same time, we've seen tremendous wealth gains
  • 00:54 and we've, we've,
  • 00:56 we've also, you know, we've seen tremendous wealth gains.
  • 00:58 We've seen a lot of
  • 00:59 payroll job growth, a lot of wage income growth.
  • 01:01 So
  • 01:02 when I,
  • 01:03 as I look at the consumer, consumer spending will grow more slowly, somewhere in the 1 1/2 percent range going forward with the rest of this year as opposed to 2% plus, but that's still enough.
  • 01:12 And so I think we're all, all that's happening here is the economy is slowing down to,
  • 01:15 you know,
  • 01:16 you know, a little under two in terms of growth, a little over two in terms of inflation, but it's still pretty, pretty good.
  • 01:21 So slowly, not slow.
  • 01:22 Can you tell me the difference between normalization and something more sinister?
  • 01:25 What would that look like?
  • 01:26 What would change your mind ultimately?
  • 01:28 Well, this is a this is a very stable sort of it's it's it's kind of like this
  • 01:33 very stable machine that sort of just just pumps out
  • 01:37 twos in terms of growth and and inflation.
  • 01:39 What, what what could change that is
  • 01:41 if something will change it a is shock or BA big policy change when you're just talking about, you know, I do think that what happened on Thursday
  • 01:48 meaningfully increases the likelihood of a Republican sweep in November.
  • 01:53 If you know, if Donald if
  • 01:55 Joe Biden is the is the candidate, it's quite possible a lot of independence will stay at home.
  • 01:59 And so Republicans will sweep.
  • 02:00 Now if they sweep,
  • 02:01 if you take Donald Trump at his word,
  • 02:04 you've got much higher tariffs.
  • 02:06 And now tariffs are
  • 02:08 a a elixir for stagflation.
  • 02:10 Tariffs slow growth and push up inflation at the same time.
  • 02:13 If you took him on at his word on immigration, you'd the economy come to a a halt because of
  • 02:19 deportation of
  • 02:20 of
  • 02:22 unregistered immigrants or or
  • 02:24 illegal immigrants.
  • 02:25 So,
  • 02:27 but I don't not sure if we can take him at his word.
  • 02:28 I think
  • 02:29 history suggests that perhaps it would be
  • 02:31 optimistic or or not optimistic, but
  • 02:34 it would be
  • 02:34 foolish to take him at his word in this stuff.
  • 02:36 But still, it's something to think about.
  • 02:37 I mean, some, some policy shock could absolutely tip this economy into into recession.
  • 02:41 Hold on a second,
  • 02:43 John said that that basically Friday was the first day of this election cycle, at least for markets.
  • 02:48 How much do you actually rearrange what you think about how to position markets as a response to this idea that you think that there is a greater likelihood
  • 02:57 of Republican sweep?
  • 02:58 Oh, you, you do.
  • 02:59 It does make a difference.
  • 03:00 I mean, let me give you one example,
  • 03:02 the
  • 03:03 2017 tax cuts,
  • 03:05 if Joe Biden is re elected,
  • 03:07 then some of those tax cuts will be extended beyond 25, but but not all of them.
  • 03:12 If Donald Trump is actually, I expect that whole thing to go through.
  • 03:14 And if you add that to what the CBO is already looking at in terms of the growth in the debt,
  • 03:18 the debt as a share of GDP
  • 03:20 by the by the early
  • 03:22 twenty 30s is going to be about 135% as opposed to 120, you know, 122%.
  • 03:28 So you're going to have significantly more debt if we if we extend all these these tax cuts.
  • 03:34 And that means a higher level of long term interest rates.
  • 03:36 So in other words, are you more bearish on long term
  • 03:39 bonds right now than you were say, Thursday morning?
  • 03:44 Yes, I think that.
  • 03:44 I think it would be a rational thing to be that way, yes.