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| Trump on economic policy |
Thursday, November 17, 2016 wecbcast by Caroline Miller, BCA Research. She made following points:
- Infrastructure program and tax cuts will increase budget deficit
- Tax reduction will not give a lot of bang for the buck compared to government spending programs regarding GDP growth
- Fed pressured by Trump policy to increase rates, leads to USD strength
- Europe needs 3 to 4 years to return to growth, Europe will not match rate increase
- Japan has still low inflation
- China is exporting structural deflation (overcapacity)
- Dollar strength, Trump protectionism will hurt emerging Asia most
- High corporate debt level in emerging markets
- US Equity: no visibility of corporate earnings growth, wild card of Trump appointees
- US protectionism and backlash are a threat to growth
- US deficit will steepen yield curve
- Trump tax program will benefit small caps not multinationals
Investment recommendations:
- Underweight of duration in US bonds, preference of TIPS
- Underweight of peripheral european bonds
- Overweight of USD vs. EUR
- Overweight in pharma, staples, utilities (defensive stocks)
- Underweight in tech, industrials and commodities (cyclical stocks)
- Underweight in US vs. European equities: strong USD will hamper US profits. Profit margins are very high in the US historically and compared to Europe. They can't grow on that level
We have entered a new economic environment in the US.
