In January President elect Donald Trump becomes President and will set policies – in terms of economic policies two of his ideas are: to create jobs he will spend $ 275 billion on infrastructure at the same time to cut taxes – seemingly across the board or at all levels. If the government wants to spend more, collect less leading to wondering what will make up the difference, given the US economy is heavily based on consumer spending? Charles Stein of Bloomberg News asked Bill Gross of the Janus Global Fund (formerly he ran the biggest bond fund – Pimco) for he is one of the best bond traders in America, what does he think? Mr. Gross believes higher deficits will raise interest rates and inflation which can lower earnings and price to earnings ratios or lower stock prices. Mr. Gross questions the need for corporate tax cuts because the rates are among the world’s lowest and the idea that companies such as Apple will bring back the money they have lodged in overseas accounts will not lead to more investment in the US.
If the President does stimulate the economy to gain the 5 to 6% growth he discussed in the campaign, interest rates will tend to rise which means the era for cheap money will be gone. If rates rise it will cost more to repay the government debts, maybe the next President will only tackle debt payments. Since a large percentage of debt is held by countries around the world including China, what does that do for foreign policy?
Linking to dividend paying stocks, for many years US companies have diversified their holdings outside the US and that has been successful. As the President tries to stimulate the economy as well as seemingly not get along with existing trade partners or turn inward, perhaps investing in companies that do most of their businesses in the US is the best alternative. As Mr. Trump appoints the rest of his cabinet including those whose responsibility is the economy -they will bear careful examination for where and how the economy could perform.
There are more questions than answers, till the next time – to raising questions.