With his speech on Monday laying out an economic plan to “make America great again,” Donald J. Trump has emerged as “the pro-growth candidate” for president. So says Greg Valliere, chief strategist at global investment manager Horizon Investments and a guru on the nexus of politics and economics. Frequently seen on newscasts, Valliere’s savvy blog, Capitol Notes, is proving to be a must-read.
In a wide-ranging interview with ThinkAdvisor, the pundit discusses what he calls “the nastiest election of our lifetime” and provides forecasts.
Nonpartisan Valliere himself may have been bitten by the nasty bug. He’s branded Trump “the mother of all uncertainties,” who “shoots off his mouth” with “crude ad-libs” and “bombastic rhetoric.”
Hillary Clinton doesn’t get a free pass. Valliere labels her “a proven liar,” whose Clinton Foundation was involved in “a shakedown operation soliciting money from shady contributors.”
For most of his career, Valliere, 67, has advised large institutional investors. He is a frequent speaker at major industry events, such as IMCA’s annual conference this past April, and will be a keynoter at Schwab’s Impact 2016 in October. He was previously chief political strategist for the Potomac Research Group (now part of Hedgeye Risk Management) and, in the 1990s, director of research at Charles Schwab Research Group.
Valliere believes that Trump’s economic plan “slightly benefits” the controversial candidate. Trump presented it right after his self-damaging comments about the Gold Star Khan military family, remarks that dramatically eroded his support. (We interviewed Valliere before Trump’s comments this week about “the Second Amendment people” and Hillary Clinton, and his claim that President Barack Obama and Clinton were “co-founders” of ISIS.)
“The overwhelming sense in the markets is that Clinton is going to win,” Valliere told ThinkAdvisor. Earlier, he blogged: Clinton is “the luckiest politician in America, running against inept amateurs who have the control of a party that should have been poised to win in November.”
When it comes to the election, tax reform is the top concern of Valliere’s big Wall Street clients. Trump’s plan for tax cuts, though lacking in detail, gives Republicans “a unified pro-growth message and helped him a bit,” Valliere says. One of the nominee’s key tax plan advisors is CNBC conservative commentator Larry Kudlow, according to Valliere.
ThinkAdvisor recently interviewed the strategist, who spoke by phone from his Washington, D.C., office. To win the presidency, “guaranteed,” he says, Trump needs at least 90% of Republicans to support him, as well as the independents. He now has the support of less than 75% of the GOP. Trump’s main challenge, Valliere says, is “to stop defections” of Republican leaders. But he “is already claiming that the election will be rigged – an implicit concession that he expects to lose,” Valliere blogged recently. Here are highlights from our interview:
THINKADVISOR: You wrote that Hillary Clinton “could win in a landslide if Trump can’t show some discipline.” So “the markets may have to start worrying about the implications of [that].” What election outcome would be best for markets and the industry?
Greg VALLIERE: From talking with my clients, I firmly believe that the most acceptable scenario would be a modest Clinton win combined with Congress staying divided. Markets can live with that.
So you think that Clinton will be elected?
The overwhelming consensus is that Hillary Clinton will win. There’s no question that she’s the clear favorite. Trump is clearly the underdog. But I wouldn’t say that Clinton is a shoo-in. There’s still an outside chance that Trump could win if his economic plan wins support. But his campaign documents are shockingly lacking in details.
What does the market want most from a new U.S. president?
First and foremost, better economic growth, and also any progress on tax reform, including prospects for international tax reform that would bring repatriation of earnings that U.S. multinational companies have stashed in Europe and elsewhere. That money would come back to the U.S. at a 7% or 8% penalty.
It was a modest positive for him. It had a growth message. That’s going to be his mantra: He believes in stronger economic growth and has a plan for it. I’m not convinced his plan will work, but at least he gets some cover on the issue. Much of the plan is identical to that of Paul Ryan — Trump really needed some bonding with Ryan. [Trump differs from GOP doctrine on trade, but] trade is going to be an area where he has an advantage over Clinton because there’s growing public antipathy toward free trade.
How does Trump’s plan contrast with Clinton’s economic plan thus far?
Clinton’s policies are fairly timid, and incremental. But we just had a phenomenal employment report. So [by that measure] there’s ample evidence that the economy is doing OK.
