Tag Archives: Trump

Trump Reveals Plans To Cut Down 75% Of The Regulations

Trump was sworn in as the President of the United States on Friday. On Monday, he started his first formal day in the White House as the President. In the opening hours, Trump welcomed several leaders from large enterprises in the country for a meeting. He promised the company officials that he will wipe out about 75% of the government regulations, which will make it easier for the corporations to run their business. Those businesses looking to expand will enjoy expedited policies and massive tax cuts.

While talking about improving the operations in the United States, President Donald Trump told the leaders that all they have to do is stay. Trump encouraged the organizations to open new factories and expand their business in the United States. This will help to create new jobs and the companies will be rewarded with numerous benefits. Currently, many corporations spend more time on regulations than on developing the product. Trump has promised to remove most of the regulations, easing the path for company growth.

At the same time, Donald Trump also issued a warning that the companies moving their production out of the United States will have to deal with punishment in the form of a substantial border tax. Companies that have production facilities in Mexico and other countries should have to face a higher tariff, making the out-of-country production expensive. Trump promised that the new regulation policies will be better and less cumbersome. Many corporate leaders who were singled out in Trump’s speeches and tweets were present during the meeting. The press conference after the meet was short and Trump ensured that the topics don’t deviate to other matters.

Andrew Liveris of Dow Chemical told the reporters that the new president wants the companies to come up with various actions to boost economic growth. He also said that Trump revealed his plans of meeting with the business leaders four times a year to make all the industries competitive and profitable. Mark Fields of Ford Motor company said that the President is enthusiastic about economic growth which will be beneficial for all the industries.

Trump repeatedly warns the corporations about the major border tax. However, many Republicans are not happy with this policy because it could result in increased cost within the USA. The experts argue that Trump may not have the power to punish the companies and it would also result in the violation of treaties.

During his campaign, Trump has promised that he would pull the USA out of the Trans-Pacific Partnership and revisit North American Free Trade and Agreement to benefit the country. TPP is already dead even before Trump took his office. The President office has already contacted the Canadian Prime Minister and Mexican President to discuss NAFTA trade deal. Experts fear that the negotiations with respect to NAFTA could cause troubles with the USA economy. There will be serious repercussions for the Mexican economy, but the USA is not completely immune either.

How Trump’s victory has affected capital and equity ETFs

That presidential victory by Donald Trump completely upended equity and capital markets. The doomsdayers were left with a whole lot of egg on their faces, as investors who didn’t fall for their predictions made out “bigly.”

Here, we’ll take a look at the inflows and outflows of a few ETFs that were most affected the week Donald Trump was elected president of the United States.

Bonds
After Donald Trump became the president-elect, the bond market was among the segments of society that initially reacted poorly. U.S. Treasuries sold off sharply within the hours following the announcement of his win.

However, they quickly became an investment darling over the course of the week because of the buying opportunities that were presented. The yield on the 10-year Treasury note was up as much as 33.5 basis points last week, which was reported by MarketWatch as the largest weekly gain in three years.

As you know, in the bond world, when bond prices fall, their yields rise. What the market saw during the overnight hours after the election was did exactly that. For those looking to get into the bond market and pick up some high quality paper with decent yields, this is the ideal time. This is especially the case for fixed-income investors.

Stephen Laipply, a senior product strategist with BlackRock’s Fixed Income Portfolio Management Group told the following to MarketWatch.

“Investors are trying to reposition for what they believe will be the result of the new administration and a unified government, which is a more likely increase in stimulus.”

While you digest the possibility of anything like quantitative easing rearing its head again, also keep in mind the market’s sentiments about the fallout from Trump’s win. A concern is that Trump’s financial policies could cause inflation to rise, which would inadvertently hurt long-term bonds. That’s because inflation is one of the areas of the economy that Fed Chair Janet Yellen said she is eyeing as a catalyst to raise interest rates. Higher interest payments don’t mix well with the value of long-term bonds.

