HAS TRUMP UNLOCKED THE PROVERBIAL ANIMAL SPIRITS?

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By: Kent Engelke | Capitol Securities
From: 1/30/17

For those who doubted President Trump’s campaign rhetoric, they are now surprised. His proposals are indeed tectonic, perhaps reshaping the geopolitical and socioeconomic landscape of the last fifty to sixty years. It is potentially generational setting.

Society is responding positively to Trump’s proposals for according to Gallup there is now 66% of Americans that think they will be better off one year from today. One year ago, only 44% thought they would be better off in one year.

This survey is consistent with the University of Michigan survey that showed the strongest sentiment among households in 13 years.

The Establishment has low expectations of a Trump presidency, a view not shared by society according to Gallup. Forty nine percent of Americans state they are better off today than one year ago, a ten year high. Most of this gain has occurred since the election.

Has Trump unlocked the proverbial Animal Spirits?

Preliminary estimates of fourth quarter GDP was released Friday. There was something to confirm one’s preconceived expectations and confirmation bias. Some will champion final sales to domestic purchases which strip out inventories and exports rose by 2.5% last quarter the fastest since 2015.

Others will focus on the headline number of the paltry increase of 1.9% versus expectations of 2.2%. This disappointing number was the result of trade that subtracted 1.7% from GDP, the most since 2Q10.

2016 capped the eleventh straight year of annual growth of less than 3%. Many are asking what will be the impact to GDP if Trump’s trade proposals come to fruition?

What I find of concern is that there is little narrative about the potential inflationary implications of the President’s trade proposals. It is because of trade that flat screen TVs are only $150, iPhones have dropped considerably in price and socks are now only $2. If tariffs are instated, will corporate America absorb any production cost increases resulting in lower margins, a huge issue for the largest capitalized momentum companies? Or will the increase in price be passed onto the consumer?

How will the environment unfold? Personally, I have disdain for people who shop at Wal-Mart that imports a majority of its products and then complains there are no jobs or salary increases. One can’t have both…cheap prices and high wages. Eventually, this unbalanced situation changes either by politics or by natural events.

Last night, the foreign markets were down. London was down 0.69%, Paris down 0.81% and Frankfurt down 0.70%. China was up 0.31%, Japan down 0.51% and Hang Sang down 0.06%.

The Dow should open moderately lower, mirroring losses in global markets, after Trump’s executive order halting some immigration to the country. Earning season accelerates this week as over 100 firms are set to post results in the next five days. To date, about a third of members have released results, of which seventy five percent beat profit estimates and about half topped sales forecasts.

The 10-year is unchanged at 2.48%.

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