The stock market was supposed to have a major beef with Donald Trump’s election.
Now that Mr. Trump is the president-elect, everyone’s asking “Where’s the beef?”
That famous quip comes from a 1984 Wendy’s commercial assailing claims that Big Macs and Whoppers had meatier patties. That same year, Walter Mondale used it to mock Gary Hart’s proposed agenda, and later used it against Ronald Reagan, who eventually won a second term.
The answer today, as far as stocks are concerned, is there looks to be a lot of red meat in the economic future president-elect Trump’s proposing.
And as U.S. investors start to get it, they’re rotating into select stocks instead of shedding positions as everyone expected.
It’s too early to tell what investors are or aren’t going to fully embrace, since we don’t know who president-elect Trump will surround himself with and what exactly his agenda will be.
But that doesn’t mean investors should stand by with their wait-and-see glasses on.
There’s one opportunity in our future that’s a no-brainer – because it’s the central pillar of Donald Trump’s economic plan.
I’m talking about infrastructure. That’s what investors should be keying in on right away.
America’s infrastructure is in deplorable condition. Politicians have wasted all the resources at their disposal for decades and have not attended to modernizing infrastructure since the late 1960s.
That’s going to change under President Trump, and you can take that to the bank.
It’s simple, really. It’s not just not about modernizing airports and highways and bridges and ports and schools and everything else that needs rebuilding. It’s about everything that rebuilding our infrastructure has to start with, what it produces, and how it all benefits America’s economy that matters.
We already know the Federal Reserve’s economic health prescriptions have done everything for the benefit of the big banks they set out to save and make profitable again and almost nothing in trickle-down terms for America’s hollowed-out middle class and the country’s underserved lower socio-economic classes.
With the Fed out of effective ammo, fiscal stimulus is going to be the new gunpowder.
Investors – worried that fiscal spending, amounting to hundreds of billions of dollars, if not a trillion dollars – are understandably nervous about infrastructure spending pushing interest rates higher, raising deficits, and busting budgets.
Actually, none that has to happen. In fact, there’s a lot of good that Mr. Trump’s team can effect on all those fronts.
How We’ll Build Economic Growth
First of all, spending on infrastructure can be meaningfully funded by some of the two trillion dollars of corporate cash nesting overseas being repatriated at a discounted tax rate of 10%-15%, and setting that tax windfall aside into an infrastructure pool.
Second, proposed corporate tax cuts from 35% down to 15% can and should be phased in, while at the same time eliminating tax deductions and adding the additional taxes collected resulting from reduced deductions to the infrastructure pool.
In effect, corporate taxes would be lowered but the net effect of corporations losing deductions at the same time would result in a slower reduction of net taxation, which is where some more infrastructure money should come from.
Additionally, increased investment spending on the part of corporations knowing their net tax rates will fall over a phase-in period (let’s say over four years), will help stimulate economic growth.
Third, interest rates rising isn’t a bad thing.
The Fed’s been so worried about deflation that it’s been pouring money into banks. That’s why rates haven’t been rising. The perception that fiscal spending will put upward pressure on interest rates is correct. What the Fed doesn’t get, frighteningly, is that rising rates create inflation, allowing us to reach the 2% inflation prescription the Fed’s been dangling in front of us all along.
Deficits don’t have to rise and budgets don’t have to blow up. Though they may for a year or two, they will quickly be brought down by the economic growth. Putting so many people back to work in good paying jobs, especially the army of workers looking for jobs with benefits to lift them out of poverty, will ease the burden of our growing social safety net costs, and help balance budgets and eventually lower the deficit.
Infrastructure spending, done right, could be the panacea that cures many of America’s economic and social stratification ills and lifts all boats in its rising tide.
That’s what the market’s looking at today.
On Friday, I’ll tell you which infrastructure plays to get into now and which ones to wait a while to pounce on.