Deficits in and Spending Restraint out

The markets are still digesting how a Trump economy will function. There are many economic questions that remain unclear. As I stated last week, these wild moves in the market may prove to be premature as actual policy remains uncertain. However, I’m still trying to answer these questions with limited information. Below are a few questions along with my responses, to give you a better idea of how I’m thinking on these topics.

  • How will the government fund $1 trillion in infrastructure spending? Through higher deficits.
  • Will a tax cut for U.S. businesses and repatriation of overseas cash result in job growth or result in more stock buybacks? More buybacks and possibly higher executive pay.
  • Will the personal tax cut benefit the richest 1% or trickle down to everyone? Wealth inequality grows.
  • Can Trump entice companies to move factories back to the U.S? Yes, jobs will be created in the Rust Belt.  America first.
  • Will there be a trade war/currency war with China and Mexico? Hopefully, not. It would be equivalent to economic nuclear war.
  • What will be the impact to the environment and the alternative energy sector if regulations are loosened? We all lose, especially the next generation.
  • Will the repeal of financial regulations cause another banking crisis in the future? Banks need to regulated. (see Wells Fargo scandal just last month. President Bush also learned this hard lesson in 2008. Heads banks win, tails banks win.)

My personal opinion is that the short-term economic picture is brighter, but there is now a greater chance that things get messy over the long-term. Trump is inheriting a strong economy, which is the exact opposite to how President Obama rode into office in 2008. In 2009, Obama said that “buying stocks is a potentially good deal”. He turned about to be a very good stock forecaster. On the other hand, Trump said last month, “stocks are in a big, fat, ugly bubble”. It is yet to be determined if he actually believes that the stock market is in a bubble, or if he was just trying to be “politically correct”.  If these comments do ring true, it will help to have active portfolio management and solid risk management over the next 4 years.

Please read our disclosure statement regarding the contents of this post and our website as a whole.

Advisory services offered through Constant Guidance Financial LLC, a registered investment

Please follow and like us: