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Clinton vs Trump: Impact on Wall Street and the Economy at large

By : Ziad K Abdelnour| 7 November 2016
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Some personal thoughts I thought I’d share about the US markets and economy at large in case of a Clinton or a Trump Presidential victory.

 At the end of the day folks, it is still the “Economy” stupid.

In the case of a Clinton victory:

 1. I believe you should expect a platform of tougher Wall Street enforcement. And for good reason. Some 67% of the U.S. populace wants a president who favors stricter regulation of financial institutions…Even Republicans to the tune of 58% said they want a candidate willing to toughen Wall Street oversight. Looks like given the hostility of the American people toward financial institutions, no one can get elected, saying they’re going to side with Wall Street.

2. Expect her to broaden her support of Dodd-Frank or the Consumer Protection Act, the cornerstone of Obama’s financial reforms. This would consist of first and foremost of a bank tax to help pay to implement the law. Second the so-called Volcker Rule, aimed at discouraging banks from making risky investments. She will most probably too levy a “graduated risk fee every year on the liabilities of banks with more than $50 billion in assets, and other financial institutions that are designed by regulators for enhanced oversight. Those fees would be scaled “higher for firms with greater amounts of debt and riskier, short-term forms of debt.” She likens them to a deterrent calling it “a rainy day fund”.

 3. Expect her to pass the “Buffett Rule,” which would close tax loopholes by establishing a higher minimum rate for those in the highest income bracket.

 4. Expect her to seek legislation to hold executives accountable by extending the statute of limitations for major financial crimes to 10 years from 5 years, and requiring that executives lose bonus pay when a bank pays a fine related to their bad decisions.

 5. Although I don’t believe she will support restoring Glass-Steagall, she will instill a different kind of regulatory framework to monitor hedge funds and other non-bank institutions. Got to be prepared for regulations in the financial services industry galore.

 6. She will most likely seek to close the so-called “carried interest loophole that allows money managers and hedge fund operators to treat fees on their clients’ investments as capital gains, which are taxed at a maximum rate of 23.8% rather than the 39.6% rate applied to ordinary income. For her, closing the loophole, and raising taxes on short-term capital gains, are key in addressing income inequality.

 7. Expect her to levy a 4% “surcharge” on people earning more than $5 million, generating about $150 billion over 10 years also in the name of income inequality. Essentially, if you’re super-rich or make most of your money investing, your taxes will probably go up under a President Clinton. According to the Tax Foundation’s analysis, Clinton’s plan would raise tax revenue by $498 billion over the next decade on a static basis. However, when taking into account what it says would be a dip in economic output incurred by the plan, it would end up collecting $191 billion.

Bottom Line:

A regulatory nightmare…

 Now, to get any of these proposals enacted, Clinton would likely have to barter with a House of Representatives that likely will remain in Republican hands. Assuming that she is elected president and the Democrats fare poorly in mid-term elections, which is customary, she runs the risk of being the first Democratic president to serve without ever having her party control the House.

 If you thought Obama’s relationship with the House was bad, I don’t see why Clinton’s would be better. We could be looking at more stalemate.

 Ultimately, though, Clinton’s ability to move her economic agenda will rest on how she decides to govern. Will it be through the centrist positions of her husband’s administration, the liberal doctrines of Barack Obama or the populism of Bernie Sanders?

 I believe she will keep a high level of continuity with Obama’s policies and takes its liberalism one notch up… Hope I am wrong.

In the case of a Trump victory:

1.  I believe that Trump’s tax plan is one of the most dynamic and pro-growth tax plans out there where you would find a huge amount of new business investment and companies willing to put their money out there to begin growing the economy. Perhaps the biggest distinguishing feature of his proposal is his hard cap on business taxes at 15%, which might be especially appealing to freelancers and the self-employed. The Tax Foundation calculates that Trump’s plan would cut taxes by $11.98 trillion over the course of a decade. It would lead to 11% growth in the GDP, 6.5% higher wages and 29% larger capital stock as well as 5.3 million jobs. However, it would also reduce tax revenues by $10.14 trillion, even when accounting for economic growth from increases in the supply of labor and capital. That tax cut would produce faster economic growth and a bigger economy — as long as you pay zero attention to the fact that it would dramatically increase the deficit and budget debt. Trump has promised to reduce spending, though he hasn’t explicitly said how yet. In the face of such an enormous deficit, creditors might begin demanding higher interest rates on U.S. bonds, and the markets would be spooked.  Of course, just because Trump hasn’t yet explained how he will cut spending doesn’t mean he won’t.

