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U.S. Election: Power and the Portfolio

In a special edition of Mackenzie Minute, Chief Investment Officer Tony Elavia says he expects Donald Trump to govern as a capitalist and populist.

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Clearly, a victory was not baked in for Donald Trump in terms of expectations within the markets.  So, we are going to see some moments in the markets.  It is highly likely that Donald Trump, as President, will be very different from Donald Trump, the candidate.  It is important when one thinks about the impact of a Trump presidency to divorce one's feelings about him regarding his social policies from his likely economic policies. 

The perspective I would like to share is that Trump is likely to govern as a capitalist with strong populist tendencies.  So it is up to us to figure out how much capitalism is going to be there.  Where is it going to be?  And, what are the populist constraints on that kind of capitalism?  That's the way to think about it.  And, when you put it in that perspective, it is more likely than not that the U.S. economy will benefit from many of the changes in regulations, rules and the new policies that a Trump administration is likely to enact compared to a Clinton administration.

One can organize our thinking about the potential impact of a Trump presidency and administration in six different areas for the U.S. economy and, therefore, its effect on the rest of the world.  In no particular order, I would list them as follows:

First, infrastructure.  And all these have been stated by Trump many, many times.  So, we have a good track record of him saying these things. 

Infrastructure spending is likely to benefit substantially when we increase our building of new bridges, roads and other infrastructure facilities and that bodes very well for the employment of blue-collar workers in the United States.

Obamacare is likely to be changed substantially or replaced by something else.  But, the key elements of it will be to use a market-based insurance system.  And, whenever somebody cannot pay that insurance, the government will step in, and that will be the populist piece, and pay for their insurance.  So, use the market system but with populist support.

Resources in the oil market are likely to benefit significantly because Trump is likely to roll back the regulations against fossil fuels that the Obama administration has enacted over the last eight years. 

In general, there will be a rollback in all the regulations that were enacted by the stroke of a presidential pen by Obama in the last eight years.  And none of these things require Senate or congressional consent and, therefore, he's likely to roll them back.

Trade, which has been the subject of a lot of discussions about a Trump presidency.  I think the effect over there is going to be far more muted than what has been thought about.  It is very very unlikely that he will enact trade barriers across all countries like we did in the ‘20s under Smoot-Hawley.  What is more likely is that Trump will try and exact some kind of a payoff or payback from China and Mexico, the two countries he's always cited.  And, the fact is that trade, in general, should flourish, not go down significantly.

And finally, the financial sector is likely to benefit because of a dismantling or a significant rollback of the Dodd-Frank regulations. 

Commercial banks are likely to be affected in a negative way because of the rollback of the connection between investment banking and commercial banking.  It is likely that he’ll bring back elements of Glass-Steagall over there.  In general, the financial sector should benefit.

Canada is the largest trading partner of the United States and Donald Trump, not once, has said anything negative about Canada.  So, it is highly highly unlikely that any regulations that are enacted specifically target Canada.

I believe that as the U.S. economy's growth increases with a Trump presidency, it will benefit Canada and Canada's equity markets because we will move in tandem with the U.S.