You can’t turn on the television, open a newspaper, or visit a news site these days without hearing about the election. It was so unexpected ... It looks a lot like Brexit … Who will Trump pick? How will his election impact monetary policy, taxes, the wall, China, and financial regulation? We had those same questions too, so we turned to the TabbFORUM community, leaders in the capital markets, to get the pulse of our industry.
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From November 28 through December 1, 2016, we polled 370 people in the TabbFORUM financial markets community about President-elect Trump’s proposals and what they meant to them, the markets and their organizations. Forty-four percent of respondents worked for banks, brokers, exchanges, market makers, or professional money managers; 3% were academics or regulators; 35% were vendors and/or consultants; and 18% either didn’t specify their positions or checked “other.” What follows is a summary of the results. The complete results can be found at TabbFORUM.
In brief, the financial community, while having trepidations about a Trump presidency, has come around to the opportunities aligned with audacious infrastructure spending proposals, lower taxes, higher debt, the reduction of quantitative easing programs, reduced financial regulations, and a more business-friendly environment. While the community continues to be concerned by the potential civil, social, and macroeconomic impacts of some of President-elect Trump’s campaign promises, the climate has changed from one of concern to one of mild, if not restrained, optimism.
The greatest consensus from the survey was that financial regulation will be watered down and banks will be the beneficiary, as 86% of the community felt that financial regulation will decline and 82% felt that banks would be winners. Seventy-four percent of the sample believed Dodd-Frank would be repealed. If Dodd-Frank were repealed, the environment could be significantly altered for the large banks, depending upon what rules were implemented in its wake (only 28% believed Glass-Steagall would be reinstated).
There was significant optimism among respondents that Trump’s large infrastructure proposal and promise of reduced regulation would change the outlook for active investment strategies, as market participants believed that active management and hedge funds would benefit more from these policies than long-only, ETF and passive strategies.
The community indicated that it believes that the new administration’s policies would benefit energy, equities, metals, and the US Dollar, while negatively impacting the rates market, credit, and housing.
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While the industry is optimistic on the new administration’s investment and regulatory policies, there are significant macroeconomic and societal concerns. The greatest concerns are: increased market volatility (89%), an increase in trade barriers (81%), the risk of armed conflict (73%), a reduction of international cooperation (77%), increased budgetary/debt worries (68%), the overall stability of the global financial markets (66%), and a reduction of economic equality (59%). In addition, the respondents believed that the nation will become more socially conservative (54%), and that social harmony and tranquility will decline (73%).
The two conflicting themes market participants voiced in regards to a Trump presidency were that the alignment of the executive branch, the House and the Senate, and presumably the Supreme Court will reduce governmental gridlock, while the industry is worried that the President-elect’s business engagements will create significant challenges within the administration.
We also asked our community about their views of the top Trump campaign promises (as defined by PolitiFact) and whether they believed that we should follow the pledges and whether the new administration will follow the pledges. The gap between “should” and “will” defines the level of anticipated frustration over the lack of fulfilling what would be considered a positive promise versus the worry about executing on plans that the community feels to be an overreach.
One of the President-elect’s major proposals was a promise to build up America’s manufacturing base by renegotiating trade deals, stopping illegal immigration, and imposing tariffs on imported goods. The TabbFORUM community was heavily aligned with trying to bring back manufacturing jobs, but it was much more skeptical that we will be able to execute on this promise. The community also supported building a wall along the Mexico border, but only a handful believed that we should or will make Mexico pay for it.
The community was much less aligned with the President-elect on trade, as there was a much greater worry that the administration would actually act on its campaign promises to renegotiate/withdraw from NAFTA and renegotiate/withdraw from the TPP. There was a very large disconnect regarding whether we should impose tariffs on goods made in China and Mexico.
The community also expressed little support to temporarily ban Muslims from entering the US; however, the community largely believed we will implement such a ban. Approximately half said that we should renegotiate the Iranian nuclear arms treaty, with a larger split in the view that we should bomb ISIS.
As for domestic policies, there is little desire/belief in repealing Obamacare; however, there is much more significant desire to implement a more market-based Obamacare alternative. A majority of the community believed we should implement a lower tax policy, while an overwhelming majority of the community believed we actually would. In addition, less than half of the community supported leaving social security alone, while two-thirds believed the administration actually would, leading us to the impression that the community was very worried about what the impact of tax cuts and the inability to address pending social security challenges would have on our financial solvency.
The Bottom Line
Our TabbFORUM community is excited but concerned about the future of our country. While the reduction of regulations, the expectation of fiscal stimulus, and the alignment of all branches of our government point toward a reinvigorated financial sector, leading to better energy, equity, and metals markets, it comes with greater geopolitical, economic, social, human rights, and budgetary risks that weigh heavy across the industry.
How these factors translate into reality unfortunately is unknown. It is too soon to tell which policies and initiatives will be implemented and which will be sidelined, which will be positive and which negative. The one thing we do know is that change – massive change – is on the way. How far we get is now up to the President-elect, his administration, Congress, and us. While Smokey the Bear reminded us, “Only you can prevent forest fires,” that also pertains to our government. We the people, through the political process, do have the ability to change our future, and while it may be too late to vote in this election, it is certainly not too late to make our voices heard.
Larry Tabb is founder and chairman of TABB Group