The Trump Effect

We’ll be seeing a lot of this face over the next four (and possibly eight) years.

Whether you like that prospect or not, you should know this.

I told you last week I’d have a piece for you on how the Trump presidency is likely to affect major market sectors (and hence, your money).

Here’s what’s going up, what’s going down – and what’s not changing.

We can, of course, only guess which sectors will do well and which ones will not under Trump.  But we can of course make some educated guesses. And here are some of mine.

What’s Going Up

  • We can expect Trump to keep his promise to rebuild the military, which should help defense stocks.
  • Banks are looking forward to less regulation and potential repeal of parts of Dodd-Frank, but higher interest rates will be a more important factor in their future profitability.

What’s Going Down

  • The healthcare industry is likely to be roiled by Obamacare repeal.
  • The energy section should experience more production which could keep energy prices low.
  • The newspaper business is finished. Mainstream media lost all credibility in the election. I think in 5 years we’ll see The New York Times and Washington Post with almost no subscribers and independent sources like what you’re reading right now growing on every front. Besides spewing empty liberal shibboleths, mainstream newspapers are bleeding money, and their only hope is for a Jeff Bezos figure (CEO of Amazon) to come in and buy them like the Post.
  • Most important, stocks are already fully valued and future gains will require seriously higher economic growth.

What’s Not Changing

While investors are obsessing over the potential effects on their portfolios of a Trump presidency, they need to remember that there are certain conditions in the American economy that will be impermeable to any new president’s policies.  The foremost of these conditions is the $20 trillion federal deficit, the more than $200 trillion of global debt, and the government programs and business practices underlying these troubling statistics. You can get my in-depth analysis of the coming debt crisis here.

President-elect Trump is likely to focus on pro-growth policies at the expense of limiting the growth of US debt. He expressed little interest in reforming entitlements programs like Social Security and Medicare that are among the primary (but not the only) causes of rising federal deficits. Both of these programs will run out of money in the next couple of decades unless they are reformed.  Whether Mr. Trump deals with this or leaves it for later presidents remains to be seen.  ObamaCare repeal and reform, which he is highly likely to pursue, may help with the Medicare problem but it is too early to tell. But the bottom line is that there is little prospect that the debt crisis that has been building since the financial crisis can be avoided.

Interest rates have risen sharply since November 8 and are likely to keep rising, laying waste to bond portfolios.  While current levels of interest rates are not yet high enough to hurt stocks, significantly higher rates (i.e. a 3% yield on 10-year Treasuries) will limit further stock market gains.  The US corporate sector is heavily leveraged and will be hurt by higher rates.  It will require significantly lower taxes to compensate corporations for their higher interest costs.

While Trump may improve some sectors shorter-term, our underlying debt problem is not going to go away. And while my 2017 forecast may be more bullish than the one I issued at the end of last year, my overall viewpoint remains the same: You can’t Trump the Super Crash. Not forever.

Sincerely,

Michael

37 Responses to “The Trump Effect”

  1. Michael: The elite has too much invested in mainstream media and its through out our culture and country. It will always be with us, eventhough it no longer will be so influential. It may well be viewed as just the media of the upper class.

  2. Do you strongly believe the Super Crash will be happening? If so, then what time frame do you predict it will be happened? why you said “And while my 2017 forecast may be more bullish than the one I issued at the end of last year, my overall viewpoint remains the same”
    Thank you very much,
    Thai Tran

  3. Money I save is not called an entitlement. Why then is the money taken out of my paycheck & matched by my employer for Social Security called an entitlement? No one has a say with this removal of funds from our pay checks. The Feds take the money, spend it on something else and when it comes due, they claim that it is an entitlement. And writers, reporters, etc. all go along with this terminology. In my way of thinking, if a person misstates what the whole understanding of Social Security was meant to be, then the possibility exists that the whole article becomes a turn off for me.

  4. Energy might do OK … 1. a less hostile government that will likely reduce all the “green” giveaways is a small plus, 2. Saudi/OPEC have miscalculated the pricing poker game – the USA can sustain the game , they can’t. 3. The guys that run Exxon, Shell, BP, etc are pretty sharp and as long as they have honest auditors they’ll take care of your investment money; not necessarily good for long traders

  5. Social Security. You make is sound like there is a pot of money held in trust to assure Social Security payments and this fund will be exhausted in 20-30 years. On the other hand I have heard that this fund is a hoax and never existed and the gov is merely covering the shortfall of outgo over collections from general funds.. So if this is true SS is already insolvent, if not bankrupt. What’s the truth?

