BRIDGEWATER: ‘The likelihood of a significant Trump fiscal boost has diminished’

The chances of a Trump bump have dropped, according to the world’s largest hedge fund manager.

Bridgewater Associates’ co-CIO Greg Jensen and senior investment associate Atul Narayan laid out their reasoning in a client note out Wednesday morning.

The Wednesday client note is titled “US growth has slowed and the likelihood of a significant Trump fiscal boost has diminished.” A copy of the note was reviewed by Business Insider.

In short, the note says that investors are losing faith in all the things that spurred a market rally in the wake of Donald Trump’s election expectations — expectations that spending and reforms would boost economic growth and inflation. It’s a view that’s now creeping across Wall Street, pushing stocks lower.

“The remaining outperformance, which represents a combination of rising expectations of future growth, improving sentiments, and expectations for deregulation, etc., is small,” the authors wrote about the financial markets.

Deregulation “may still be somewhat of a trigger for economic growth, but the pushes on infrastructure and tax reform appear more and more modest, and more and more stuck,” the authors added. In turn, “there is less pressure on the Fed to tighten, and we expect they will adjust.”

Jensen and Narayan go on to say that they think comprehensive tax reform is “ambitious.” 

“Our expectations are for less impactful tax reform and modest tax cuts given the ongoing concern of many congressional Republicans about the deficit,” the authors wrote.

Spokespeople for Bridgewater didn’t immediately respond to a request for comment.

Here are other highlights from the note:

  • Corporations. “The corporate statutory tax rate is likely to land somewhere around 25% (from 35% currently), with some combination of immediate depreciation of capex for equipment (but not IPO or structures) and curtailment of net interest expensing… we expect the odds of a BAT as currently proposed to be low.”
  • Infrastructure. “Infrastructure spending will be slow and difficult to implement.”
  • Corporate taxes over personal taxes. “The administration seems to be favoring meaningful middle income tax relief, but less net tax reductions for higher tax payers… the Trump administration’s desire to give tax cuts for high-income households beyond the potential cuts from repealing the Obamacare tax increases is limited.”
  • Trade policy. “Recent Trump statements suggest a policy shift toward a more modest protectionist agenda.”

Ray Dalio, Bridgewater’s founder, raised similar concerns regarding changes to fiscal policy and deregulation in an interview with Business Insider’s Henry Blodget earlier this month

Westport, Conn.-based Bridgewater manages about $150 billion companywide, according to its website.

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I agree with this opinion but for different reasons. I believe that investors finally begin to understand what they should have understood before the election date.

Deregulation/ change of regulation/ amendments are always in the agenda. Because as we move forward rules shall also change to reflect the current conditions in order to remain effective. However, when politician announces to deregulate the industry, I would prefer to see details of how is he or she going to do it.

Details are important because it is “motherland” of Devil. I do not want to participate in something that do not understand. What I do understand that the word “deregulation” can mean absolutely everything. It could mean something which would boost the economy or otherwise. 

As far as I remember details have never been disclosed. Maybe because secrecy is Trump’s way of doing business or there are no details. Either way, he was asked several times how he will implement it, and no clear answer was provided (the same as his tax returns). This alone would make me to understand that it is unlikely to happen.  

When he announced huge infrastructure investment plans, I was confused because it did not go hand to hand with his plans on immigration policy. 

Unlike infrastructure plans, he started to implement his immigration plans into reality. As we can see now, housing industry started to face some problems due to labour constrains and rising price of materials. This problems occurred almost immediately after his inauguration. It is means that his infrastructure plan is likely to remain a theory.

Trade policy shift is the only thing which investors shall be thankful for. It is too late to make a U-turn from globalisation to isolation. It will lead to deepest recession instead of prosperity.

For example, Emirates said it will reduce direct flights to Fort Lauderdale and Orlando to five a week in May from the present one a day. The airline will also cut back its twice-daily flights to Seattle and Boston in June to one a day, with a similar frequency for Los Angeles from July.

It might look like insignificant but we shall not forget that it is the second sign (after US housing problems) and only a beginning. Because with each decision to cut number of flights, the U.S. economy is also losing.

With each decision to cut flight, the U.S. economy will not get payments made by airlines in terms of fees when they fly over a the country’s territory, landing fees, airport fees, payments for refuelling and catering and other services while aircraft is on the ground. Fewer flights means fewer jobs. 

Donald Trump’s total lack of knowledge of international politics was obvious from day one. Taking into account the complexity of international affairs, it could mean only one thing that economy will suffer due to rising tensions.

Now we know that he recently lost one of the aircraft carriers in the middle of military standoff. It is miracle that nothing happened.

And finally, the fact that Donald Trump bankrupted four of his businesses, statements made by his former business partners and many more should have been not just red flag, but an alarm bell for investors. How they could have any exceptions out of his presidency?

It appears that a lot of them decided to accept what they want to see as a reality. As I say, stupidity is the most expensive thing.

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