Shortly after the election of Trump as president the market started to rise. Stock prices went up as did the dollar. This so-called Trumpflation was based on expectations of fiscal stimulus, tax breaks and repatriation of offshore corporate cash. According to Bloomberg Trumpflation is running out of gas as investors and traders are waiting to see something tangible.
While U.S. stocks rose to records, the dollar jumped and Treasuries fell after Trump said Thursday that details on tax cuts would emerge within weeks, market-based measures of inflation expectations – derived from the difference between yields on Treasuries and their inflation-protected brethren – are trending lower.
“For the markets, the honeymoon is starting to end with Trump,” said Thomas Simons, senior economist at Jefferies LLC in New York. “We need to see something real – we can’t just continue to base current pricing on some nebulous fiscal policy we don’t have any details on.”
Is the Trump Stock Market honeymoon over or are we just waiting to see when expected changes are put in place? For that matter will the expected changes that Trump talks about even happen when congress does not want to spend the money and run up the debt?
Where Will Taxes on Offshore Profits Be Spent?
Finance & Commerce says offshore profits could fund infrastructure but the devil is in the details.
President Donald Trump’s plan to use corporate profits returned from overseas to help finance nationwide improvements to roads, bridges, airports and other public works picked up an important supporter in the U.S. House: Rep. Bill Shuster.
“The dollars are out there, so we get a piece of that,” Shuster, a Pennsylvania Republican who chairs the House Transportation and Infrastructure Committee, said in an interview. The process of returning corporate profit to the U.S., known as repatriation, can be one of the sources that helps generate funding for repairs and new construction, he said.
The problem is that all too often such tax revenues go into the general coffer to offset expenditures. And the problem of getting money earmarked for infrastructure runs in pork barrel projects for every state, especially states represented by the party in power! If the money is there but bickering over which state receives the money becomes a problem the Trump honeymoon will really be over as investors lose confidence. The other issue is how much money will come from taxing offshore profits as they come back into the USA. If the tax rate remains high no one will bring any money back and if the rate is too low there will not be enough to make a dent in the infrastructure needs of the nation.
Who Wins and Who Loses?
An old saying regarding the market and other things is that a rising tide raises all ships. However, some companies have already felt the wrath of Trump such as Boeing and their still-in-design next version of Air Force One. With all the enthusiasm stocks have become overvalued and if something tangible does not happen soon the Trump honeymoon could turn sour.
