It’s not about what happened today, it’s about what will happen tomorrow that counts.

  1. Trump and the Republican’s failed effort to overturn and replace Obamacare- Contrary to popular opinion, that’s a bullish development. The CBO estimates repeal and replace would save the Government $323 billion over 10 years. That’s a big withdrawal of money from the economy and would be the opposite of a stimulus.
  2. Moving on to tax reform- Under current rules, by declaring that foreign profits are permanently or indefinitely reinvested abroad, American companies can defer taxation on that money. How much money, exactly, is subject to interpretation, but careful estimates extend from about $2.4 trillion to roughly $3 trillion. Since this money is not currently in Treasury coffers, there should not be as much opposition from conservative deficit hawks unless this results in a permanent diminution of government revenue and an increase in deficits. For investors banking on Trump’s pro-growth promise, last week’s pulled health-care vote matters is a wake-up call. Gridlock within the Republican Party is nearly as bad as between the two parties themselves. Given fiscal limitations, tax cuts without offsetting budget cuts (whoosh…there goes the Obamacare savings), there is likely to be a showdown between deficit hawks in Congress and Trump’s growth agenda.
  3. Infrastructure spending– this one should be relatively easy to pass since a lot of the planned expenditures are a combination of public and private investment, (AKA toll roads). One thing we know for sure is that Trump has a lot of experience building debt financing. Although there is near universal agreement that the countries roads, airports, bridges, and rails are in dire need of upgrades and expansions, the Republican plan is puts tolls on roads that were once free. Don’t expect Democrats to roll over here either but building contract dollars doled out to districts in Democratic control should garner enough bipartisan support to win votes over.
  4. The Federal Reserve’s dot plot to normalcy- At the end of the day, the single most important determinant of stock prices and consequently values is the relative return of risk free assets. On March 15th, The Fed left its forecast for the federal funds rate unchanged, projecting two more quarter-point increases in 2017 and three next year, based on policymakers’ median estimate. By the end of 2019, the rate is projected to be at its long-run level of 3%. That’s a far cry from the current level of 1% and without substantive growth in corporate earnings, a 3% Fed funds rate will become a steady headwind for valuations.
  5. Wag the Dog War- If the Trump administration cannot get tax reform or infrastructure passed, I expect the beating of the opposition drums will force Donald Trump to make some bold provocative military posturing. My guess is the Korean Peninsula but geopolitical hot points can flash up just about anywhere. The popular 1997 black comedy, Wag the Dog movie seems like a sure hit for revival. It depicts a scandalous situation days before the election, the president does not seem to have much of a chance of being re-elected. One of his advisers contacts a top Hollywood producer in order to manufacture a war in Albania that the president can heroically end, all through mass media.  Does this seem prescient or what?

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