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Globe editors have posted this research report with permission of Gluskin Sheff + Associates Inc. This should not be construed as an endorsement of the report's recommendations. For more on The Globe's disclaimers please read here. The following is excerpted from the report:
Every football game has four quarters. As the Giants/Cowboys game showed you on Monday night, how the game goes in the first quarter isn't necessarily how it ends. So let's take it one quarter at a time. And my call for the coming quarter is to be cognizant that "something else is going to happen" with respect to what is currently being discounted by stocks, bonds and commodities.
While it is extremely difficult to predict what the markets are going to do when it comes to inflation expectations, or how the Fed responds, I do have as strong view that inflation very much is going to be the non-event it has for the past several decades.
Donald Trump has no influence on aging demographics. He can try to reverse globalization, but I think he will not be very successful. If he is successful on the deregulation front, that will reduce business costs and as such will be disinflationary.
His choice of energy secretary will be in favour of more drilling which means more supply and hence lower prices.
His labor secretary is in favour of abolishing minimum wages.
And of course, the strong dollar will continue to depress import costs as the November data just highlighted.
Even if Trump does engage in trade wars, the reality is that manufacturing employment was falling just about as fast in the 15 years after China joined World Trade Organization (WTO) as was the case the 15 years prior. And manufacturing productivity in the U.S. over the past 15 years at over a 3% annual rate is identical to what it was in the 15 years before China gained WTO membership.
We are just starting what is called the Fourth Revolution which is going to involve the advent and proliferation of industrial robot manufacturing and this promises to be intensely deflationary — but at least is a response to a shrinking workforce in the industrialized world (and now in China).
There truly is very little that Donald Trump will be able to do in the realm of technological advancement — these deflationary factors, like aging demographics, are unstoppable.
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David Rosenberg