The ETFs

Following Trump’s victory, investors drained fixed-income ETFs of just under $3 billion. Most of that outflow consisted of corporate bonds. We saw the iShares iBoxx $ High Yield Corporate Bond (HYG) be drained of roughly $2.5 billion, which was the biggest outflow of any fixed income fund. The next fund that saw a significant outflow was the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD). It was drained by roughly $1.7 billion. Then there is the SPDR Bloomberg Barclays High Yield Bond ETF (JNK). It saw outflows of roughly $762 million.
The HYG and JNK funds also saw interesting inflows. Those inflows were $1.5 billion and $800 million, respectively

To get an even better idea about how ETFs responded to Trump’s win, we turned to data collected by ETF.com. In what it called a stampede, ETF.com found that investors flooded U.S.-listed funds. Those inflows totaled almost $24 billion.

The best performing ETFs were industrials and healthcare.

Be advised to tread very carefully here. Market volatility is the biggest threat to these moves in ETFs.

Trump sets sights on dismantling Dodd-Frank

Through 2007, banks in the financial sector were annually posting returns that were much to the delight of the street. These companies created products that defied logic, but their profitability made them to spectacular to do away with.

These financial institutions included Bank of America (NYSE: BAC), JP Morgan (NYSE: JPM), Wells Fargo (NYSE: WFC) and Citigroup (NYSE: C). Back then, Lehman Bros. and Bear Stearns were also members of the pack.

They were all sailing along prior to 2008, profiting from the use of mortgage-backed securities. The housing market was on fire thanks to allowances that made it easier for homebuyers to secure subprime mortgages.

After billions of bailout dollars were funneled to the big banks like Bear Stearns and Lehman Bros to keep them from failing, lawmakers drafted the Dodd-Frank Wall Street Reform and Consumer Protection Act. The legislation was stocked with all kinds of rules and regulations that were meant to keep banks from working themselves to the danger point like they did through 2008. The Act became effective in 2010.

Now, a new “sheriff” is in town in the form of president-elect Donald Trump. Market players cheer his perceived anti-regulation stance. Look no further than the stock market rally and the participation in that rally by banks after Trump won the election last week. The thought that he may tinker with Dodd-Frank is striking hope and fear into the hearts of players in the financial industry.

On the chopping block

The Consumer Finance Protection Bureau will likely be first up to be either done away with or severely altered. The agency has taken what many deem a too heavy handed approach in dealing with issues it perceives harms consumers. In all its grandiose, complaints include its investigative conclusions negatively affecting small community banks, while helping big banks.

Those risky investments that led to the housing collapse may be back in play if Dodd-Frank is dismantled. One of the rules in the Act, the Volcker Rule, was meant to prevent banks from entering into risky, speculative investments.

But Dodd-Frank does some good

One of the pluses that came from Dodd-Frank are bank stress tests. Conducted annually, banks with more than $50 billion in assets must submit certain financial information to the Federal Reserve Board. In order to pay dividends or have share buyback programs, banks must show they are capitalized well enough to weather financial storms of the magnitude that caused Bear Stearns and Lehman to fail.

The Fed explains it this way:
“The changes we make in each year’s stress scenarios allow supervisors, investors, and the public to assess the resiliency of the banking firms in different adverse economic circumstances,” Fed Governor Daniel K. Tarullo said. “This feature is key to a sound stress testing regime, since the nature of possible future stress episodes is inherently uncertain.”

With the possibility of Dodd-Frank going away, investors may be eager to jump into financials. If you do, be like the Fed.

  • Conduct your own stress tests; watching for signs that the bank’s capitalization is decreasing.
  • Stay abreast of financial products that are being rolled out to understand their risks to the bank.
  • Make a point to review quarterly earnings reports, and if you can get a copy of the transcripts from the quarterly conference call.

The possibility of Dodd-Frank going away may make financials attractive investments. However, if it does go away, the onus is on investors to be just as vigilant as the the law’s provisions to protect that investment.