  6. Our elected President Trump, it doesn’t matter people like or not, it’s the fact and shows the voices of American peoples. I believe that if Congress work with him together, he’ll be able to get much things done to make economy and defense capability strong by create the correct policies to grow economy and create jobs. I don’t believe that bare out normal business are good ideas, business should have their own responsibilities as their financial status under government’s correct business environment for job creating. However to bare the major banks which represent America’s reputations may be good ideas, but only for ones which are surely originate from America, funded from our country, benefited for our country, keep money in our country, patriotic to our country only. Banks needs to be regulated by honesty as well as to provide loans to ones qualified instead of by political background. Actually, if our Gov’t work tightly together towards America’s own benefits by America’s own foundations & constitutions, America’s debts won’t be too hard to be solved at least much sooner. The principles are the foundation, the approach will depend on the better strategies. Principles + better strategies = the results of less debts quickly
    However, put America 1st and take care of Americans 1st are surely agreed by most Americans.

  7. Thomas Coleman, You are correct. The federal debt (not including unfunded liabilities) is very nearly $20 trillion. I’m sure that Mr. Lewitt made a mistake. CBO estimates that the federal budget deficit in 2016 will be $544 billion.

  8. “…there is little prospect that the debt crisis that has been building since the financial crisis can be avoided.”

    Really? “…since the financial crisis…”? And the “liberal media” is biased?

    The “debt crisis” has been building long before. In fact, it has been building since Ronald Reagan assumed the presidency.

    Where’s the crash you promised would happen for June 2016? Granted, there was a “Brexit” blip, but you, Mr. Lewitt, vastly overestimate your competence.

    Fact is, Obama is handing over an economy that is in much better shape than the one he was handed 8 years ago – against a fierce Republican opposition. Whatever Trump and the Republican majorities do with it is on THEM!

  9. Jeff anyone can get a great 2% growth rate when you spend over 1.2 Trillion a year you don’t have Obama has added over 10 Trillion dollars to deficit on make work projects as well as paying back supporters ( Solyndra, Tesla,etc) Great stimulus I d say When the deficit eventually crashes the economy yes Liberal Media will blame Republicans It is a knee jerk reaction Mr Lewitt may have got the timing wrong but there will be major crash It may not be imminent but it is inevitable and picking a time is decidedly a difficult proposition Trump and Republicans cannot prevent it though with thoughtful policy may soften the blow that otherwise is heading our way

  10. 20 Trillion Deficit & 200 Trillion World Debt means only one thing, either anarchy (Big Wars) or a UBER EXPANDING ECONOMIC BOOM that creates new economics & MASSIVE PLUS MASSIVE wealth creation!
    It would best be to start outlining the developments or initiatives of a new economics that would erase or minimize the Trillions of debt by its SUPER NOVA LIKE PARADIGM SHIFT.
    Great minds should fixate here!
    It’s like taking technological innovations that are covered in Baltimore and extrapolating into an all encompassing Ever Expanding Civilizational Economics.
    TRUMP your ‘Super Nova’!

  11. As a new investor and just about to close on my first house, what do you recommend I do about locking in my rate? My banker said to wait and he’ll notify me when it goes back down but I’m not so sure it will. Thanks for your good advice, you have helped me learn how to manage and invest the money I work so hard for. What a great feeling!

  12. Michael analysis cannot stand intellectual scrutiny. It is full of partisanship characterised by Trump rhethorics. The US budget deficit started ballooning from Regan’s era. Obama inherited an economy that was in tatters, hence the stimulus plans to stem the tide. American isolationism and protectionism cannot grow the economy and make it great. China has one quarter of world’s population. Asian countries, China, Jilted European allies control more than 65% of world GDP. America needs the world to buy her goods output and defense materiels to keep the jobs going on. Alienating the rest of the world will hurt America recovery. The world has changed. The possibility of reapproachment of Europe and Russia with China and Asia/ Pacific regions will leave America vulnerable. A new world currency will turn the dollar to mere pieces of fancy papers. Xenophobia cannot supplant the globalization taking shape. Trump and his supporters ideas will sound the death knell on America position in the world. The good news is that mid term elections will bring back common sense to running the government.

  13. Kenneth buie hillard

    Dare to compare the us national debt against the dollar per ounce of silver and vice versa with gold and Putin just snapping up 48 tons of gold.if u see my name then u will understand world record status.what is in fine tuning.gold,silver or world record debt that is implosion get now.scary,scary.i am u and u are me,one for all and all for one.i can sleep at night with physicall metals.paper is fine when it is 1 cent and then goes to 100 dollars.

