FIVE UNUSUAL PREDICTIONS DURING THE REIGN OF DJT

Because I spent the 1990′s working on Wall Street, I’ll always refer to Donald Trump as ‘DJT.’  This was the stock ticker of his casino holding company which went public in 1995.  Had you purchased shares in the IPO, you would have been left with ten cents on the dollar a decade later.

In a few days this business maven will be the President of the United States, and though I am no longer analyzing public companies, I will make a few unusual predictions, predominantly financial, about what I think will occur over the next four years.

First of all a broad statement: All economic growth and wealth creation will come from financial conjuring, not through manufacturing or actual business activities.

The second is also a broad prediction and not especially revelatory or clairvoyant: federal deficits will become huuuge!  Fiscal hawks get out of the way.  In the words of Glenn Beck “The Democrats tax and spend, while the Republicans just spend.”

These two declarations will largely come about through the classic Wall Street arbitrage of doing something that is beneficial in the short term, and bad in the outlying years.  Frequently it ends up being really, really bad, ask Greece.

The simplest form of this arbitrage is borrowing money.12 But the hand on the till has to be a very deft one, otherwise over the long run the power of compounding interest will crush you.  Something that DJT knows very well.  Worse, in 2016 there are so many newfangled ways to ‘bury’ the debt for an extended period, that it won’t come back to bite, or even appear (be on the horizon) for say, another 4-8 years.

The third unusual prediction I will make is that millions of state and municipal pension fund beneficiaries will get seriously clipped.  This is due to 1) the considerable underfunding in many of these pension funds, 2) already stressed state and municipal budgets, and 3) the significant lowering of expected and actual returns.

Here’s how it happens.  In the not-so-distant future there will be a really big city or a state, that will be forced to permanently restructure.  It will be a litmus test, and due to legislation, a court ruling, or both, a road map will be put in place for all other stretched districts that will immediately be taken up by them.  Pensioners will be portrayed as having caused the problem and therefore will bare the brunt of the pain.  Of course in typical short-term/long-term arbitrage, it will be more like Chinese-water torture than amputation.  Bondholders and taxpayers will only incur minor nicks and cuts.

Next up: immigration, which at the heart of it is really all about economics.  DJT’s strident pledge to build a wall and have Mexico pay for it will go down as another one of his lousy deals.  The wall itself will solely be a monument and will have no effect on national security nor immigration. In other words, the return on investment (ROI) will be zero.

As for Mexico’s financing of it, there’s a saying in M&A: “If you want it real bad, you get it real bad.”  If I were El Jefe, I’d gladly remit the cash for it today, in return for a quietly worded easing of cross border trade rules that in close reading would make NAFTA appear stringent.  Ironically, this easing would suit major U.S. corporations fine and continue to help keep their labor costs down.

Other than the wall, I expect very little to be done on immigration, and that four years from now we will have roughly the same number of undocumented workers in the USA as we currently do.

That is unless my fourth unusual prediction comes through: an amnesty for all illegal immigrants.  There are way too many advantageous political reasons for POTUS to enact this, most significantly ~10 million new votes.  Thus, sometime after the mid-term elections, I expect this proposal to come to the fore.

Independent of prediction #4, my fifth unusual prediction is that there will be a big increase to the number of H-1B visas issued annually.  Big business, which is increasingly tech, wants it, and they’ll get it.

That sentiment pretty much sums up the overall mindset I expect over the next four years.  Which leads to two big questions for 2020: Will the backlash be so great that the U.S. elects a socialist president come then, and will there even be a presidential election in 2020?

  1. A typical business takes on debt in the expectation and assumption that the deployment of that capital will lead to a return greater than the interest rate on the loan.  A government takes on additional debt seemingly because it’s allocation and deployment of it will lead to growth in the overall economy which will lead to greater tax receipts that can be applied to the greater debt.

    This theory hasn’t really worked out that well in practice, and contradicts the logic that the private sector is a better utilizer of capital than the government. []

  2. Two other classic s-t/l-t arbitrages are environmental and regulatory.  Similarly, both can have short term positives, but long term negatives []

Leave a Reply