How Automation is Driving Efficiency Through the Last Mile of Reporting
The Trump Era, Implications for Investors
1. 1
The Trump Era Arrives-What Are the Implications for Investors?
The surprise election (to many) of Donald Trump as US president has shaken markets because investors are
uncertain of his administration’s policies and how they might affect them. Markets had mostly priced in the
election of his Democratic opponent with economic policies that were broadly a continuation of previous
policies.
If the Trump administration’s policies result in protectionism, continued slow growth, higher US government
debt, higher inflation and rising bond yields then the impact of his administration’s economic policies will
probably be a negative for investors. However, if the new administration’s policies help create stronger US
growth, rising aggregate demand, moderate inflation and better terms of global trade for the US then it is likely
to be positive for investors. While it is too soon to arrive at conclusions useful in making major investment
decisions, we looked at historic asset class performance by decade and combined those returns into a balanced
portfolio composed of 50% stocks, 40% government bonds and 10% US Treasury bills. First, we review the major
macro-economic themes of the past 9 decades:
1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s 2010s
Great
Depression.
Protectionist
Period
WWII-Wage
& Price
Controls
Post War
Recovery.
Marshall
Plan
Stimulus
Post War
Boom.
Rising
productivity
Post Gold
Standard
Inflation.
Wage &
Price
Controls
Volker
Inflation
Fight. Japan
is the
“China” of
the Decade.
Reagan Era
The Great
Moderation.
Globalization
Period.
China Opens
Its Economy
Tech and
Housing
Bubbles
Collapse.
Global
Financial
Crisis
Post
Global
Financial
Crisis
Recovery
Next, we show how major asset classes performed in those environments. As a mental exercise we ask ourselves
which of these periods might the next four-to-eight years look most like?
Nominal Returns by Asset Class Each Decade
1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s 2010s Average
US Stocks -2% 8% 19% 8% 6% 16% 18% 0% 13% 9%
US Government Bonds 4% 2% 1% 2% 5% 11% 6% 5% 3% 4%
Commodities -2% 8% 2% 4% 21% 10% 4% 6% -10% 5%
US Treasury Bills 1% 0% 2% 4% 6% 9% 5% 3% 0% 3%
US CPI -2% 5% 2% 3% 7% 5% 3% 3% 2% 3%
50/40/10 Allocation 1% 5% 10% 5% 6% 13% 12% 2% 7% 7%
Data sources: Bridgewater Associates and Morningstar/Ibbotson SBBI data. 2010s period is 2010 to the end of 2015.
Since policy decisions can impact investing environments for many years after their adoption, gaining an
understanding of what the new administration’s policies might be and assessing their potential impact are useful
steps before making major investment changes. At this point we believe there may be significant policy changes
from those of the past 25 years given what the president-elect had promised during his campaign. The specifics
of those policies are mostly unknown right now so we are limited in working this exercise.
We use the matrix on page two in making tactical allocation decisions in our global asset allocation strategies
based on starting valuations and our expectations for economic growth and inflation over a one-to-three year