You wrote that Clinton is “a proven liar.” Trump has denigrated women and minorities. Do you think either of these candidates should be president?
Both Clinton and Trump are deeply flawed. Trump’s flaws have been magnified with his Gold Star military family [insults and other slurs]. With Hillary, the FBI director said that maybe she was truthful to the FBI [about her emails], but she wasn't truthful in her public comments. And it’s very hard to make a case that she represents fresh ideas. It’s more status quo.
You wrote: “This will devolve into the nastiest election of our lifetime, guaranteed.” Will such rudeness have its culmination in the debates?
Absolutely. They’ll be devoid of substance and will focus on insults. But if Trump appears bullying, that would play into Clinton’s hands. She’ll probably come into the debates very well prepared, but Trump is notorious for not preparing, thinking he can just bluster his way through. I have a hard time accepting the premise that he could get on a steady course with great debate performances.
Might Trump be fearful and self-destructing because, as the Republican nominee, he’s now faced with the reality of the election?
Someone as narcissistic as Trump would dread a public humiliation — a [Clinton] landslide. That could make him think about getting out, though I’m not predicting it. There’s been a dramatic deterioration of his support. Now we’re getting to that last straw, where even his supporters, like Reince Priebus, head of the Republican [National Committee], are utterly exasperated with the guy. He’s been in free fall for the last couple of weeks to such an extent that [some] Republicans I talk to would like to replace him. But it’s too late.
What about Clinton’s standing right now?
Bernie Sanders inflicted real damage on her by basically labeling her “the candidate from Goldman Sachs.” Bill [Clinton] has been a mixed blessing. In polls, Hillary Clinton’s numbers on trustworthiness are worse than Trump’s. So there are reasons to believe she could be vulnerable.
What’s your view on Trump’s plan itself to reduce taxes?
His speech was vague as to the price tag and when specific rates would kick in. His initial ideas about tax [reform] were estimated at costing close to $10 trillion over the next 10 years – a huge dollar amount. Trump would have to take whatever Ryan gives him.
And what about Clinton on taxes?
Part of her agenda is higher taxes for the wealthy, and I feel very strongly that that agenda would not emerge from the House. The House is the firewall for a lot of activist legislation.
What does the market actually look for in a presidential candidate?
Consistency and predictability. On that front, there are genuine questions about Trump: Would he precipitate a trade war? Would he get into a dispute with the Federal Reserve over its powers? How would he pay for all the things he’s talking about? He says blithely that he would get rid of waste, fraud and abuse. When you hear a politician say that, you know he or she doesn’t have a clue as to how they would reduce the deficit. The markets don’t like surprises, and with Trump, there’s a real risk that he would be hard to handicap.
With her, it would be essentially more of the same. She would come around and support trade deals, like the Trans-Pacific Partnership, though she’d have to make the deals far more attractive for workers who have been displaced. She’d look at growth issues and would be very much inclined to move in the direction of more spending on infrastructure.
How would certain sectors of the market react under a Clinton vs. Trump presidency?
Clearly, with Clinton’s criticisms of pharmaceutical pricing, drug stocks would, at the very least, present a headline risk. The rest of the health care industry would do fine with her. She’s a hawk on geopolitical issues, so defense stocks would do fine with her, too. Trump is all over the lot. It’s unclear what he thinks about NATO or our commitment to Southeast Asia. With regard to energy, he’d be favored by the big fossil fuel sectors. Clinton would be viewed as a negative for coal because she’d seek to curb emissions even further.
What do you predict as to moves by the Federal Reserve leading up to the election and into 2017?
The most important person in Washington for markets in regard to the economy is [Fed Chair] Janet Yellen. She’s the key player over the next year or so. My sense is that interest rates will move gradually higher next year.
Some speculate that there might be a cut in interest rates.
I have a hard time with that [notion]. I’ve heard Janet Yellen testify that she’s not sure that the Fed [even] has legal authority to [establish] negative interest rates. [And] the Fed is starting to worry about bubbles — that keeping policy this accommodative for so long could have unintended consequences. I think the Fed would like to get a rate hike out of the way this year, probably in December. But rates will stay exceptionally low, and one reason is that the labor market hasn’t fully healed.
What might happen, then, in the bond markets?
