AN AMPLIFICATION OF “ANIMAL SPIRITS” VIA THE ROLL BACK OF DODD FRANK

Was President Trump’s Executive Order to roll back Dodd Frank the final catalyst to spur 4% growth? As widely discussed, the economy has failed to grow by 3% per annum for a record 11 consecutive years, vastly impacting the nation’s net worth and income.

I have commented many times that sentiment survey after sentiment survey has indicated that the long arm of government was the greatest threat/hindrance to economic activity. Until two years ago, the greatest fear was economic.

I have also remarked a gazillion times that capital formation is the lifeblood of capitalism and without such growth would be anemic, further stating until monetary velocity accelerates, an acceleration that is/was close to impossible because of intense regulatory burdens, growth would remain lackluster.

There are about $2 trillion in excess bank reserves versus the historical norm of $1 billion. Referencing a dated Chicago Fed report, if monetary velocity accelerated to 50% of its norm, growth would be over 6% and inflation over 10%.

Has Donald Trump released the proverbial “animal spirits,” which could be a distinct possibility given recent sentiment surveys? Will these “animal spirits” be fed by the roll back of Dodd Frank that increases monetary velocity and economic activity (as well as liquidity in the markets)?

I will answer yes. Such a possibility will have a greater impact than Main Street versus Wall Street.

Speaking of which, January’s labor report surprised us on the upside as both non-farm and private sector jobs handsomely exceeded estimates. The all-important labor participation rate rose from 62.7% to 62.9%.

Is this a harbinger of things to come? As noted many times from 1996-2007, 90% of jobs created were from small business, defined as companies with fewer than 400 employees.

This is the economic group President Trump is championing and will be a direct beneficiary via the roll back of Dodd Frank which in turn will permit an increase in monetary velocity and capital formation that enables greater economic growth and job creation.

Last night the foreign markets were mixed. London was down 0.02%, Paris down 0.50% and Frankfurt down 0.72%. China was up 0.54%, Japan up 0.31% and Hang Sang down 0.95%.