Trump's victory marks the last gasp for the bond bull market
Well, that was a surprise.
It shouldn't have been. All day I thought: "This market feels like it did before Brexit."
The market was long Hillary Clinton. It was short populism. And it got it wrong again.
OK, so what does the fact that Donald Trump will soon be the 45th president of the United States actually mean for your money?
Trump wins, markets plunge
Donald Trump is president-elect of the United States.
I was pleasantly surprised about Brexit. I'm not pleasantly surprised by this. This is very much a step into the unknown and I'm not convinced it's a good one. But if you're looking for breast-beating and hyperbolic shrieks of woe, you can find them on Twitter. I just want to sketch out some idea of what happens next.
As I noted on Monday, this is a big surprise, so markets aren't happy.
As I said on Monday, this is what you'd expect to have seen in a Trump victory – in fact, it's not as bad as I thought it would be – and none of this especially matters to a long-term investor. So don't panic.
However, what does it all mean for the longer run?
Trump's election marks the end of an era
It's easy to dismiss the significance of politics, and that's something that financial reporters in particular have got used to doing over the last few decades.
But I think this election marks a big turning point. The global consensus on the way the world should work ran hard into a brick wall in 2008. It's been suffering a long, drawn-out demise ever since. Now, in 2016, it has met its maker.
Trump's victory puts a rubber stamp on that. But even if Hillary Clinton had won, we'd be looking at a change of tone.
Protectionism is in – neither candidate was prepared to sign trade deals. Multinationals can expect to get a much more hostile hearing in general too.
America first is in – "Pax Americana" was already wobbling with the mess in the Middle East and the "pivot" to Asia. Expect that to continue.
Infrastructure spending is in. Whether it's a wall or a road network or digging holes in the desert, I'd suspect that we're looking at some sort of "New Deal" style programme that at least gives an illusion of "giving back to the little guy".
Tax cuts are in too. And they're going to be unfunded, which means more government spending and a bigger deficit and national debt.
What's interesting about all of this is that it's inflationary, of course. And that may take a while to sink in for investors. But there are signs this morning that they're getting it.
US Treasuries gained, but not at the very long end – 30-year US Treasuries fell. That, as Jim Leaviss of M&G notes, is because "a fiscal stimulus through tax cuts and infrastructure spending seems likely... government borrowing is likely to rise in the medium term, and that often results in yield curve steepening".
Could Trump's election signal that the bond bull market really is over this time? I wouldn't dismiss the idea. Once the safe haven rush is over, and investors have had time to think, they'll realise that Trump's policies are very inflationary indeed.
And then there's the US Federal Reserve. Markets now suspect that the Fed won't raise rates in December. But are they right?
If Clinton had won, a Fed rise was deemed almost 100% certain. If the Fed decided against raising now, you could argue that it's a pretty political statement – effectively, we're not raising interest rates because we think Trump is going to make a mess of things.
A weaker US dollar also makes it easier for the Fed to raise rates. If Trump being in charge means the dollar has peaked for now, the Fed can take a more relaxed view of the currency.
Also, Trump has been quite adversarial towards Janet Yellen. Maybe she'll be inclined to give him what he wants, and raise rates a lot faster than she'd previously planned.
Even if she was worried about the Fed triggering a recession, would that give her as much pause under a Trump government as under a different one? People are only human after all.
We'll have a lot more on all of this in the next issue of MoneyWeek magazine, out on Friday. If you're not already a subscriber, sign up for your first 12 issues at a bargain rate here.