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Trump Promises a Fiscal Boom and a Surging Dollar, if He Can Control Himself

by admin on November 9, 2016

Trump Promises a Fiscal Boom and a Surging Dollar, if He Can Control Himself

Here is a middle section of this interesting, initially provocative column by Ambrose Evans-Pritchard for The Telegraph:

The judgment call we have to make is whether he actually means the outlandish things he said – mostly flippantly, and in vague terms – and whether White House duties will compel him to retreat even if he did.

Washington’s permanent government and the ‘K’ street lobbyists of corporate America have a way of co-opting US leaders. It is my tentative working premise that Mr Trump is not a new Mussolini and that he will ultimately trim his excesses. Call it a ‘soft Trump’ if you like, though this too entails its own political risks.

If so, an entirely different economic picture takes shape. His manifesto amounts to a massive fiscal stimulus, with tax cuts across the board, a $1 trillion blitz on infrastructure, and an imperial navy of 350 combat ships.

It is a replay of Reaganomics in the early 1980s, a form of turbo-charged Keynesian reflation, and damn the deficit. It promises a pro-cyclical economic boom, so long as Mr Trump quietly drops his threat of 35pc tariffs against Mexico and 45pc against China.

Mr Trump enjoys the huge advantage of Republican control over the House and Senate. This averts the paralysing gridlock and obstructionism that surely awaited Hillary Clinton had she won. He can overcome the ideology of austerity in a way that she could never hope to do.

There will be friction but House Republicans will hardly resist his plan to cut corporation tax from 35pc to 15pc, or to cut income tax from 39.6pc to 33pc for the rich, to 25pc for middle earners, to 12pc for those below $54,000, and to zero for those under $29,000.

Nor are they likely to block his call for national reconstruction on bridges, tunnels, telecommunications, cyber security, water systems, pipelines and the electric grid, all built with “American steel” and supposedly modeled on Eisenhower’s highway expansion in the 1950s.

You might equally say it looks more like Roosevelt’s New Deal, even if funded partially by private money and run on a fee-earning basis. Infrastructure spending of this kind is what Left-leaning economists such Larry Summers and Paul Krugman have been calling for all along.

It starts to plug the $3.6 trillion backlog of projects identified by the American Society of Civil Engineers. It address one cause of sliding US productivity growth. It soaks up the corporate cash hoard, helping to bring investment back into alignment with savings.

The budget deficit would probably balloon by at least $450bn – or 2.4pc of GDP – even after offsetting a hiring freeze for public employees. That is potent money.

Mr Trump’s tax cuts for the rich are not to everybody’s taste. Yet in broad macro-economic terms, this fiscal rebalancing is what Keynesian and monetarist doctors ordered. It becomes easier for the US to escape the ‘Wicksellian’ trap of a negative natural rate of interest, and therefore to escape clammy embrace of quantitative easing.

Fiscal expansion allows the Federal Reserve to raise interest rates faster, ceteris paribus. Vice-chairman Stanley Fischer has even put a figure on it, suggesting that every one percentage point of GDP in fiscal loosening implies rate rises of 50 basis points.

Trumpanomics shifts the structure of US and global credit, and exchange rates. It was the same regime of “loose fiscal/tight money” that catapulted the dollar sky high in the early 1980s, with dramatic global consequences.

David Fuller’s view

We should recognise that Trump the campaigner is not the same as Trump the President-elect. The transition was evident from his first, gracious speech a few hours after winning the election. It continued with his comments following an initial meeting with President Obama today: “Mr. President, it was a great honor being with you, and I look forward to being with you many more times.”

From the moment Trump entered the Republican Primaries he was outspoken, brash and often vulgar. He knew how to get media attention and it worked. His often outrageous or bizarre statements dominated news coverage. Established Republican candidates in the ring became invisible, causing them to lose support and eventually drop out. Trump used a similar approach against Clinton and remained the focal point of press attention.

Few pundits took him seriously but Trump was smart enough to do the seemingly impossible, surprising us all. He galvanised white, mostly working class voters who formed his base. He also attracted just enough support from diverse groups including Hispanic, Afro-American, and Asian minorities. Additionally, sufficient business personnel and Wall Street executives were drawn to Trump by promises of fiscal stimulus, less regulation and lower taxes. These were beyond the reach of that other rich but more traditional Republican, Mitt Romney, although he was also up against tougher opposition.

This item continues in the Subscriber’s Area, where further articles are also posted.

The man who will likely lead the Navy under Trump means business in the South China Sea

Here is the opening of this important article by Alex Lockie for Business Insider:

When President-elect Donald Trump spoke about expanding the Navy to 350 ships in his September national security speech, he’s most likely taking his cues from Randy Forbes, the Republican Congressman from Virginia poised to take over as Secretary of the Navy in a Trump administration.

“The 350-ship navy, cruiser modernization – those naval planks [in Donald Trump’s policies] are lifted from Randy Forbes,” a source familiar with the matter told USNI News.

The president appoints a Secretary of the Navy to “conduct, all affairs of the Department of the Navy,” which includes the Marine Corps. Trump, during his speech, said he wants to greatly increase the size of both the Navy and the Marines, and to generally “rebuild our military.”

Additionally, Trump mentioned buying newer destroyers to bulk up the Navy’s fleet of 272 ships, most likely with Zumwalt class destroyers, but the Navy has struggled so far to field those.

Forbes, a military adviser to Trump during his campaign, serves as a senior member of the House Armed Services Committee, and makes it plain on his website that he is “one of the nation’s most forceful advocates for a strong national defense.”

In September, Forbes asserted before Congress that “more than rhetoric is required to counterbalance China’s growing military power and assertiveness,” referring to China’s artificial island building and militarization in the South China Sea, as well as China ignoring an international court ruling that said its claims in the region were illegal.

China has declared “no fly” and “no sail” zones in international waters in the Pacific that have gone unchallenged by the US in the last few years. Increasingly Beijing bullies ships from its neighbors, some of whom are US allies.

David Fuller’s view

Unfortunately, I think the USA has to do this. We live in a dangerous world and Obama’s reluctance to spend on military expansion has emboldened both Russia and China.

The Markets Now

Here is the new brochure for the next event on Monday evening 28th November, at London’s Caledonian Club.


David Fuller’s view

OK, the US Presidential Election is over but what can we expect from Trump’s regime?

Interestingly, infrastructure spending is back on a number of political agendas. That should help GDP growth. Commodities are generally firm, with ‘Dr Copper’ joining other metals in breaking to the upside. A number of government bond yields bottomed in July, including US 10-Yr Treasuries.

Groupthink pundits are saying nothing will change but that is a contrary indicator. This is a great time to have an exciting new speaker in Clive Burstow. Come along and participate in the discussion of market opportunities – the last session for 2016.

I look forward to another lively session at The Markets Now seminar, attended by highly experienced international investors, led by our long-term subscribers. Iain Little has more interesting material, including his popular “Trusts In Focus” programme. Iain also introduced Clive Burstow of Barings, a specialist in the analysis and management of mining stocks – a hot topic this year.

I can’t wait and it is always fun to chat with delegates at the cash bar following the three presentations.

Tech Defanged as Stocks From Amazon to Netflix Left Out of Rally

This article by Lu Wang and Rebecca Spalding for Bloomberg may be of interest to subscribers. Here is a section:

Losses among computer and software makers mushroomed Thursday and were pronounced in the FANG block of Facebook Inc., Amazon.com Inc., Netflix Inc. and Google parent Alphabet Inc., each of which fell at least 3.6 percent. The Nasdaq 100 Index slumped 2.3 percent as of 10:58 a.m. in New York, the biggest retreat since Sept. 9.

While opinions vary about what’s going on, one possibility was concern about the impact of Trump’s policies on trade overseas, where U.S. technology companies thrive. Others saw a rational retreat for a group that through Election Day had surged 11 percent in 2016, or even the potential for retaliation by the president-elect against an industry that didn’t exactly cozy up to him during the campaign.

“Amazon is not worth $42 less than it was yesterday. It’s just that there’s been these violent moves as investors try to sort out what the election means,” said Terry Morris, manager director of equities at BB&T Institutional Investment Advisors in Wyomissing, Pennsylvania. “These exaggerated moves are just that, and I think we’re going to come back to more reasonable valuations.”

Facebook slid as much as 6.4 percent to $115.27. Amazon was down 4.7 percent to $735.66 after falling as much as 7 percent earlier. Netflix declined 5.4 percent to $115.57 in its biggest slide since July. Alphabet lost 3.8 percent to $774.77.

