We all live in our own self-made bubbles. It is a never-ending effort to get outside that filter to find out what we might be missing. One way I try to do that is by listening to people who manage money for clients. It is always fascinating to learn what they are hearing from the front lines.
There are lots of topics that come up — the Federal Reserve, interest rates, equity valuations and so on. But these days, nothing dominates the conversation so much as the surprising start of Donald Trump’s presidency.
Today, I want to describe in broad terms what is being said, at least based on what I’m hearing. I suspect many readers are hearing some of the same things, regardless of their line of work.
I don’t want this issue framed in terms of partisan politics or ideology. As we have discussed too many times before, that is no way to invest your money. Perhaps it is best to frame it in terms of constructive or destructive to market value.
Whether you or I agree with these pros and cons cited below isn’t relevant; but the thinking of millions of people holding trillions of dollars in capital is. Let’s start with the constructive side of the ledger:
No. 1. Tax Reform: This is the big one, and it includes tax cuts, cleaning up the corporate tax code and repatriation of trillions of dollars of corporate profits parked overseas to avoid onerous taxation. As noted before, it would be hard to beat the economic impact of tax cuts, tax reform and the return of all that overseas money. Add this to No. 3 on our list, and you get Keynesian stimulus at its finest.
No. 2. Deregulation: Hope comes not only from the financial sector, which has enjoyed a bigly post-election market rally, but from lots of other industries. The wishful thinking is that the cost of doing business declines.
No. 3. Infrastructure: Trump seemed at one point to be gung-ho on a plan to spend as much as $1 trillion on refurbishing and expanding America’s bridges, roads, tunnels, ports and water systems. As we pointed out yesterday, it is long past due.
No. 4. Sentiment: All of the above have combined to make business people and investors more optimistic, which of course feeds into what we’ve seen going on in markets.
No. 5. Single-party rule: I suspect every U.S. president secretly pines for a parliamentary system, where it is easier (in theory) to get things done. (Hey, I said that you may not agree with this, but it’s what I’m hearing out there.)
As for the other side of the ledger:
No. 1. Wrong priorities: The Muslim immigration clampdown; challenging the independence of the Fed; bizarre and ill-qualified cabinet selections; antagonizing China and other trading partners for no reason; embracing Russia and its rogue regime. The more the president wastes time on misplaced priorities, the less those positives cited above will matter.
No. 2. 2018 Congressional elections: The 2010 midterm elections turned out to be very consequential, as the Tea Party rose up in opposition to President Barack Obama. Trump has engendered a much greater backlash than Obama, while his popularity ratings are at historic lows for a new president. It’s quite possible his window to accomplish anything is shorter than that of any modern president.
No. 3. Pivot to being presidential: We’re still waiting for this shift to occur. Let’s face it, if his Feb. 16 news conference taught us anything, it’s that the odds of that happening are minimal. Just consider: the strange insistence on alternative facts that are easily debunked; dismissing whatever he disagrees with as fake news; the inability to focus; the battle with the intelligence community; unnecessary and endless bickering with the news media. This parade of unforced errors makes many people, including some of his supporters, nervous.
No. 4. Scandals and legal issues: Say what you will about Obama, his administration was free of scandal in terms of schemes to use the office for personal gain. We haven’t even completed the first month of the Trump presidency and it seems like this is already a big potential concern.
No. 5. Uncertainty: All of the above have turned the chaos candidate into the uncertainty president. There is simply no way to know how this presidency will turn out, since we’re never seen a figure like Trump elected to the nation’s highest office.
For now, markets are at or near record highs, and seem to be looking past the worst of these concerns. I suspect we will find out which side of the debate will drive conversations and markets very shortly.
See these other recent blog postings by Barry Ritholtz: