Trump Agenda15 December 2016

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Trump vs GOP Agenda

Potential Policy Impacts

Scenario: Trump Agenda

Trump Agenda

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HiddenLevers

MARKET UPDATE

Market Update

sources: HiddenLevers, NYTimes, CNN, Crain’s, WSJ, CNBC

Fed 2017: 3 Hikes Automation En Vogue

Schwab Intelligent Advisory = 28 bps

- First Amazon drone delivery in UK- First Uber self-driving cars in SF- Carrier jobs saved will be lost to tech- Obama warns of robot takeover + jobs

HiddenLevers

TRUMP VS GOP AGENDA

TRUMP + GOP: Tax Cut + ACA Repeal

Sources: Tax Policy Center, HiddenLevers

• Income tax plans are aligned, small gaps can be bridged• Bigger difference on corp. taxes, but principles are the same• ACA Repeal: Mandate and 3.8% cap gains tax will be first to go

$1T Infrastructure Plan

GOP will torpedo any national debt increase

Big invitation to corruption / kleptocracy

Emphasis on public-private partnerships Trump butting heads with GOP here

Silicon Valley cares most, needs skills

TRUMP v GOP: Infrastructure + Immigration

sources: HiddenLevers, PBS, Trump White Paper, HuffPo, NY Times,

Obama has most deportations ever

Immigration Ban Unlikely

Democrats support Trump’s debt financing 700k Dreamers will stay – political suicide

TRUMP v GOP: Populist Takedowns

sources: HiddenLevers, CNN, NPR,

Sept 2015

HiddenLevers

POTENTIAL POLICY IMPACTS

POLICY IMPACT: Corporate Tax Rate Cuts

sources: S&P, US Treasury, US GAO, CNBC, HiddenLevers

Do companies really pay 35%?

S&P’s Estimate: 26.7%US Treasury Estimate: 20%GAO Estimate: 14%

Corp. tax rates by Sector Tax Reform Winners- Telecom- Consumer-Oriented- Industrials

Tax Reform Losers- Technology- Energy- Health Care

POLICY IMPACT: $1T Infrastructure Spend

sources: CATO Institute, USAToday, HiddenLevers

Moody’s Analytics• 0.4%/year economic

growth• Higher inflation/interest

rates from spending

Trump Economic Advisors• 3.3 million new jobs

POLICY IMPACT: Immigration Curbs

sources: NBER, FRED, HiddenLevers

Legal Immigration adds ~1% to GDP Growth – lost with curbs

Undocumented aliens add about 3% of total GDP -> substantial risk in a mass deportation scenario

Sharply limiting immigration lowers GDP growth by 1%, by killing population growth

POLICY IMPACT: No Immigrants = No GDP Growth

sources: HiddenLevers, HuffPo, Forbes,

Why do Immigrants help US? WARNINGS

Labor Force Participation JAPAN

Entrepreneurship

Human Capital

BANNON

CAMBODIA

POLICY IMPACT: Externalities

sources: HiddenLevers

Environmental Impact

Growth-induced Inflation

HiddenLevers

SCENARIO: TRUMP AGENDA

SCENARIO: Post Election Historical Analysis

sources: MarketWatch, HiddenLevers

Election

President Election-Inauguration

1y after inauguration

1920 Harding -12.9% 14.1%

1924 Coolidge 17.1% 19.9%

1928 Hoover 12.5% -8.7%

1932 FDR -21.5% 63.4%

1952 Eisenhower 6.1% -1.3%

1960 JFK 8.4% 13.7%

1968 Nixon -1.4% -12.3%

1976 Carter -0.1% -13.6%

1980 Reagan 2.0% -12.9%

1988 GHW Bush 4.1% 16.8%

1992 Clinton 3.2% 9.1%

2000 GW Bush -6.4% -17.4%

2008 Obama -22.2% 32.7%

AVG. -0.85% 7.96%

S&P return since Trump election: +5.5%

Doesn’t say much about 2017

GOOD: Tax Cuts + Infrastructure

source: HiddenLevers

Trump + Congress move on fiscal spending

Yellen: Hike faster if spending leads

to inflation

Modest GDP bump

Tax CutsPersonal > Corp

BAD: Nothing Done

source: HiddenLevers

Trump more sizzle than substance – can’t deliver

distractions overwhelm

agenda

populist measures backfire

US economy loses first priority

UGLY: Xenophobia

source: HiddenLevers

Immigration shutdown kills GDP growth

Dreamers likely get a pass

Skilled workers needed most

Immigration majority of GDP growth

Muslim registry/ban looks fictional for now

SCENARIO: Trump Agenda

Good:Tax Cuts +

Infrastructure

Bad:Nothing

Done

Ugly:Xenophobia

10y UST

-0.25%S&P

-25%

10y UST

FLATS&P

-8%

10y UST

+1%S&P

+20%

In the best case, a combo of tax reform and fiscal spending push rally into next leg. Scenario currently 20% priced into market.

If Trump administration gets bogged down in populist agenda or in bickering over Russia etc, S&P could give up post-election gains.

Sharp limits on immigration make US look more like Europe, cutting GDP growth by 1%. Mass deportations likely set stage for recession.

Trump Agenda – Take Aways

Post election rally doesn’t predict next year

Limiting immigration takes US into Japan-style stagnation

Corporate tax cuts smaller and less impactful than they appear

ACA Repeal and tax cuts likelyAs Trump + Ryan agree