 2. Trump likes to talk trade. And while has said he is a “free trader,” he has also clarified he doesn’t like the deals the U.S. has done, such as NAFTA and the Trans-Pacific Partnership. The Art of the Deal author has promised to negotiate better agreements. But you might think a bit further about the ramifications of some of his proposals. Take China, one of his top talking points for example. He has proposed negotiating with the country to prevent it from manipulating its currency and keeping it too low for American manufacturers — and workers — from competing. The reality is that when China devalues its currency, the goods that they produce become cheaper, and as a result, while we may lose some manufacturing jobs, the rest of the population gets to buy things a lot cheaper than they would if the products were made in the U.S. The jobs he would bring back are yesterday’s jobs. Recently for example, he released his full plan for US-China trade reform, in which he pledged to immediately declare it a “currency manipulator,” force it to uphold intellectual property laws and end its “illegal export subsidies and lax labor and environmental standards,” among other measures, in order to help American manufacturers — and workers — compete. He has also pinpointed imposing tariffs on imported goods, suggesting a 35% tax on automakers that manufacture cars in Mexico. Such a maneuver might bring jobs back stateside, but it might not. Instead, it could just mean people paying more for what they’re buying. I am afraid that if he puts 35% taxes on products, the manufacturing will still not come back to the U.S., and all it will mean is U.S. consumers have to pay 35% more for the products that are made outside the country. American consumers would end up paying more for things, and that hurts the economy if you’re putting tariffs on those other things.

3. Trump’s brand has without a doubt contributed an enormous amount to his net worth. But how will that Trumpiness translate to the White House? Something I wonder sometimes. That off-the-cuff, gruff, tell-it-like-it-is approach that Donald Trump has may be great for headlines, but what unguarded comments like that from a president do is make dramatic fluctuations in the world economy, in stock markets in the United States and in the world. Think about how much the market reaction is to the choice of two or three words from the Federal Reserve chairman. The words chosen by American officials can indeed have serious economic repercussions, and the country — and the world — have equally high expectations for their commercial and diplomatic capabilities. Some people would argue that his brand of rhetoric would actually make for profound economic instability. Remember the time when he warned of a looming recession and stock market bubble and targeted Federal Reserve Chairwoman Janet Yellen in his comments. “She’s keeping the economy going, barely,” he said?. Such comments coming from a presidential candidate are one thing — coming from the president of the United States they would be another. I personally would not worry about this too much cause Trump is a real smart guy, and will most probably adjust….but everyone also knows how unpredictable he can be.

Bottom Line:

Donald Trump is not afraid to face the public and raise his voice, even if it is politically unpopular. Donald Trump is the quintessential entrepreneur and wealth creator who understands both success and failure. It is a fact for everyone who ever made it “big time” that trade and wealth creation is not all upside. It is failure, too. Failure is a necessary component to growth and success. Babe Ruth struck out 1,330 times but also hit 714 home runs. We need to let failing entities fail. Only then will successful people turn these enterprises back into wealth-creating vehicles again. “Too big to fail” is a progressive concept that perpetuates failure and saps vitality from the rest of the wealth creators to do so. Wealth creation and prosperity are not businesses suited to those whose skill set consists of voting “present.” It requires decision making, risk taking, hard information, discipline, insight, and intelligence. We know what happens when Progressives have full control and no opposing forces to draw battle lines. It’s called Detroit.


 At the end of the day, I strongly believe that that even the most well-meaning government policies have unintended consequences that have harmed the economy. If government policies were held accountable the way private businesses are, the scoreboard would say government is failing to help people.

 There are few problems in the world that economic prosperity cannot help solve. Yet the engines of that prosperity are under fierce attack. The forces that seek power over others have gained the upper hand against those that seek freedom. By harming wealth creation, they cause even more strain on society. Historically, this is nothing new. State domination over its subjects has roots that connect statism, totalitarianism, communism, and socialism to more modern-day variants of liberalism and progressivism. It is a constant fight.

The forces against wealth creation accelerate when the Progressives are in power. More recently, they forced Obamacare and “Dodd Frankenstein Financial Deform” upon us. We now face a perfect storm and one only needs to observe the unrest across the world to imagine what life will become here if we don’t get our economy turned around soon.

 But how? It is not as though people lose sight of simple principles in a complex society as much as it is a Progressive tactic to confuse people. For example, if the world consists of two farmers, and one is paid government benefits, who pays? Exactly. The other farmer pays. Redistribution is a negative-sum game, and people understand that.

 In another example, if one farmer raises cattle and the other grows vegetables, they are both better off through voluntary trade. Making other people better off is the only way to satisfy your needs. Is it bad that some people make many people better off? Do you deserve a special attack by government if you make millions of people better off? Voluntary exchange is a positive-sum game.

Which leaves us to the $64,000 question for you to really think about at the crossroad of our history….

 In whose hands should you place your trust for improving the economy? An entrepreneur, whose job it is to solve problems for a profit? Or a bureaucrat, whose job it is to cause problems for a profit? I know where I put my trust, and I’m sure 90 percent of us agree. We outnumber them, so let’s act like it come November 8.

God bless the United States of America.

By :� Ziad K Abdelnour

Ziad is also the author of the best selling book� Economic Warfare: Secrets of Wealth Creation in the Age of Welfare Politics (Wiley, 2011),

Mr. Ziad Abdelnour continues to be featured in hundreds of media channels and publications every year and is widely seen as one of the top business leaders by millions around the world.

He was also featured as one of the� 500 Most Influential CEOs in the World.