Friday, December 2, 2016

Which Trump?

It took the NY investment crowd the proverbial New York minute to understand the implications of Trump's election.  It can not be more bullish.  WWIII has begun and all that money is going to be spent building brand spanking new infrastructure instead of hunting sand fleas.  Watch it roll baby!!!.

Of course none of them believed it was really going to happen, but it is happening and with each passing day, it is more and more apparent all the losers are capitulating.  Even the GOP.  

There will still be threats and reckless behavior, but most of that is easily fended off.  Even the media is showing serious signs of getting with the program, particularly when the Donald is quite happy to do without them and simply go over their heads through Twitter.  Never has it been possible for a political leader to have an essentially personal direct one way relationship with his millions of supporters.

Suppose ladies that he is facing resistance in congress or the Senate to get legislation passed?  Suppose he then merely asks his followers to write their representative demanding action?  What took Reagan weeks of campaigning will take him one minute.

He is actually in position now to be the most effective president in history and it will be America's business..

Which Trump?
By Jared Dillian

December 1, 2016

As I write, I am silently celebrating the nomination of Steven Mnuchin to be Treasury secretary. A banker (and not a political hack) in that seat is all right by me. Seriously. And Wilbur Ross as commerce secretary? Terrific.

I can’t tell you how happy I am to have private sector guys in these positions of power. I’ll be candid—for eight years, under Obama, business was the enemy. That mindset is completely changing. It seems foreign because it’s been so long.

I was never a Trump supporter. But this is the reality of it: we have just elected a businessman (however flawed) to the highest public office. Trump is motivated by very different things than Obama was.

If you’re wondering about the newfound ebullience in the stock market, this is it. The last eight years saw an unprecedented expansion of the regulatory state. It will be rolled back.

So Which Trump Do We Get?

On the other hand…

The guy we elected to public office likes to tweet in the middle of the night about  throwing people in jail for burning the flag. This can’t continue for four years. I’m surprised it’s continued this long. Donald Trump is the least presidential president we have ever elected—no contest.

It’s also not hard to characterize him as unthinking, anti-intellectual, and maybe even a complete buffoon. Maybe not the best qualities you want in a president. And that’s before we even consider the racial undertones of the campaign.

But a Trump presidency is unquestionably pro-business (if not necessarily free-market), so up, up we go.

The most bullish thing of all about Trump is his tax plan. It establishes three brackets of 12%, 25%, and 33%, and the top rate kicks in at an income of $225,000.

So right off the top, about a 7% reduction in the top marginal rate.

Also: the standard deduction will be $30,000 for married filing jointly, instead of $12,600, which has massive implications. Who pays more than $30,000 of mortgage interest every year? Why itemize deductions? All this running around we do at tax time, collecting receipts and such, could go away for all except the wealthiest.

But here is the biggest proposal of all—make sure you’re sitting down.

Trump wants to lower the corporate tax rate to 15%. A laudable goal: lower the rate, broaden the base, collect more revenue, and maybe repatriate some of that overseas income. But he wants to apply it to not just C corporations but to pass-through entities such as LLCs and S corps and partnerships. I’m sure some people get most or all of their income from pass-through entities. Think about how big this is.

Likelihood of passing? No idea. It’s hard not to imagine distortions arising from a 15% federal LLC tax (everyone opening up LLCs, for example), but even a partial reduction in taxes on small business… yuge, as they say.


A lot of people are comparing this (favorably) to the early days of the Reagan administration, and the parallels are a bit eerie, actually.

In both cases, you had a Democratic Fed and Fed chairman who was more than willing to rip rates and plunge the economy into recession under a Republican president.1 But go back and look at the charts in 1980, in the days and weeks after Reagan was elected. The Dow looked like a rocketship, and stocks went up with few interruptions for 20 years.

But the big difference between Trump and Reagan (and there are many) are their attitudes toward trade. The modern Republican party has always been in favor of free trade, but not Trump.

Is Trump right? Neither here nor there.

I think the economic impact will be negative, and the question is how negative. Stories are starting to trickle in about how intertwined US-Mexico auto manufacturing is, and that there would be a massive unwind if NAFTA were to be renegotiated.

I blocked a guy on Twitter last week for calling me a filthy globalist or something like that, so take the free-trade views with a grain of salt.

The benefits of free trade are not intuitively easy to understand. I’m surprised it’s lasted as long as it has. I think we have entered a period of de-globalization.

So if you think about who has benefited from globalization over the last 15 years and who has lost—imagine what the world will look like when the roles are reversed. That means bad news for the Chinese underclass and the 1%, and great news for America’s middle class.

Cautiously Optimistic

So I suspect I am like many people, watching the Trump transition with a mixture of optimism and horror. The surprises do not end here. The policy 180 might go down in history as the biggest of all time. And we haven’t even talked about healthcare yet.

I’ve noticed that some journalists are a bit scornful of all these private sector guys in the cabinet. Don’t be. I worked in government once, remember. The main reason I left was because it was laughably inefficient. If the government starts running like a business, it wouldn’t be the worst thing in the world.

You can go back in time and think up presidents who once worked in the private sector (both Bushes, Truman, Carter, others), but not one of them had devoted an entire lifetime to business. Trump thinks more like an investor than a bureaucrat. So there’s a good reason for optimism.

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