Skip to main content

Investment Ideas The Trump era: Let’s hope it brings desperately needed change

The Trump bump in the market since the U.S. election last year has been one of the most debated topics in business media history.

One of my research sources, ACG Analytics, has spent the past few months travelling from Washington to Moscow to get a read from policy insiders on what is the most likely scenario for 2017.

Bottom line is that reconciliation, a process where the White House can bypass bipartisan Congressional approval to enact a law, is not likely going to be used.

Story continues below advertisement

The markets' initial thought was that Mr. Trump would be able to get all his tax and spending promises through Congress with this approach.

The last omnibus bill signed by a U.S. president via reconciliation was Obamacare. Subsequently, the Democrats lost the Senate and the House of Representatives, and we have had gridlock ever since.

This is not the change people voted for.

Mr. Trump does not want to blow what little political capital he has. He was the most disliked president-elect in history before his term even starts.

He won, in part, because Congress has the lowest approval rating in history, and people wanted change.

Washington (and Ottawa, for that matter) has been broken for a long time. Standards of living have been in decline for decades — it's simply harder to make ends meet for more people every day.

Change is unpredictable at best.

Story continues below advertisement

I'm very excited that business people are taking over the management of the finances in the U.S. — its finances are TRAGIC.

We are at the point where we need the fiscal house to be cleaned out. I'm somewhat concerned that it will be at the cost of foreign policy. I'm not excited that business people are taking over foreign policy.

From what we hear on corporate taxes, Trump wants 15 per cent, House Speaker Paul Ryan's plan is at 20 per cent and Congress is at about 23 per cent.

In order to get the bipartisan support Mr. Trump needs for tax breaks and holidays for foreign earnings repatriation, a lot of horse trading and political pork needs to be negotiated.

It looks like Washington has not learned the lesson yet. It also means a delay in implementing change is likely, leaving a lot of room for error in a market not necessarily priced for perfection. It's priced for significant reform.

Less regulation and taking some of the handcuffs off business to create jobs will be a yuuuge win going forward. Insiders suggest that many of these policy moves will not be implemented in 2017 and won't be felt for some time after. Being a discounting mechanism, the market has discounted a lot of expectations.

Story continues below advertisement

Globally, there are a lot of risk events ahead before any material progress in draining the swamp.

I know. I've been banging the defensive drum for a while, and, while I expected Brexit and Mr. Trump's win to be negative for markets, they have not come off the exuberant price levels I anticipated, save for short violent reactions.

I think this has happened, in large part, because the rest of the world carries far more risk than the U.S. from both an economic and policy perspective, and money keeps flowing in to the strong U.S. dollar.

We should not expect any material new deals until late 2017 or early 2018, which means economic impact will not likely be felt for a while.

I expect global equity markets will test levels seen during the Nov. 8 election night volatility at some point in the next few months, and that would likely be your next best opportunity to buy into weakness.

In the past 25 years, the average beginning-of-the-year drawdown is about 10 per cent and has been at least 5 per cent for 60 per cent of the time.

Story continues below advertisement

While excited for change in Washington, I am most concerned about the anti-trade rhetoric, and I expect the tariff talk, like a border tax adjustment, to begin soon.

It is designed to make foreign corporations pay more to sell products into the U.S. so they build and created jobs domestically. This will likely cause some inflation, an even more hawkish Fed and it will most likely cause some retaliatory moves from other governments.

The Great Depression was made worse by policy mistakes in 1930, adding tariffs, like Smoot-Hawley, to protect the economy and jobs.

Bad trade policy moves may not make America Great Again, and it may just be a catalyst for more global growth headwinds.

Just an FYI … over 100 per cent of world GDP in the past eight years has come from debt and deficits — there is no growth, and economies have not recovered.

These reckless debt policies globally will ensure that growth globally will continue to slow for decades to come, choking out the private sector. By 2035, 100 per cent of every tax dollar spent by the U.S. government will go to just entitlements.

Story continues below advertisement

We need dramatic change to make America great again and, for Canada's sake, let's hope they get it right.

As the saying goes, if the U.S. catches a cold, we get a fever.

If there are not material policy changes, the U.S. will catch pneumonia and Canada will get … ?

===

Do you want to learn more about how to navigate world markets better?

I talk about how to build smarter ETF portfolios to deal with some of the uncertainties we may face in 2017 and beyond in my upcoming educational seminars across Canada.

Story continues below advertisement

Registration is free at www.etfcm.com and you can follow me on my new blog www.bermanscall.com or watch me at Berman's Call Monday's at 11am ET.

Follow me on Twitter: @LarryBermanETF on Facebook: ETF Capital Management.

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Discussion loading ...

Cannabis pro newsletter