If the deficit starts to creep up to 4% or 5% of GDP, the bond market would be concerned. It’s notable that neither Clinton nor Trump is talking about any kind of serious deficit reduction. By most estimates, the deficit would rise slowly under Clinton; it would rise much more quickly under Trump. So down the road, the bond market has to worry a lot with Trump, but they have to worry a bit with Clinton, too.
Is lack of capital spending a big reason why we still don’t have a more robust labor market?
Partly. Businesses are sitting on record cash levels, but they’re reluctant to open their pocketbooks. They don’t want to buy new plants and equipment, and they don’t want to hire because they’re worried. So a lot of businesses are frozen in place. The only solution will continue to be Janet Yellen staying extremely dovish and raising rates glacially because she knows that eventually, we may start to see growth pick up. That won’t happen if rates go [substantially] higher.
What could President Obama have done better for the financial services industry?
He fostered an adversarial climate between his administration and the industry. A lot of what happened in 2007-2008 was the industry’s self-inflicted wounds, but the mood between this administration and the industry was quite adversarial, and that wasn’t helpful.
Did that antagonism stem from the Dodd-Frank Act?
Partly. The industry felt it was overkill; so there was a lot of ill will. The industry felt the White House was being punitive, and the White House felt the industry didn’t fully appreciate its role in the meltdown.
What are your expectations concerning regulation under a new president?
The rhetoric in this campaign against the industry has been quite critical. But my sense is that it’s a lot of smoke and not a lot of fire because next year none of the punitive stuff – like reviving Glass-Steagall – is going to make it through the House. The House is very pro-business, and that would negate any efforts to increase regulation regardless of who wins.
If she became too adversarial, many of her supporters on Wall Street would call her and complain. And I think she would be far more willing to listen to the industry despite her rhetoric over the last couple of months. That was designed largely to quell the Sanders supporters. I think she’d rule the industry with a fairly light hand.
What about Donald Trump and regulation?
He’s so inconsistent and capricious in his policies that his pronouncement that he’d support a revival of Glass-Steagall was not necessarily sincere. And he also has friends on Wall Street who would talk to him and try to moderate his position. If he got into office, [regulation] wouldn’t be a top priority.
But Trump has repeatedly said he would repeal Dodd-Frank.
I don’t see it. The industry has learned to live with Dodd-Frank, so the idea of killing it is met with ambivalence. The threat to crack down on the banks is a hollow threat. It’s more hot air than reality.
Do industry organizations and business groups that have filed lawsuits to kill the DOL’s fiduciary standard rule have any chance of winning?
It’s a long shot. And regardless of who wins the election, I don’t think there’ll be a successful effort to stop the rule in Congress, either. Clinton certainly would veto any effort. If Trump wins, I’m not sure that a bill could get through the Senate.
What do you see as the near-term impact Brexit will have on the markets?
Slightly negative. If the weakness that persists in Western Europe should make the U.S. dollar stay strong, that’s not a plus for a lot of U.S. companies.
You say both Trump and Clinton are deeply flawed. How and why did these two people make it to the top and become presidential nominees?
One thing is that the way the primary process is structured makes absolutely no sense. Iowa and New Hampshire, two states that are hardly representative of the rest of the country, have a disproportionate influence on who gets nominated. It’s inexplicable. But a lot of people like Trump because there’s lingering bitterness over the 2008 meltdown. People say: “Detroit got bailed out! Wall Street got bailed out! What about us?” There’s a substantial view in this country that they’re being overlooked.
Is Libertarian Party nominee Gary Johnson, ex-governor of New Mexico, a threat as a third party candidate?
If his polling numbers [qualify] him to be in the debates with Trump and Clinton [and thus elevate his candidacy], he could make a difference in several states’ [votes]. So he has to be taken seriously.
What is the market most worried about concerning this election?
An enormous Hillary Clinton landslide. The Senate would certainly flip back to the Democrats, and [the Republicans’ House majority] would be greatly reduced. A narrow Trump win would concern the markets for many reasons.
How might Trump and Clinton react if another act of terrorism is committed in the U.S. before the election?
That could play into Trump’s hands because he [generally] reacts in such a bellicose manner that many people are attracted to his rhetoric. Hillary talks in measured tones, so many feel that she’s not sufficiently angry. But as I’ve jokingly said, when it comes to geopolitics, she’s got more testosterone than Barack Obama.
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