Investing in the Trump Era (eBook)

Nicholas P. Sargen is an international economist turned global money manager.  He has been involved in international financial markets since the early 1970s, when he began his career at the U.S. Treasury and the Federal Reserve.  He subsequently worked on Wall Street for 25 years, holding senior positions with Morgan Guaranty Trust, Salomon Brothers Inc., Prudential Insurance and J.P. Morgan Private Bank.  In 2003 he became Chief Investment Officer for the Western & Southern Financial Group and its affiliate, Fort Washington Investment Advisors Inc, where he now serves as Chief Economist.  Sargen has written extensively on international financial markets, and he currently produces a blog Focus: Separate News from Noise on his website, where his views are updated. He appeared frequently on business television programs throughout his career on Wall Street, and was a regular panelist on Louis Rukeyser’s Wall Street Week.  He was born and raised in the San Francisco Bay Area, and received a PhD in Economics from Stanford University. 

Preface 5
Organization 6
Section I. Financial Markets and Long-Term Growth 6
Chapter 1. Is Trump’s Election a Game-Changer? 6
Chapter 2. Challenges to Restoring Long-Term Economic Growth 7
Section II. Fiscal and Regulatory Policies to Promote Growth 7
Chapter 3. Assessing the US Fiscal Imbalance: Why It Matters 7
Chapter 4. What Makes Healthcare Reform So Complex: A Primer 8
Chapter 5. Tax Policy: Tax Cuts Versus Tax Reform 8
Chapter 6. Macroeconomic Effects of Deregulation 9
Section III. Monetary, Exchange Rate and Trade Policies 9
Chapter 7. Changes in US Monetary Policy: Past and Prospective 9
Chapter 8. Trade Imbalances and Jobs: A Macro Perspective 10
Section IV. Globalization and Financial Markets 10
Chapter 9. Globalization and Widening Income Inequality 11
Chapter 10. Economic and Market Prospects for the Medium Term 11
Acknowledgments 13
Contents 14
List of Figures 16
List of Tables 18
Part I: Financial Markets and Long-Term Growth 19
Chapter 1: Is Trump’s Election a Game-Changer? 20
Elections Usually Have Fleeting Impacts on Markets 22
Economic Prospects at the Start of 2017 23
Investors Should Focus on Pending Legislation 24
Distinguishing Features of Reaganomics and Trump-Enomics 24
Budgetary Pressures Are Building 25
International Risks 27
Are Expectations Too High? 28
How Will Markets Respond to Policy Changes? 29
Chapter 2: Challenges to Restoring Long-Term Economic Growth 31
Excessive Debt Creation as the Primary Cause 32
Weak Business Investment and the “Secular Stagnation” Thesis 34
Has US Potential Growth Slowed? 35
Interventionist Government Policies as the Problem 38
Implications for Future Growth 39
The Trump Administration and Congressional Republican Agenda 40
Conclusion: The Slowdown Is a Global Phenomenon 42
Part II: Fiscal and Regulatory Policies to Promote Growth 44
Chapter 3: Assessing the US Fiscal Imbalance: Why It Matters 45
The Evolution of America’s Budgetary Problems 46
The Rise of Mandated Government Programs 48
Are CBO Projections Too Pessimistic? 50
Assessing Budgetary Risks 51
Policy Options 52
Need for a Longer-Term Perspective 54
Policy Implications: Near Term and Longer Term 55
Chapter 4: What Makes Healthcare Reform So Complex: A Primer 56
US Healthcare: A Mixed System 57
Evolution of US Healthcare to Managed Care 59
Rejection of Universal Coverage 61
The Launch of Obamacare 62
Attempt to Repeal Obamacare 63
A National Dilemma: What Can Be Done to Control Medical Costs? 64
Summary: No Easy Fix 66
Investment Implications for the Healthcare Sector 67
Chapter 5: Tax Policy: Tax Cuts Versus Tax Reform 71
Perspective on US Tax Cuts 72
Kennedy Tax Cut 72
Reagan Tax Cut 73
Reagan Tax Reforms 74
Impact of Tax Cuts/Reform on Growth 75
The Case for Corporate Tax Cuts 76
Proposed Personal Tax Cuts 79
Perspective on the Tax Cuts and Jobs Act 81
Impact on Corporate Profits and Economic Growth 83
Impact on the Budget Deficit and Interest Rates 87
Concluding Assessment: A Complex Issue 87
Chapter 6: Macroeconomic Effects of Deregulation 89
Problems Regulations Pose for Small Businesses 90
Regulations Affecting the Environment and Financial Services 93
Environmental Protection 93
Market-Based Solutions to Environmental Problems 95
Financial Sector Regulation 98
Underlying Causes of the GFC 99
Implications for Bank Stocks 102
Part III: Monetary, Exchange Rate and Trade Policies 104
Chapter 7: Changes in US Monetary Policy: Past and Prospective 105
Fed Policy in the Era of High Inflation 106
The Great Moderation 107
Combatting Deflation with Quantitative Easing (QE) 109
Normalizing Monetary Policy 110
How Might Monetary Policy Be Changed? 114
Altering the Inflation Target 114
Taking Financial Stability into Account 115
Rules Versus Discretion 115
Conclusion 116
Chapter 8: Trade Imbalances and Jobs: A Macro Perspective 117
Origins of Chronic US Trade Deficits 118
Impact of a Global Savings Glut on US Trade 120
Role of International Capital Flows 121
Job Losses in Manufacturing 122
Policies to Tackle Payments Imbalances 124
Prospects for the US Dollar 126
Appendix: Revisiting the Case for Free Trade 127
Part IV: Globalization and Financial Markets 130
Chapter 9: Globalization and Widening Income Inequality 131
Changing Perceptions of Globalization 132
Declining Share of Labor Income 133
US Income Distribution Becomes More Skewed 135
Policies to Address Growing Income Inequality 138
Development Strategies 141
Investment Implications: Globalization and the US Stock Market 142
Chapter 10: Economic and Market Prospects for the Medium Term 144
Noteworthy Developments in 2017 145
Favorable Near-Term Prospects 147
Obstacles to Reviving Long-Term Growth 149
Return to Supply-Side Policies 150
Looming Budget Deficits and US Monetary Policy 151
The Dog That Didn’t Bark: Trade Wars 152
How Long Will Markets Stay Calm? 153
Concluding Thoughts: Reflections on Three Mega Trends 154
Index 156