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: