December 28, 2016
The Family Office Alpha Report by Witherspoon Partners, Nov Dec 2016
Is Trump's Approach All that New?
By Keith Danko
President-elect Donald Trump has made abundantly clear that his presidency will be highly expansionary in terms of economic policy and that he will be actively interventionist in the manner that he exercises power. Currently there is great controversy over both these approaches from both sides of the political aisle. From the right: What about the deficit and the need to decrease the size and expense of government? From the left (and the right): What will Trump’s interventions do to the legally protected rights of individuals and businesses?
The consensus from across the political spectrum is that Mr. Trump represents a new species of politician, one whose kind has never been seen before occupying the office of US president. As such, he is judged by both his supporters and detractors as unpredictable and as someone who will freely overstep the traditional bounds that his predecessors have respected…or at least recent predecessors.
Although not as flamboyant or bombastic as Trump, both Franklin D. Roosevelt and John F. Kennedy ran for office on platforms that were expansionist and interventionist, and both did so very much appealing to the common man in a similar manner to Trump. So, while investors may be looking at a Trump presidency as a paradigm shift and are contemplating what the next four years will spell, the economic ramifications could be terrain we have seen before with other larger-than-life US presidents.
Nothing to Fear But Fear Itself
In many ways, FDR was a bigger shock than Trump. Orthodoxy in 1932 was that during economic recessions the federal government should not intervene, and in fact should exhibit caution and protect its own balance sheet. Thus, the Great Depression became great in part because of a contracting federal government combined with a deflationary monetary policy.
Opposing this doctrine, FDR believed that Americans wanted to see their government doing something for them, not presiding over them. FDR’s New Deal, based upon the belief that new actions were necessary and that courage was the prime virtue, created government agencies and bureaus whose direct goal was intervention in the economy. As a result, big government in the US became permanently established, and federal domination of the economy and of the individual states became accepted facts of life, indeed just in time to drive the massive effort organized by the US in the second world war.
Let’s Get America Moving Again
After the staid prosperity of the Eisenhower years, the US again elected a president who spoke boldly of a great future based on accomplishment and action from the federal government: John F. Kennedy. JFK in fact built on FDR’s theme of courage, writing a book called Profiles in Courage and campaigning with the imagery of his heroics in the war as a PT boat captain. His campaign slogan, “Let’s Get America Moving Again” harkened back to FDR and of course offered words that Trump would later echo. Kennedy’s time was cut short, but his successor Lyndon Johnson, taking over with a promise to complete what Kennedy had begun, would be arguably the most expansionary and interventionist US president of all. Signatures of LBJ’s terms include the Civil Rights Act, the Voting Rights Act, the War on Poverty, Medicare, and conservation and immigration measures introduced under his domestic agenda “The Great Society.”
Make America Great Again
JFK was 15 when FDR took the oath of office, Trump 14 when JFK became president. It is not hard to imagine what impact the activist rhetoric of FDR may have had on JFK at such an impressionable age, and similarly, JFK’s influence on young Trump.
Above all, Roosevelt, Kennedy, and Trump each mastered the new medium of the era to take their message directly to the people: radio for FDR, television for JFK, and social media, specifically Twitter, for Trump. Trump’s election, as much as anything else, followed the FDR/JFK pattern of an electorate demanding change, and a candidate directly addressing that demand through a new medium.
What to Expect
As investors, history tells us that activist, interventionist presidents can mean the opening of new markets, increased public/private cooperation in business, but also uncertainty. Tax policy will be important to watch under Trump. Tariffs worsened the Great Depression while Kennedy’s income tax cuts ushered in the 60’s boom. Trump appears to favor both as activist tools.
A very concerted effort will be made by the Trump administration to increase growth in the US economy, and this will have a salutary effect on the global economy. Investors will become more confident placing their money in opportunities that demand a holding period of longer than two years. The focus on liquidity this past six years has in our view impeded both growth and investment returns.
Pure capital investment, rather than the trading of liquid assets, will be favored. Housing and housing-related investments should do well, the global shipping industry should recover, and investments in existing manufacturing or light industry should outperform venture plays in apps and other software.
Although in each case there were problems that developed later, FDR and JFK/LBJ succeeded in releasing moribund sectors of the economy and spurring the creation of new ones. Let’s hope Trump can do the same.