An Historic Election

The 2016 U.S. presidential election was clearly a watershed in American politics, if for no other reason than because a person who has never held any political office has made it to the highest ranking office in the nation and, once again, America sets the stage for peaceful change.  That said, we will keep it brief and stick to the effects we think the transition will have on the economy and our portfolios.

As many who have followed our writings in the past know well, we have been highly critical of the heavy-handed role of government into the affairs of the private sector in the 21st century.  We believe anything that can stem the tide of government overreach will be a boon to the economy, and ultimately the worth of companies.

As it relates to the economy, Donald Trump's campaign focused on three primary policy objectives: trade, regulation, and taxes.  Specifically, he claimed he would "renegotiate" trade agreements like NAFTA (North American Free Trade Agreement) and TPP (Trans Pacific Partnership) and levy tariffs on goods entering the U.S. that are made in countries like Mexico by U.S. companies manufacturing there.  With respect to regulation, he suggested he would reduce, or even eliminate regulatory regimes like Dodd-Frank and Sarbannes-Oxley, which have served to inhibit business formation and expand the already burdensome size of government bureaucracy.  As for taxes, he supported "across the board" tax cuts on both individuals and businesses, most importantly advocating for a reduction in the U.S. corporate income tax rate (which currently the highest of all developed countries at 35%; he wants it cut to 15%) as well as simplification of the tax code.

We could not be more emphatic in our support for the latter two objectives of President-Elect Trump.  Anything that can be done to reduce the tax burden on businesses, both large and small, will help the economy and ultimately the employees (and future employees) of those businesses. The same holds true for the reduction of burdensome regulation on businesses.  Sensible regulation is one thing but, today, regulations have become more about promoting political "pet projects" than ensuring safety and adherence to common sense best practices.

As for trade policies, we believe that it would be a mistake to become protectionist in today's global economy.  Like it or not, globalization is here to stay and denying that will only serve to reduce the standards of living for all American's, as well as for consumers in the rest of the world who buy our goods and services.

At the end of the day a tariff is a tax on consumers, and while there is no doubt that other countries (including the United States) try to "protect" certain favored industries and workers, in this case, two wrongs don't make a right and it does no good to exacerbate trade wars.  Mr. Trump is a real estate investor by trade, and, as such, is comfortable negotiating. To the extent he can "negotiate" equitable trade deals, we wish him the best, but it should by no means be at the expense of free trade!

Fortunately, the incentives that would be created by fixing the tax code and reducing regulations may well solve many of the problems of lagging capital investment that has plagued the rust-belt areas who so emphatically supported Mr. Trump and have been understandably frustrated by the lack of new jobs.  Almost $3 trillion dollars in U.S. company cash sits overseas because it would be taxed at 35% if it was repatriated to the U.S. Unlocking that cash would go a very long way in promoting the necessary capital investment that would help propel many of the hardest hit areas in the country.

Regardless, the two points of policy we believe are very favorable, regulatory reform and tax reform, will be much easier to enact and will be well on their way to helping the economy before any poor trade policy could ever be enacted.  In fact, we believe it is unlikely that any seriously damaging trade policies would ever make it to realization.

All in all, we are very encouraged and hopeful by the prospects of the changes we have discussed.  We look forward to seeing these put into practice because if they are given the chance, all Americans  will be better off.
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