Will Washington’s Elite Shoot the Messenger?
While there is much ado about the why and how, President Trump’s agenda will be the goose that lays the golden economic egg.
At the end of it all, the bullish case for stocks looks to be standing just fine, based on the assumption that the economy will hit its stride regardless of who is sitting in the White House. If tax reform, health care reform, trade reform, deregulation and infrastructure spending move from the whiteboard to a Congressional vote, economic growth seems assured.
Until then, I would argue we’re still moving down the road of populist change. It will matter little in the big picture how the political circus plays out in Washington, D.C., as to the inertia created when an economy the size of America’s gets up to cruising speed of growing gross domestic product (GDP) at 3.0% or higher.
This is not to take away from the mental jolt President Trump’s agenda has provided business and consumer confidence. Good ideas have a way of becoming grassroots movements that suddenly burst onto the national stage. That reality greatly explains why a guy as divisive as Donald Trump won election on Nov. 8 and now is the sitting president.
The notion of lower taxes, less government intrusion, pro-business initiatives and big-time public works spending targeting job creation has lifted economic sentiment readings to historic highs. While the messenger is mired in a world of political “deep kimchi,” the message is resoundingly popular with the business community and half of the voting population. Take the U.S. economy at a glance for a minute:
The United States is the world’s largest national economy in nominal terms, representing 22% of nominal global GDP and 17% of gross world product (GWP). The U.S. GDP was estimated at $18.56 trillion in 2016, with the U.S. dollar considered the world’s foremost reserve currency. Its seven largest trading partners are Canada, China, Mexico, Japan, Germany, South Korea and the United Kingdom. Americans have the highest average household and employee income among the Organisation for Economic Co-operation and Development (OECD) nations. American essentially has held this ranking since the 1890s. The United States also is the second-largest manufacturer and third-largest producer of oil and natural gas, as well as home to 128 of the world’s 500 largest companies.
This is quite a resume and easily explains why its financial markets are the most influential, attracting more than $2.4 trillion in foreign investments. At the same time, American investments in foreign countries total more than $3.3 trillion. In addition, the United States leads in international rankings of venture capital and global research and development funding. Topping it all off, consumer spending comprises roughly 71% of the U.S. economy with household final consumption expenditure five times larger than Japan’s. Americans are by far and away the world’s greatest shoppers!
I look at the Trump agenda a lot like Obamacare. Even as Congress embarks on overhauling the health care law formally known as the Affordable Healthcare Act, some aspects of it are now non-negotiable. Those aspects include insuring those who didn’t have health care before, nor coverage for pre-existing conditions. Even as Obamacare is hemorrhaging from cost overruns, any new legislation will somehow incorporate these two features.
In the same way, Trump’s agenda items may not pass in their current proposed forms. But by all means, the genie is out of the bottle, and it’s my firm belief that we will see all these agenda items passed in some stronger or weaker version thereof.
Taken at face value, nothing has been done in the way of enacting anything Trump campaigned on. Yet earnings and forward guidance from America’s largest companies are clearly bullish for the economy and the stock market. It is my position and that of a growing number of market analysts that the stock market is still in the first phase of the business cycle, or the “expansion” phase. We’re just moving from the central bank’s involvement to stimulate growth to that of organic earnings-driven growth, with a lot of runway before we would experience approaching the “peak” phase of the business cycle.
In the wake of all the accusations, investigations and the he-said, he-said bantering, it will be nothing short of amazing if Mr. Trump survives the onslaught of the Washington elite and the legions of special interests that have had their way for three decades. Yes, Mr. Trump is a highly contentious personality, but the message he voices specifically for the economy is a good one. The question is whether there truly is a bi-partisan coup to kill the messenger because of the threat to power, and we all know how absolute power corrupts absolutely. Only time will tell and cable ad sales will soar to new heights.
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In case you missed it, I encourage you to read my e-letter from last week about China’s booming internet economy.
