Your Portfolio and a Trump Election

It’s fair to say that most people didn’t expect the Trump election victory.  Speaking with a well-known lobbyist in Washington on Thursday, he believed that no one was more surprised than Trump himself. There will be changes to the court, Obama Care, infrastructure, immigration, and climate policy.  Some people will celebrate and some will mourn, but let’s consider some of the implications that might affect your portfolio.  Overall, baring international conflict or a trade war, we expect the affect to be positive.  Expectations of major market decline have proved unfounded.  Although we are late in our current market cycle, the number of policy changes could drive a new era of growth, jobs, and investment.

Decreased regulation:

An expected high priority is a pause in any new or implementing regulations, while they are reviewed, changed or eliminated.  There are two areas that this should strongly affect: Energy and Financial Services.

Energy production and investment should increase.  We should see lower energy prices and this should help in bringing back manufacturing.  The US has some of the largest reserves of natural gas deposits of any country.  However, until recently, natural gas was difficult to export without pipelines.  New technology allows for large scale liquefaction (freezing the gas to compress it by 600 times, allowing easier transport.  Commercial export has been stalled with increasing regulation.  Expect significant private investment in new ships, liquefaction terminals, and new pipelines.  Additionally, the recent financial pressure on US oil production has resulted in a much more efficient oil industry, bringing our break even cost of production down to below that of many countries.  Coal production should also get a brief regulation reprieve, although because of cheap and plentiful natural gas the economics of coal may still be in doubt.  All of this means the US is poised to become a major exporter of energy, and these dollars should find their way back into our economy to spur further activity and raise living standards.

In the past, we have mentioned how the Financial Services industry has been preparing for a massive new regulation from the DOL that would change the way people received financial advice and the products that people can use.  While some of these changes would have been good for consumers, the election of Trump makes it more likely that implementation of this regulation will be delayed or possibly reworked.  We expect this to be good for financial companies who were preparing for lower margins and a dislocation of their work force.

Bringing corporate profits back to the United States:

For over a decade, corporate profits from iPhones to prescription drugs have been left to be invested overseas.  It was simply too expensive for companies to pay the tax to “repatriate” these dollars.  Expect significant effort to change this.  It’s possible the US will announce a short term tax holiday with perhaps a 10% lower tax rate for corporate profits coming back to the US.  Estimates are as high as 2 trillion dollars that may come back to the US and could cause significant growth of opportunities, as this money is reinvested in the US economy.  Additionally, the increased Federal revenue from this repatriated money could help pay for anticipated lower tax rates.  Expect the current tax rates to consolidate from 7 into 3 rates, proposed so far: 33%, 15%, 12%.  Corporate tax rates are also expected to be lowered to better match global competitors.

For some, the election of Trump was a difficult pill to take.  Is he a crazy man that will offend other countries or cause a war? Certainly, that was feared by many and time will tell.  However, the decision is made and initial signs seem more moderate.  Let’s all wish him luck, as Americans.

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