Trump’s presidency leaves the U.S. tech industry in an uncomfortably uncertain position. Total contributions to Hillary Clinton’s campaign from the internet industry came in at 114 times the level they did for Trump, according to statistics compiled by the Center for Responsive Politics. Facebook CEO Mark Zuckerberg gave a strongly worded rebuke to Trump’s views on immigration at the company’s developers conference in April, although he never called him out by name.

Eoin Treacy’s view

Quite apart from the election highflying mega-cap technology shares were due a reversion towards the mean and pre-election jitters provided the catalyst for some profit taking, but the result has what has so far been a subpar rebound.

Merkel’s conservatives warn of Trump effect in Germany

This article from Reuters may be of interest to subscribers. Here is a section:

“Things are getting simplified, black or white, good or bad, right or wrong. You can asked simple questions, but one should not give simple answers,” Oettinger told Deutschlandfunk radio.

He said politicians and media should better explain complicated things with facts, but they should also embrace social media to reach younger voters in the new digital world.

The AfD, polling at around 13 percent, on Wednesday welcomed Trump’s victory as the disempowerment of political elites.

INSA chief Hermann Binkert told Bild politicians had not taken on board the warning signs and a growing number of people had rejected the established parties and turned to the AfD.

However, polls show a majority of Germans still reject rabble rousing slogans. A Politbarometer poll for broadcaster ZDF showed some 82 percent of Germans think it is bad or very bad that Trump became president.

Experts also argue that Germany’s political system, established after World War Two to avoid the rise of another dictator after Hitler, makes the rise of individual politicians like Trump or even a single party difficult.

Eoin Treacy’s view

When considering where the hydra of populism is most likely to sprout next Germany is not the most likely candidate. Its federal political system, high barrier to entry into the Bundestag and the simple fact that, despite discontent among the so called Wutbürger class of disaffected citizens, Germany was perhaps the least affected of any European country by the credit / sovereign debt crises.

Robots and industrialization in developing countries

This report from the UN Conference on Trade and Development may be of interest to subscribers. Here is a section:

A country wishing to benefit from such effects must deploy more robots than others. According to data from the International Federation of Robotics, recent deployments of industrial robots in developing countries have been concentrated in China, and the country is expected to maintain its front-runner status (figure 1). In response to a shrinking working-age population and rising labour costs, which have eroded the country’s cheap-labour advantage, China has embarked on a government-backed robot-driven industrial strategy entitled “Made in China 2025”. Each year since 2013, China has bought more industrial robots than any other country and, by the end of 2016, is likely to overtake Japan as the world’s biggest operator of industrial robots. While its robot density – robots per industrial workers – continues to fall short of that of Germany, Japan and the Republic of Korea, the rapid pace of robot deployment is likely to significantly reduce the erosion of China’s comparative advantage in labour-intensive manufacturing.

The data also show, however, that industrial robots have primarily been deployed in the automotive, electrical and electronics industries (figure 2). This means that in developing countries – such as Mexico and many countries in Asia – those engaged in export activities in these two sectors are the most exposed to reshoring. By contrast, in many labourintensive industries, such as garment-making, widespread automation is not yet suitable. While robots have become cheaper, some developing countries continue to have a large pool of cheap labour. Thus, for those countries whose major challenge is to create jobs for a large number of low-skilled entrants to the labour force – such as in many parts of Africa – deploying robots under current cost structures may drive production costs up, rather than down.

Eoin Treacy’s view

Manufacturing is not a one size fits all solution. The primary reason humans still predominate in low cost manufacturing is because they do not require retooling or programming but can adapt quickly to emerging situations. However the challenge is that robotics, machine learning and artificial intelligence are getting better all the time and the ability of the low skilled human workforce to innovate is not as swift as technological innovation.

The Chart Seminar 2016

The Chart Seminar is coming to London on November 24th and 25th


Eoin Treacy’s view

The Chart Seminar will be in London on November 24th and 25th. We will be working with a partner to co-promote the event and expect a full house (we cap the event at 50). The Radisson Blu Edwardian Vanderbilt on Cromwell Road will be the venue for the seminar.

If you are interested in securing your place please contact Sarah Barnes at [email protected]

The full rate for The Chart Seminar is £1799 + VAT. (Please note US, Australian and Asian delegates, as non EU residents are not liable for VAT). Subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.

You can download the brochure here.

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