Dawn J. Bennett: Fixing Broken Financial System Won’t be Free of Pain

Under President Barack Obama, the central bank manipulated the financial markets, leaving us with a broken system. While there is much to be hopeful about in President Trump, he will have to fix what has been broken, which according to Dawn J. Bennett, won’t be free of pain.

“While the stock market is on a roll, I believe that the market itself is still, to borrow a term from the President himself, ‘fake’. The market is moving up not because people are buying into it but due to continued central bank intervention and derivatives,” says Bennett.

According to Bennett, there are many behind the scenes signs that tell us things aren’t working. It seems foreign interests are seeing things Americans are not. Foreign central banks, reserve managers, sovereign wealth funds, and practically all other institutions holding U.S. Treasury paper are liquidating. Bennett explains the wholesale liquidation of U.S. paper continued in November. According to TIC data for November, foreign central banks sold another $936 million in U.S. Treasury paper. Japan and China have sold off U.S. paper in the billions over the last 4 to 6 months. China now holds its lowest U.S. Treasury holding since 2010.

“This is ongoing, and more than the previous year, and I believe it may indicate a lack of confidence in America and the Trump administration’s ability to fix the problems of the past eight years. Newspapers aren’t reporting this, the media aren’t talking about it, and I have to wonder why,” says Bennett.

She continued, “Even our own allies are selling, and my best guess is that they will continue to sell. Perhaps they think that the United States won’t be able to pay off the debt, along with concerns that we are going to be raising interest rates.”

It’s uncertain whether these foreign investors will come back. Bennett says they might if Trump can clean up U.S. debt, central banks run smarter or are even eliminated, and the dollar is stabilized. These investors who are liquidating are selling to individuals and retail investors, who will be the last to hold the bag.

“The Fed needs to determine how they are going to soak up all this excess supply, along with rationalizing their current interest rate experiment,” says Bennett. “In the meantime, it’s up to us to make sure that we don’t become the final bag-holders.”

 

Dawn J. Bennett Writes Article, ‘An Era of Black Swans’

Dawn J. Bennett, founder and CEO of Bennett Group Financial Services and host of Financial Myth Busting with Dawn J. Bennett, recently wrote an article titled, “An Era of Black Swans,” in which she discusses Donald Trump’s election to the White House and what it could mean for the future of the markets.

“To the shock of pundits and prophets alike, Main Street once again voted with its pocketbook and swept a black swan Donald Trump presidency into the White House,” wrote Bennett. “Not only did he win, but he brought in many of the Reagan Democrats and nearly half of the union voters, and against all odds, he even seemed to have coattails.”

She continued, “Even among supporters of Trump, though, there is an undercurrent of unease. Can he make the transition of what former New York governor Mario Cuomo called ‘the poetry of campaigning’ to the hard work of the ‘prose of governing?’ Will the Trump of previous years, the one who in 2012 called Mitt Romney’s policies on the deportation of illegal immigrants ‘maniacal’ and ‘mean-spirited,’ return one the dust has settled, or will he maintain the course he set during the campaign? Can President Trump, could any president accomplish want really needs to be done to heal the economy and security of this nation and its people?”

The best case scenario is for Trumponomics to be a Reaganomics 2.0 and rebuild the economy through reduced regulation, sensible tax cuts and spending on infrastructure, according to Bennett. However, she says there’s a wide period of volatility and risk that lies between us and that desirable outcome. The nation’s significant public and private debt, years of quantitative easing and near-zero interest rates, and policies that have obfuscated the basic fundamentals of the economy still exist. Trump’s election means Yellen and the Fed no longer have a personal or political incentive to keep the economy and markets in “suspended animation.” Bennett says we can expect interest rate hikes, which will have bad consequences for the short-term market.

Some of Trump’s policies won’t come without their own painful consequences, either, says Bennett. Trump said he intends to force American businesses to repatriate manufacturing jobs, which would be an effective tax on corporations like IBM, Apple and Nabisco. But, until the consequences of these policies are normalized and written into the market, it could result in a 10 to 20 percent drop, according to Bennett.

Despite the current state of the nation and the economy, Bennett says Donald Trump has the potential to be great, and she hopes he is.

“American truly needs great leadership in a moment that presents a once in a lifetime opportunity for paradigm shift, the kind of leadership that was promised eight years ago but never materialized,” says Bennett. “Yes, I hope that our next president will find a way to work with his own party and those across the aisle. I hope that his agenda will materialize in a thoughtful and straightforward way.”

She continued, “But, in the meantime, there’s a bumpy ride coming, Protect your savings, diversify not just in terms of asset classes but in terms of geography. Look into assets that preserve wealth in the face of increasing volatility and risk. And God Bless America.”