Hundreds of thousands of people are expected to clog the nation’s capital today for Donald Trump’s inauguration as the 45th president of the United States and again tomorrow for the demonstrations against his inauguration. That’s because the passing of the office of president of the United States from Barack Obama to Donald Trump signals a major change for the U.S — if not the world — as he seeks to part ways with many of the policies established over the past eight years.
As President-elect Donald Trump readies himself to take over the White House — with fast-action promises to dismantle Obamacare, appoint a conservative new U.S. Supreme Court justice, and overhaul the tax code in short order — Democrats and Republicans alike are bracing for the new reality of a Trump-run Washington.
Obviously while the mainstream media are filled with controversy surrounding our new billionaire president, the big point I want to make to investors is that although the rhetoric around a wide-ranging spectrum of social and geopolitical issues is likely to become heated, no one knows for sure what comes next, especially as it relates to the U.S. and global economy.
As a professional investor — instead of a political commentator — I’ve been trained to maintain a dispassionate view, to not take sides and to focus on the facts and stats that matter for protecting and growing my clients’ wealth while avoiding the distractions that come with all the political rhetoric.
That’s why on this Inauguration Day, let’s take a deep breath. And let’s put political biases asides so we can separate the knowledge from the noise and identify the Trump policies that will likely have the greatest impact on the economy and your nest egg.
Here are the four key components of the Trump plan that will have the most significant impact on U.S. GDP.
- First, reducing income tax rates has the potential to have the largest economic impact. Clearly, if U.S. tax rates are reduced from where they’re at now, that’s going to free up more capital for productive spending.
- Second, the lessening of government regulations of all shapes and sizes should have a positive impact on profits for most businesses.
- Third, if there is a reduction in the amount of taxes on the repatriation of the earnings held overseas by the U.S.’s largest corporations, these businesses will have an incentive to spend more on property, plant and equipment and private-sector infrastructure.
- Fourth, President-elect Trump’s transition team has proposed a bold new package of tax credits with the aim of funding up to $1 trillion of investments in airports, roads, bridges and other public infrastructure projects.
That’s right, when you boil it all down, these are the four foundational elements of the Trump economic growth plan. As an investor, you need to watch the progress of these four policy pillars closely and not get caught up in all the political fireworks that are going to erupt over his first 100 days.
Because for U.S. GDP to move higher from the 2% annual real GDP growth that’s occurred over the past 10 years – to the 3-percent-plus that the Trump rally proponents are hoping for – will take a stair-step type jump in economic activity. Think about it: To get to a 3-percent-plus annual advance level on GDP is going to take, on a percentage basis, an increase of 50% (moving from 2% to 3%) in annual economic output. As our new president would say: “That’s #YUUUUUGGE!” And to get there, it’s going to take all four key components of his economic plan to be hitting on all cylinders.
We are in for five years of chaos in the economy, the markets and in our business and personal lives. As this supercycle courses through the world economy in the months ahead, the investors our governments count on for loans will snap their wallets shut. Even now, investors are reading the handwriting on the wall: Government debt is simply too massive. It can never be repaid. It would be financial suicide for them to continue loaning their money to Brussels, Tokyo or Washington; insane to throw good money after bad. And so, governments — including our own — will simply run out of money. Read more here … –Larry Edelson
Why is a 3-percent-plus annual advance so important?
It’s because for the U.S. economy to reach escape velocity from the current muddle-through malaise of 2% growth in which we currently find ourselves and to create more wealth across the board for all Americans, it’s going to take economic activity in excess of 3 percent.
Here’s a chart produced by the McKinsey Global Institute that shows the level of economic activity needed around the globe to get out from under the extreme global debt overhang currently present in the economy. And you know what? This chart was produced in 2014, well before the U.S. Debt-to-GDP ratio crossed the 100 percent barrier which is where we currently stand.
This chart clearly shows why we all need to keep our fingers crossed that the global economy comes to life soon. The situation is getting increasingly worse every day as the world’s central bankers and politicians continue to lever up the global economy.
Summing it all up, the first 100 days or so of Donald Trump’s presidency are likely going to be a noisy and chaotic time with all kinds of mixed messages coming from the mainstream media.
No matter your political persuasion, you should keep your cool and focus on the progression of the four key economic policy items I have outlined in this article so you can keep your portfolio out of harm’s way and profit from opportunities when they present themselves.
As I wrote in a previous MAM article, we are headed into a period of HIGH UNCERTAINTY, which likely means lots of volatility for the financial markets.
Keep an eye out for future articles where I’ll share with you a few simple-yet-powerful ways average investors can hedge their portfolios against market downdrafts that do not involve leverage or risky inverse strategies. These are strategies that I use every day to hedge downside risk in the portfolios that I manage.
Buckle up and hang onto your hat. For investors, the ride is about to get very bumpy.