Future of the Global Economy? Experts at Investing Conference Say “Wait and See”
Taking place shortly after the US presidential election, it was no surprise that market experts participating in the Annual University of Virginia Investing Conference focused on the global economy and how it might change under the new administration. They all agreed on one thing — no one really knows. President-elect Trump revealed little before or since the election about financial policies, other than a call to repeal the Dodd–Frank Act. His election now has investment professionals speculating on the potential effects on the future economy.
Several common themes emerged during the two-day conference during which panelists acknowledged the issues facing the new administration (with one panelist predicting an “economic revolution”). Others tailored their talks around the unknown policy team and future policies, China and its role in our marketplace, inflation, rising interest rates, our role in the global market, our role in NATO, and NAFTA renegotiation. Following are highlights from several panels.
Panel on Geopolitical Impact
William Antholis (director and CEO of the UVA Miller Center) noted that although the new administration will take some time to decide what to do in terms of economic reform, the economic and international teams that President-elect Trump assembles will reveal much about future economic policies. Antholis predicted that Russia could effectively become an economic partner with Europe, with split opinions on the economic impact for the United States.
David Dollar (senior fellow at the John L. Thornton China Center at the Brookings Institution) said that in terms of foreign policy, the election appears to support an isolationist policy, with the United States withdrawing economically from the world, and especially from Asia and the Trans-Pacific Partnership. This move may allow China to become a dominant player, but President-elect Trump has indicated he will impose tariffs on China. If the new administration is harsh on Mexico, it may look to China to join economic forces.
Dollar also noted that although China likes to buy up companies in the United States, it is not open to others investing in China. This asymmetry is becoming problematic for the US economy. Although there are good reasons to believe interests rates will rise, we probably cannot blame it all on China. There are also geopolitical implications if the United States leaves NATO as Trump has said he would, which Dollar said would be “disastrous.”
Private Investment Perspective
An acquaintance of President-elect Trump, Barry Sternlicht (chairman and CEO, Starwood Capital Group) emphasized the lack of substantial policies that exist going into 2017, but predicted there will be inflation and an increase in interest rates. A concern is the existing $20 trillion debt that the United States has and that other countries do not want to buy our debt. Sternlicht believes that shutting out China is not a good idea, and that instead, the United States needs to remain part of the global economy. He predicts that oil prices will go up to $60/barrel in the next year, and that the new administration will eliminate subsidies for renewable energy.
Research Analyst Perspective
Jason DeSena Trennert (managing partner of Strategas Research Partners) noted that there are two important areas to consider under a Trump presidency. First, who assumes the Cabinet position as Trade Representative is pivotal for setting the economic policy going forward. Second, the potentially biggest risk to the US economy is future inflation. Trennert views the incoming administration as bullish on equities and bearish on bonds. He thinks fiscal and regulatory policies will both be bullish. Stocks he would be nervous about include health care and Amazon, whereas defense stocks will probably be strong.
Wait and See
As the President-elect continues to name his Cabinet and advisers, his approach toward foreign relations, financial regulation, and our economic relationship with other global players will become clearer. What the full effect will be on the US economy four years from now — both domestically and abroad — remains to be seen. In the meantime, perhaps we can benefit from the advice of panelist Gabriel Sod Hoffs (Global Fixed Income Investor): He reminded the audience that we are still experiencing the lowest interest rates in US history and he encouraged investors to “sit and not overreact.” Now the challenge for all of us begins.
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Photo Credit: ©Getty Images/John Lund