Bigger Than You Think

Many of our fellow citizens and this may include yourself, are rubbing their temples to encourage blood flow to minds benumbed by the events of this past Tuesday. Please allow me to share a few thoughts that you may find helpful in establishing your expectations for the financial markets in the weeks and months ahead.

First, please understand that these words are “value-free” in that there is no intent to weight upon the merits of the choice the American people have taken advantage of their democratic rights to exercise.

Not a few of you reading this are both deeply disappointed and concerned about the merits, political and personal, of the next occupant of the oval office. For others, it is a time of having your faith in the American people restored and the anticipation of a time of national renewal.

The intent of these words is less ambitious but hopefully more meaningful for those of you who are now left wondering about the impact of this election upon the economy and financial markets. What follows is written in the spirit of believing that we actually know a great deal more than we might suspect and that it is, therefore, possible to create expectations that will be useful in approaching the topic of investing.

First, some numbers. Seventy-two, thirty-six and thirty-six and eight. It has been seventy-two years since 1944, the election of FDR to his fourth term and the succession to the presidency by Harry Truman one year later. Interestingly, since that time Democrats and Republicans have held the presidency thirty-six years each. The more interesting number I would argue is eight. Eisenhower, Nixon, Bush #1 and Bush #2 were presidencies that represented more slowly moving imitations of Truman, Kennedy, LBJ, Carter, Clinton, and Obama with both Democratic and Republican presidencies leading to a seemingly inexorable migration of the control of the nation’s economic and financial resources towards Washington, DC. Only the eight years of the Reagan presidency represented a real effort to alter the nation’s course but if it was a true revolution it was one that was subsequently lost.

Seeking an approximate parallel to the 2016 election is an exercise in futility because there isn’t one.

Never before, in all of the years since the founding of this country, has a president entered office owing so little to so many. Trump isn’t a creation of the “system” as much as the voter’s rejection of it. Wall Street and large corporation donations were not Trump’s to claim but rather his opponents. For sixty-four of the past seventy-two years the American presidency has been in status quo mode seemingly always traveling in the same direction and only with its rate of speed varying. So…are we reversing course or changing direction?

The answer to that question is not difficult to divine. Trump is not, as some would argue Reagan was, a reactionary seeking to recapture a mythical golden past but rather a radical in the sense of his owing nothing to this nation’s political elites and what many of his voters view as their game of musical chairs.

The president-elect though is perhaps best viewed as a utilitarian. The presidency is an office and there is little doubt that Trump believes himself as the one best suited to occupy it. Interestingly Trump, like Reagan, is more of an actor than a businessman always looking for a larger stage and now occupies the largest stage of all. And so…what now?

Unlike many candidates for this nation’s highest office, it may be wise to assume that Trump actually meant much of what he said while on the campaign trail. Many commentators have suggested that Trump’s politics are the politics of resentment with his attitudes towards immigration and foreign trade being perhaps the best known of his positions but I would suggest that this misses a large part of the bigger picture. Arguments about the causes of the Global Financial Crisis of 2008-2009 and the sources of the subdued rates of economic growth experienced since then are largely irrelevant. What is relevant is the importance of not underestimating Trump’s commitment to aggressively pursue policies that he believes will be contributory towards stimulating economic growth rates as well as removing those policies which he believes inhibit it. And he has a united congress prepared to pass what the new president proposes.

To conclude. The financial markets are essentially amoral inherently believing that whatever contributes towards economic growth is good. Much of what you may care very deeply about and believe makes this a better country is of little to no concern to the S&P or the bond market. Trump believes very deeply in two things at least. Himself and restoring higher economic growth rates to this country. As an investor, I encourage you to believe that at least in terms of the financial markets, as a former president once said in one of his television advertisements, “it’s morning in America.”