The status quo is no longer acceptable and therefore, we sometimes need to take a leap of faith to get where we want to go and need to be. Such a time is now and I am throwing my support behind Donald Trump, the renegade Republican nominee for President.
This decision has not come easily for me as I have characterized both nominees as poor choices to lead our country at this important time. After listening to Trump present last Thursday at the NY Economics Club and his responses to the follow up questions from John Paulson, which were on everyone's mind, I have concluded that he is the right choice over Hilary Clinton.
I believe he understands the need to:
- Stimulate growth, increase employment and wages
- Rebuild the infrastructure of the country
- Rebuild the status of the U.S in the world
- Be energy independent
- Change the outdated tax code and repatriate foreign earnings
- Reduce regulations and red tape
- Rebuild the military and strengthen the police
- Be fiscally sound
- Have a Supreme Court that follows the Constitution
- Overhaul the health care plan before it implodes while strengthening Medicaid
- Stand for fair trade, not protectionism
- Hiring the most qualified people to be in his administration
- Represent all men, women and their families
- Have a firm and consistent immigration policy protecting our borders and society
- He really does have a grand plan and vision to make America "great again" a la Reagan, while the establishment, including Republicans and Democrats in DC, twiddle their thumbs and do nothing. And Clinton is clearly part of the establishment. She represents more of the same which is no longer enough.
Yes, Trump may be unpredictable but that is on purpose to keep the opposing sides off guard including foreign governments. The U.S. will no longer be an easy target or patsy. I don't think that you can label him a conservative or liberal. He is more a pragmatist, a centrist, a negotiator, and most of all, a deal maker. I believe that he is socially more liberal than the conservatives would like and fiscally more conservative than the liberals want. Sounds like me.
This country needs to position itself for the future rather than keep glancing in the rear view mirror. Right now most everyone in the media, which is mostly liberally controlled, is putting Trump down including his future plans. Naturally, they support Hillary and what the Democrat liberals stands for. But is that blind faith or fear of the less predictable? Have those policies worked in the past? Do they feel that the status quo is acceptable or do we need real change?
Why not ask Mark Cuban and Warren Buffett what their solutions would be to get the U.S economy back on track with growth over 2.5% per year. Do they believe in free trade, the current tax system, the current level of regulations, etc.? It's easy to criticize someone but what would they do? Do they really support Hillary's policies, ethics or are they just against Trump who cannot be controlled?
The U.S. and global economies have been stuck in a rut for years now. Are we really content with 2% or less growth? The rise of populism is not just a U.S. phenomenon. There is a reason for the high levels of discontent here and abroad. It is clear that the fiscal and regulatory pendulums have swung too far to the right from too far to the left prior to 2008 and so many have been left behind.
While there are some signs of fiscal loosening finally, it is way too slow and so much more needs to be done. We need real change and we need it now. I am convinced that change would happen under a Trump administration far faster than under a Clinton one, if it occurred at all. We need a path to prosperity.
So where are we now and how should we start to position for the next year?
Growth forecasts for the U.S. economy have come down to around 3.0% for the third quarter as both industrial production and retail sales are more sluggish than earlier estimated. However, that is an improvement over dismal first half of 2016 results. It is clear that the Fed needs to wait longer until the global economy is on sounder footing and policy changes are in place to stimulate sustaining growth.
At the same time, global monetary authorities apparently recognize that policy is as easy as it can get and are looking to pass the baton for more stimuli to governments and fiscal policies. Naturally, that has led to some consternation in the bond market and a mild steepening in most yield curves.
Muddling along is the best we can do unless governments' implement policies to stimulate growth. I expect that governments, including here, will loosen their purse strings and start spending more in 2017. That is the clear investable theme.
I expect the following things to happen regardless of who becomes our next President:
Policies to stimulate growth.
Stricter adherence to trade agreements and more rapid responses to "dumping" which will favorably impact the steel and aluminum industries amongst others.
Changes in the tax system to stimulate capital investment, which may include accelerated depreciation on new investment.
Government incentives and funding for infrastructure spending of all types.
Changes in the tax system offering a plan for multinationals to repatriate foreign earnings on less punitive terms than exist currently.
Higher research tax credits.
Increased defense spending.
Stricter oversight over drug prices, health care spending, medical insurance and waste.
I am sure that you can add to this list but you get the drift of where I am going. The tide is turning and governments here and abroad have finally gotten the message and will implement policies for growth, which change the dynamic for investing. There will be clear winners and losers. Own the beneficiaries of more growth and sell the "safe" stocks as they will not be safe any longer and don't own bonds of any duration!
You may call me an optimist but that is not the case at all. All politicians' can read the tea leaves; see the rise in populism and the implications of not changing the status quo. They represent themselves first, and then, their constituents. If they want to be re-elected they will implement these changes.
Change will happen faster under a Trump administration as he will not take "no" for an answer. You will get "fired" on the spot
George Soros made his most money finding a trend and adding to his position as each incremental data point reinforced it. I believe that this new trend, implementing plans for growth, has begun, as there already have been numerous data points supporting its validity this past week. Trump's speech on Thursday cinched it for me and Hillary cannot be far behind with her own plan to stimulate growth. Our politicians' in DC will get on board and join in as it becomes more apparent that their jobs are at risk if they don't.
Don't look back. It is time to invest for the future. You must be patient as the benefits of change don't occur overnight.
I want to add one comment on energy prices, which remain in the headlights of all investors daily. Do you believe that low energy prices are better for the global economy than higher prices? The answer is obvious. Low gasoline and heating fuel prices are a boon to all consumers and a plus for businesses, too. Prices will not increase until supply/demand come into balance and inventories are drawn down. I don't expect either to occur until sometime in 2017.
So remember to review all the facts; step back, pause and reflect; consider mindset shifts; review your asset allocation; control risk and maintain liquidity at all times; do independent research and ..
Invest Accordingly!
William A. Ehrman is managing partner at Paix et Prosperite LLC.