What Will a Trump Presidency Be Like? Depends on Whom You Ask.

In the nineteenth century, the English poet John Godfrey Saxe penned The Blind Men and the Elephant. The poem was based on an Indian fable, which recorded the different impressions each of six blind men had of an elephant, depending on which part of the animal they came into contact. One blind man thought the elephant was like a tree after feeling the leg, another thought it was like a rope after feeling the tail, another like a snake after coming into contact with its trunk, and so on.

I recall this poem when people speak with so much assurance, which is sometimes mistaken for authority (if not competence), on the upcoming presidency under Donald Trump. No one has assumed the highest elected office with so little in the way of a curriculum vitae of relevant experience. Trump has never held elective office, never been a public servant, never managed an organization of any complex size, and never had to think beyond the interests of himself and his own family. What we do not know about the man greatly exceeds what we do know, making predictions exceedingly difficult. He has changed party affiliation five times in his life, having been a democrat twice, a republican twice, and an independent once. One visualizes a stock car driver changing patches on his fire proof suit.

No matter. Commentators of every stripe have projected their agendas onto Trump, with nothing more than the fact that they voted for or against him as validation. Trump will increase factory jobs, rekindle inflation, repair roads and airports, lower taxes, increase spending on defense, expand Medicare and Social Security, reduce Medicare and Social Security, increase interest rates, shrink the deficit, expand the deficit, cause the economy to expand, cause it to crash, etc., etc. Like the blind men in the poem, each commentator is focusing on his or her own part of the puzzle, and neglecting the balance.

This is not to say Trump lacks a vision on how to proceed. However, lacking experience, his ideas oftentimes veers into the questionably constitutional. Flag burning, which Trump would like to make into a crime, is considered protected speech by the courts. The internment of Muslims was tried before with the Japanese after Pearl Harbor. It has been considered one of Roosevelt’s more questionable decisions, and a clear affront to the Bill of Rights.

The lack of constitutional exposure and historical context is telling. Joe Weisenthal, writing online in Bloomberg Culture, has described Trump as the first president of the age of post-literacy. In this age, people spend more time tweeting than doing critical thinking, and the easily comprehended and facile reasoning displaces ideas that cannot be reduced to sound bites. The post-literate age places a premium on repetition as a means of legitimacy, and a low priority to treating an idea as a hypothesis in need of challenging before being accepted as valid.

In 1979, Peter Sellers starred in the movie, Being There. It is a comedy of mistaken identity. It is about a simple, sheltered gardener who is, by fate and circumstance, taken up to be an unofficial white house advisor and ultimately a candidate for President of the United States. All the while, he is uttering simplistic notions that, because the public considers him wise, sound profound. (Example: “Spring, summer, autumn, winter…then spring again”). People around him find his sayings having great weight, while the movie audience knows that his comments are being taken out of context and that they are literally all he really knows.

When the late film critic Roger Ebert reviewed the film, he pointed out that the commentary was not so much on the Sellers character as the incapacity of the public to see though him. In an age of sound bites and simplistic slogans, it becomes more important to have an idea that can be easily quoted, and less important to have any substance behind the idea. And remember, this movie was made 37 years ago.

We now have the administration of Donald Trump being formed. Many of the appointments are outsiders, most are light in terms of relevant experience, but all have pledged fealty to the president. While some have become alarmed at the ideological slant taken by the group, they are forgetting that Trump has never managed by committee in his life. I suspect that the makeup of the cabinet will be irrelevant. Any cabinet member who does not do as the president wants will be cashiered out of the administration. Trump is not a man who seeks the input and counsel of others. Whether America is made great again is secondary. Trump will aspire to be seen as a great man, who does not need to share credit with others. And, to paraphrase the famous mis-quote of Charlie Wilson, one-time CEO of General Motors, what is good for Donald Trump is good for America, and vice-versa.

For those whose candidate did not win the election, take heart. Especially in politics, failure is seldom fatal, and success is never final. I recall a letter attributed to Washington Irving, one of America’s first men of letters. He wrote The Legend of Sleepy Hollow, Rip Van Winkle, etc. 

Irving once wrote a letter that included the following: “When I was a young boy, my grandfather was always saying the country was going to hell. Now I do not know where my grandfather went, but my country is still here.” Those whose candidate won have put their faith in Trump. Those whose candidate lost have now put their faith in America. Time will tell us what we need to know. 

The Economy

The economic numbers keep improving, based on the pre-election history of the economy. The third quarter GDP number has been revised upwards to 3.2 percent from 2.9 percent previously. Corporate profit growth has been revised upwards to 6.6 percent.

This will give the incoming administration a strengthening US economy going forward. The data is a confirmation of the better economic growth that has been going on for quite some time. The inability of the incumbent administration to speak coherently about the improving economy put them out of touch with the electorate, to their great cost.

China is assuming a statesman-like position regarding the Trans-Pacific Partnership (TPP), which was abandoned by both parties in the course of the election. Trump has now vowed to cancel the TPP as his first act of his presidency. There is a rich irony of how the Far Eastern economic and political influence of the United States, started by Teddy Roosevelt, would be dismantled by another Republican President, Donald Trump. China obviously plans to fill the vacuum the US leaves behind as it becomes more isolationist and a less reliable trading partner. 

Interest Rates

After a spike upwards after the elections, interest rates look to decline due to the perceived inability of OPEC to stem production to support prices. This has been interpreted as good for interest rates, as lower energy prices reduce the inflation rate. The cutbacks, announced this morning, have yet to be tested. OPEC has no real mechanism for enforcement. 

Looking forward, energy will have less of an impact on interest rates. A stronger economy will invoke higher rates, especially if the plan to implement a strong public works campaign is carried out by the new administration.

Inflation

Lower energy prices are usually a prescription for lower inflation. However, given their decline to date, their relative impact has been reduced going forward.

As an inflation component, wages are far larger, and going up far faster. If the immigration rules spoken of by Trump are implemented, look for even higher rates of wage growth as fewer people are available to do the jobs now done almost exclusively by immigrants, such as tomato picking, landscaping, construction, etc. 

The Stock Market

Stocks have rallied strongly with the Trump victory. Some of this represents the removal of uncertainty, and more has to do with the projection of various scenarios on the new administration and the eventual beneficiaries. 

Since the Trump administration has not yet assumed office, all of this is speculation. Many of the goals are in conflict. Reducing the budget deficit is difficult when there is a tax cut being advocated. Also, there has as yet been no mention of opposition by those who would have been heard from by now if this were a democratic president-elect. The Tea Party has yet to weigh in on larger deficits, and the funding of the infrastructure bank has not been conclusively connected to the bringing home of American corporate profits in accounts abroad. How well these objectives are connected will prove the adroitness of this administration against the lobbyists who will be advocating for their clients. 

Expect a lot of volatility going into the new year.

                        Warren M. Barnett, CFA

                        November 30, 2016

Warren Barnett

Warren Barnett is the founder and President, and Portfolio Manager for Barnett & Company. He was associated with the investment banking firm of Kidder, Peabody & Company and the investment counseling firm of Davidge & Company in Washington before returning to Chattanooga to accept a position in the trust department of a local bank. Perceiving the local need for the type of firms with which he was associated in Washington, he established Barnett & Company in 1983. He obtained the Chartered Financial Analyst professional designation from the Institute of Chartered Financial Analysts, Charlottesville, Virginia in 1986. Mr. Barnett graduated from The McCallie School in Chattanooga. He received his Bachelor of Science degree in Accounting from the University of Tennessee at Knoxville and his Master of Business Administration degree in Finance from the Owen School of Management at Vanderbilt University.
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