No One Is Factoring In This Element Of The Trump Effect


January 2, 2017, 4:00pm EST

Happy New Year!  We’re off to what will be a very exciting year for markets and the economy.  And make no mistake, there will be profound differences in the world this year, with the inauguration of a new, pro-growth U.S. President, at a time where the world desperately needs growth.

I’ve talked a lot about the “Trump effect.”  Clearly, when you come in slashing the corporate tax rate, creating incentives for trillions of dollars of capital to come home, and eliminating overhead and hurdles associated with regulation, you’ll get hiring, you’ll get spending, you’ll get investment and you’ll get growth.

But there’s more to it.  Ray Dalio, one of the richest, best and brightest investors in the world has said, there is a clear shift in the environment, “from one that makes profit makers villains with limited power, to one that makes them heroes with significant power.”

The latter has been diminished over the past 10 years.

Clearly, we entered the past decade in an economic and structural mess. But while monetary policy makers were doing everything in their power (and then some) to avert the apocalypse and, later, fuel a recovery, it was being undone by law makers and a lack of fiscal support, swinging the pendulum too far in the direction of punishment and scapegoating.

With that, despite the continued wealth creation of the 1% over the past decade, and the widening of the inequality gap, the power of the wealth creators has been diminished in the crisis period – certainly, the public’s favor toward the rich has diminished.  And most importantly, the incentives for creating value and creating wealth have been diminished.

With all of the nuances of change that are coming, and the many opinions on what it all means, that statement by billionaire Ray Dalio might be the most simple and clear point made.

Another good point that has been made by Dalio, as he’s reflected on the “Trump effect.”  It’s the element that economists and analysts can’t predict, and can’t quantify.  The prospects of the return of “animal spirits.”  This is what has been destroyed over the past decade, driven primarily by the fear of indebtedness (which is typical of a debt crisis) and mis-trust of the system.
All along the way, throughout the recovery period, and throughout a tripling of the stock market off of the bottom, people have continually been waiting for another shoe to drop.  The breaking of this emotional mindset appears to finally be underway.  And that gives way to a return of animal spirits, which haven’t been calibrated in all of the forecasts for 2017 and beyond.

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