  14. The laws which established Social Security set it up as a government program that actually NEVER has to be paid back to the individual “contributing” it. If, when and how much is controlled by the currently sitting Congress. So, no, it is NOT a savings account of any sort, it is a TAX and currently, there is a formula stating that you are going to get some of it paid to you in the future. Notice that they have changed the year at which you may begin collecting your entitlement(savings), upwards from 65. Expect that to continue going up. Since Congress almost never wants to be associated with a reduction in Social Security payments, I expect that the payout formulas will be adjusted to reduce the maximum payment to higher contributing individuals and pay those sums out to others in order to bring them out of “senior poverty”. Best to assume you will never get any social security and budget accordingly.

  15. More thoughts on Social Security. As a dual American/Canadian citizen I collect SS mainly from the US and a very small amount from my early years working in Canada. The Canadian Government Canada Pension Plan (CPP) used to mimic the US Soc Sec system but, like us now, were quickly running deficits. They abandoned their losing system, increased tax payer contributions and hired the best financial geniuses in Canada to max. returns.. Besides investing in profitable Canadian companies and deal, they have become huge investors in large dividend US/European and Asian blue chips, act as international venture capitalists and even own modern apartment estates in Bombay, India. All high potential deals anywhere on the planet are hunted, analyzed and the best prospects are quickly screened out and funded. No bureaucrats or elected officials can be consulted. The results have been fantastic since the 1990s. Even with an exploding population they have run surpluses in every year since the reset. The managers are rewarded like US Hedge Fund buccaneers while the guy on mainstreet cheers them on. By contrast (If you are not prone to suicide or panic attacks), Google the investment ground rules for managing the US Social Security “trust funds” . Aren’t we supposed to be the home of “exceptionalism”, the “city on the hill”, the leader of the free world? Is our Government and Wall Street so incompetent or corrupt that the USA cannot match a pip-squeek, center-left country like Canada’s ability to make Social Security sustainable?

  16. Private debt Euroland debt real problem as Michael points out. However, public federal debt for the U.S. is a non-issue. Public sector deficits are private sector surpluses by economic law. The Federal public debt is just a savings account (literally a security account deposit at the Fed) – part of the world’s financial wealth. It is the cumulative result of the government putting more money into the private sector with spending than removing from the private sector with taxes. The higher private sector incomes created by deficits are a negative only if the economy is near capacity – in which case inflation results. But under most circumstances, deficits are a good thing. Surpluses are the opposite and therefore bad. Just look at the six depressions in the nation’s history – five in the 19th century. All were immediately preceded by 25% drops in public debt – the only such drops in the nation’s history.

  17. I have to go with the person who talks about entitlements, as you quoted in your comments Michael, it’s not a entitlement if we are the ones that put the money into it. Also the biggest lie is trying to make people believe it’s running out of money, as my father told me before he passed back in 2000 when they did an audit on this so called debunked SSA which as we all know to be a lie but concerns me when so called people in the know make ignorant statement which if you say it long enough it will become true and this is something the Repubicans have always wanted to do. I get it this fund was never intended to be a retirement program but everyone, be it Repub or Demo have barrowed against it for their own person agendas, but my problem is people like yourself keep making those statements of it’s an entitlement. How about this, let’s get some action rolling on fixing that piece of first, and that’s call it what it truly is, a supplement that we paid for, you know We The People.

  18. Nothing good for the “middle class” hard working, tax overpaying US citizen will ever happen as long as our “representatives” are allowed to continue to create a very different, special, economically and in every other way “elite” lives for themselves at will. They are so far removed from the real American experience and will never voluntarily vote themselves less. For decades they AND the Supreme Court have created an unreal, over the top selfish world for themselves. “We the people” are way down the line…..e.g., themselves, special interests, etc… I voted for Trump almost entirely based on a hope that he gets in there and boldly turns that very powerful group into humble servants once again as our constitution intended. It is a MASSIVE ask which I pray for daily. Make no mistake, God is on the move and hates this as much as we do/should. Just in time as being a US Marine….I was getting quite frustrated by the entire dishonest government world they have created and have been feeling increasingly more and more like our founders did when they got tired of British rule and decided it was time to change things.

  19. Really? Obama saved us? 10 trillion debt to feign a functioning economy. If all the people using EBT’S at the grocery were standing in a soup line it would be called a depression. unemployment really 20%. Obamacare is a huge jobs killer making people work multiple part time jobs to make less than their old full time job. You LIBS make me sick and have your heads up your ass.

  20. Tanting Tagamolila

    $10 trillion deficit per year is equivalent to about $100,000 per family per year in the US. I don’t believe that my family got even half of that amount in benefits or services (including use of nationally-funded infrastructure, etc). I paid State taxes, sales taxes, vehicle taxes, etc. separately and give to Charity also. Where did all that money go? – I guess squandered in useless projects and handouts to over-entitled government dependents.

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