5. Market Update
sources: HiddenLevers, NYTimes, CNN, Crain’s, WSJ, CNBC
Fed 2017: 3 Hikes Automation En Vogue
Schwab Intelligent Advisory = 28 bps
- First Amazon drone delivery in UK
- First Uber self-driving cars in SF
- Carrier jobs saved will be lost to tech
- Obama warns of robot takeover + jobs
7. TRUMP + GOP: Tax Cut + ACA Repeal
Sources: Tax Policy Center, HiddenLevers
• Income tax plans are aligned, small gaps can be bridged
• Bigger difference on corp. taxes, but principles are the same
• ACA Repeal: Mandate and 3.8% cap gains tax will be first to go
8. $1T Infrastructure Plan
GOP will torpedo any national debt increase
Big invitation to corruption / kleptocracy
Emphasis on public-private partnerships Trump butting heads with GOP here
Silicon Valley cares most, needs skills
TRUMP v GOP: Infrastructure + Immigration
sources: HiddenLevers, PBS, Trump White Paper, HuffPo, NY Times,
Obama has most deportations ever
Immigration Ban Unlikely
Democrats support Trump’s debt financing 700k Dreamers will stay – political suicide
11. POLICY IMPACT: Corporate Tax Rate Cuts
sources: S&P, US Treasury, US GAO, CNBC, HiddenLevers
Do companies really pay 35%?
S&P’s Estimate: 26.7%
US Treasury Estimate: 20%
GAO Estimate: 14%
Corp. tax rates by Sector Tax Reform Winners
- Telecom
- Consumer-Oriented
- Industrials
Tax Reform Losers
- Technology
- Energy
- Health Care
12. POLICY IMPACT: $1T Infrastructure Spend
sources: CATO Institute, USAToday, HiddenLevers
Moody’s Analytics
• 0.4%/year economic
growth
• Higher inflation/interest
rates from spending
Trump Economic Advisors
• 3.3 million new jobs
13. POLICY IMPACT: Immigration Curbs
sources: NBER, FRED, HiddenLevers
Legal Immigration adds ~1% to GDP Growth – lost with curbs
Undocumented aliens add about 3% of total GDP -> substantial
risk in a mass deportation scenario
Sharply limiting immigration
lowers GDP growth by 1%,
by killing population growth
14. POLICY IMPACT: No Immigrants = No GDP Growth
sources: HiddenLevers, HuffPo, Forbes,
Why do Immigrants help US? WARNINGS
Labor Force Participation JAPAN
Entrepreneurship
Human Capital
BANNON
CAMBODIA
17. SCENARIO: Post Election Historical Analysis
sources: MarketWatch, HiddenLevers
Election President Election-
Inauguration
1y after
inauguration
1920 Harding -12.9% 14.1%
1924 Coolidge 17.1% 19.9%
1928 Hoover 12.5% -8.7%
1932 FDR -21.5% 63.4%
1952 Eisenhower 6.1% -1.3%
1960 JFK 8.4% 13.7%
1968 Nixon -1.4% -12.3%
1976 Carter -0.1% -13.6%
1980 Reagan 2.0% -12.9%
1988 GHW Bush 4.1% 16.8%
1992 Clinton 3.2% 9.1%
2000 GW Bush -6.4% -17.4%
2008 Obama -22.2% 32.7%
AVG. -0.85% 7.96%
S&P return
since Trump
election:
+5.5%
Doesn’t say
much about
2017
18. GOOD: Tax Cuts + Infrastructure
source: HiddenLevers
Trump + Congress move on fiscal spending
Yellen: Hike faster
if spending leads
to inflation
Modest
GDP bump
Tax Cuts
Personal > Corp
19. BAD: Nothing Done
source: HiddenLevers
Trump more sizzle than substance – can’t deliver
distractions
overwhelm
agenda
populist
measures
backfire
US economy
loses first
priority
20. UGLY: Xenophobia
source: HiddenLevers
Immigration shutdown kills GDP growth
Dreamers likely
get a pass
Skilled workers
needed most
Immigration
majority of
GDP growth
Muslim
registry/ban looks
fictional for now
21. SCENARIO: Trump Agenda
Good:
Tax Cuts +
Infrastructure
Bad:
Nothing
Done
Ugly:
Xenophobia
10y UST
-0.25%
S&P
-25%
10y UST
FLAT
S&P
-8%
10y UST
+1%
S&P
+20%
In the best case, a combo of
tax reform and fiscal
spending push rally into next
leg. Scenario currently 20%
priced into market.
If Trump administration gets
bogged down in populist
agenda or in bickering over
Russia etc, S&P could give up
post-election gains.
Sharp limits on immigration
make US look more like
Europe, cutting GDP growth
by 1%. Mass deportations
likely set stage for recession.
22. Trump Agenda – Take Aways
Post election rally doesn’t
predict next year
Limiting immigration takes US into
Japan-style stagnation
Corporate tax cuts smaller and
less impactful than they appear
ACA Repeal and tax cuts likely
As Trump + Ryan agree