Monthly Archives: November 2016

Repudiation

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Donald Trump will be the next US president. In an electoral outcome that has surprised pollsters and conventional wisdom, he has achieved an upset of historic proportion against Hillary Clinton’s better organized and better funded campaign.

Our election echoes the shift in political tide that is washing over many countries. When Great Britain’s voters elected to leave the European Union in June, we wrote:

The British referendum is symptomatic of broader issues facing much of the developed world. Slow growth and ineffectual (perhaps counterproductive) government policies have led to a rejection of the political status quo. Voters are more willing to roll the dice on policy and candidates.

Substitute “British” for “American” and you have our presidential election. The electorate has repudiated the establishment wings of both major parties and their track record of governance while registering a complaint against the protracted period of low economic growth.

We see a Trump presidency as neither a quick ticket back to “greatness” nor the unmitigated disaster as portrayed in the polarized press. Rather, we see it as America’s choice to take a higher risk path to addressing low growth.

Amidst the campaigning that put both candidates’ lesser instincts on display, a few policy positions were expressed that we think can help deliver change in the direction voters have asked for. A reversal in government overreach in taxation, regulation, and monetary policy can bolster corporate profitability and confidence. Perhaps a recovery in productivity-enhancing capital spending will result.

We also heard policy positions which we view warily. An anti-trade overreaction to globalization’s challenges would be detrimental to both economic growth and capital markets. Congressional Republicans should remember trade’s historical record of increasing prosperity and their party’s preference for the free market when considering our new president’s proposals.

Financial markets face greater uncertainty with a Trump presidency. His policy statements have been short on details and have shifted during the campaign. An important area for uncertainty is the Federal Reserve. Mr. Trump has been highly critical of its unconventional policies and has indicated that he will not reappoint Chairman Yellen when her term ends in 2018. Market volatility has spiked in recent years when expectations shifted toward tightening of policy and less support for financial asset prices. We will be monitoring developments in this area closely.

Finally, we hope Washington can find a way to work in collaboration rather than opposition. Despite Mr. Trump’s victory in electoral votes, Mrs. Clinton won the popular vote by 0.17%. Neither party can claim a broad mandate to pursue its policies without compromise.

We hope this note provides context to our country’s changed political landscape.  We welcome your call if you would like to discuss this or your investment portfolio.

God Bless America.