Tuesday, January 31, 2017

3 Trends For 2017

Now that the elections come and gone and the market has had time to digest some of the initial policies and executive orders President Trump has put into action allow me to assess some of the predominate trends I see going into 2017.

Deregulation

Trump believes businesses and GDP growth will boom under his administration and he attributes much of this to deregulation. What does that mean? Regulations that have been placed on businesses of all sizes have been slowing them down to the point where their profit margins have diminished severely. Loosening the strangle hold of these regulations and all the additional costs associated with them is going to allow these businesses to reallocate that money in a far more efficient manner. The logic behind all this is quite simple; deregulation cuts costs thereby increasing profit, when businesses increase profits they take on additional work, when they take on additional work they need additional employees to service that work, when more employees are hired jobs are created which puts more money into the pockets of consumers to go out and spend in the economy. It's unknown how far President Trump plans to take this deregulation but I have heard him say a 75% reduction isn't all too farfetched. Such a drastic cut would have a significantly positive impact on any businesses bottom line.


Tax Reform

Did you know the U.S. has the highest corporate tax rate in the world among industrialized countries? Furthermore, did you know that our current tax code has more than 70 THOUSAND pages? Perhaps this is why tax reform is the next area Trump has been looking to help businesses boost profits. By and large one of, if not the most expensive cost to any business is the amount of taxes they are required to pay. By lowering the corporate tax rate in the United States we make it more attractive for corporations to do business here and it will add to the bottom line of businesses who already are. We want to increase competition in our country and incentivize corporations all over the world to come here and conduct business. Lowering the tax rates have a very similar impact as deregulation. Less money paid into taxes will allow businesses to invest more in other areas that will produce greater growth and in turn create more work that will require additional workers. Trump has said previously that he believes the tax code is far too complex and that complex nature is what allows the large multinational corporations to find and exploit loopholes.

Volatility

It would come as no shock to anyone if I said that Donald Trump is the most controversial, politically incorrect president we've ever had. He himself has even remarked that he considers himself to be unpredictable. Unfortunately, the equities markets hate uncertainties. The markets would much prefer a more status quo type of President in office because they know what to expect. President Trump has CEO's of major corporations proactively eliminating any potential reason he could find to call them out specifically. While I do believe it's good to have these executives on their toes I also don't want it to hinder them from doing what is best for their company and shareholders. Volatile markets could very much become the norm over the coming months/years. Wall Street loves a sure thing and Donald Trump is the polar opposite of that. With a simple tweet he has the ability to send any major corporation's share price and potentially the US economy into a free fall. So while I still believe the equity markets continue to deliver the best bang for your buck it's a, "proceed with caution" approach as we watch how he'll handle this new found power. Overall, I see President Trump as a pro-growth leader and believe the economy can fair quite well under him but his unpredictable nature certainly creates cause for concern.

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