April 2017

April 30, 2017 | Derrick Lahey


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“You gain more by not being stupid than you do by being smart. Smart gets neutralized by other smart people. Stupid does not”

Phil Birnbaum

 

As we close the first 100 days of the Trump Presidency, markets continue to price in most of the good initiatives that may eventually get implemented even though not much concrete has been completed so far. Who knew health care was so complicated?” Well President Trump, pretty much every adult besides you apparently.

 

Much of what was promised on the campaign trail will never come to pass. Turns out China is not a currency manipulator after all! That said, markets are certainly expecting tax cuts and health care reform at a minimum since those were the cornerstone of Trump’s campaign. And while the first effort to improve Obamacare failed miserably, a compromised solution will eventually make it over the finish line. Sweeping tax cuts will likely prove even more difficult because they will lead to increased budget deficits in the short term. Hoping that tax cuts will lead to a stronger economy and eventually higher tax revenues down the road is going to be a tough sell. Get ready for more sausage making in Washington!

 

While tax, health care, trade and immigration reforms are messy to implement, the one intangible that is easier to unleash on an economy is deregulation. President Trump has stated that for every new regulation, 2 old regulations must be ripped up. In response to the financial crisis that swept President Obama to power in 2008, the regulatory burden on the American economy (and even the global economy) soared. The pendulum swung to overregulation over the last 8 years and is now set to start swinging back. A prominent American CEO recently characterized Washington’s improved attitude towards business as “the end to 8 years of waterboarding!” Unleashing the proverbial “animal spirits” in corporate America will have as big an impact on job creation and economic growth as anything politicians can agree to in Washington. That said, if deregulation goes too far, the seeds for the next financial crisis will be planted so hopefully Washington strikes a reasonable balance. Capitalism without suitable oversight will always lead to unstable outcomes. It is just human nature.

 

While trade wars are heating up and rogue nations like Syria and North Korea have provided opportunities for the markets to stumble, they have remained incredibly resilient. In addition to the promise of Trump policies, there is growing optimism that the economies of Europe and China are steadily improving. And while there is still lots of political risk in Europe, the first half of the French elections went about as well as markets could have hoped for with the “moderate” candidate expected to win the final election next month. Of course, we have learned over the last year that pollsters are an overpaid profession!