by Bill O’Grady, Kaisa Stucke, and Thomas Wash

[Posted: 9:30 AM EST] It looks like we are getting a profit taking day across the financial and commodity markets, with Treasuries, oil and gold rallying, while the greenback takes a breather.  Equities are modestly higher.  We see a couple of items in play.  First, numerous markets have moved significantly in a short amount of time off the Trump win and may have overshot a bit.  Second, we may be in the early stages of discounting the second order effects; in other words, tighter monetary policy coupled with a stronger dollar will create a rather significant headwind for the economy down the road.  Consequently, until we actually see the degree of fiscal stimulus, the markets may have moved too far, too fast.  Still, we do think that the populist movement underway will undermine the current policy regime and ultimately lead to higher inflation.

In Syria, the Russians and Assad government have resumed air strikes against Aleppo.  The lone Russian aircraft carrier, Admiral Kuznetsov, has apparently made it to the coast of Syria and is assisting in the air campaign.  However, the Guardian reports that a MiG-29 crashed shortly after takeoff from the carrier; the pilot did bail out before the aircraft plunged into the sea.  It appears that the Assad regime, with Russian support, is moving to affect the situation in Syria during a period of distraction in the U.S.  In related news, President-elect Trump and Russian President Putin reportedly had a cordial conversation in the wake of the election.  Meanwhile, President Obama, in what is probably his last foreign trip, is in Europe letting leaders there know that the new president remains committed to NATO.  However, it should be noted that a large number of European nations are boosting their defense spending in light of the American election.

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