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Infrastructure zeitgeist needs better policymakers

Our round-up of the week’s best comment and analysis from the Financial Times focuses on how infrastructure and fiscal policy shake-ups will play out for investors in the light of the current “Trumpflation” market rallies.

The selection is taken from our Markets Insight and Smart Money columns, written by industry contributors and FT commentators.

Infrastructure spending is the new zeitgeist of our age but we should have little confidence that our politicians are up to the job of delivering it, argues Aberdeen Asset Management’s Gershon Cohen.

These policymakers are prone to short-term thinking, their record is “pretty poor” and their investment promises are likely to fizzle.

“Politicians need to rise to the challenge and only authorise projects that have a high degree of confidence of supporting economic growth. It would be foolish and short-sighted for them not to seize upon the current mood for greater infrastructure investment.”

The FT’s John Authers notes markets are gripped by the idea that Trump will mean a shift to fiscal policy after eight years of dominance by monetary policy — although early signs of the big post-election equity rally started appearing in the summer with improved economic data.

“After years in which the market continued to advance, led by stocks that normally only outperform in a bear market, the pattern of performance is now typical of the late stage of a bull market at the end of an economic cycle. A melt-up or a firmer advance are both conceivable.”

Trump’s mooted economic boom risks ending in tears for investors, says Fidelity International’s Dominic Rossi, as faster US economic growth will feel good for a while before interest rates shoot higher.

“The slow decay of the US fiscal position will take its time. It can await the company of an old friend: the trade deficit. The twin-deficit problem that troubled fiscal conservatives so in the 1980s can make its comeback.”

In a similar sceptical vein, John Authers argues that it is hard to see how Trumponomics can possibly replicate Reaganomics — the parallel does not work because the economy and market are in such different positions from the 1980s to today.

The FT’s Neil Collins spots another historical parallel — between UK chancellor Philip Hammond and his ill-fated 1990s counterpart Norman Lamont — but “every chancellor needs a slice of luck and Mr Hammond’s is to be in charge when investors hardly seem to care about how much the government borrows”.

Any Opec deal this coming week is not about to usher in an era of $100 oil — as an agreement will not be universal with US shale producers still waiting in the wings, says the FT’s David Sheppard.

The growth of exchange traded funds linked to the Vix volatility index is casting doubts over its usefulness as a gauge of market stress, argues the FT’s Miles Johnson, as the ETF tail has begun to wag the Vix dog.

Investors in Fannie Mae and Freddie Mac are looking forward to Trump’s administration, says the FT’s Tom Braithwaite, as the US president-elect has the motivation to engineer IPOs of the mortgage companies.

High-frequency traders are disrupting the traditional Japanese stock market narratives, notes the FT’s Leo Lewis, as both regulators and the Tokyo Stock Exchange are being forced to pay them more heed.

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