The election of Donald Trump surprised markets as his policies are uncertain. If his policies result in protectionism, high debt, and slow growth, it could negatively impact investors. However, if his policies boost growth, demand, and trade, it could positively impact investors. The document reviews past decades to understand which Trump's term may resemble in order to guide investment decisions. It remains unclear how his specific policies may impact the economy and markets in the coming years.

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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

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tactical investment horizon. These tactical preferences are the ones most likely to be affected by changes in
policy from the new administration:
Expectation Economic Growth Inflation
Rising
Equities
Real estate
Credits including high yield and emerging
markets
Commodities
Equities
Inflation linked bonds
Commodities
Real estate
US Treasury bills
Falling
US Treasury bonds
US Treasury bills
Nominal bonds
US Treasury bills and bonds
Equities
Our current three-to-five year outlook is for slow global economic growth with modest inflation caused by
excessive debt. We don’t see debt levels falling given president-elect Trump’s campaign promises, a lack of faith
in his administration actually delivering promised 4% economic growth and unfavorable demographic trends
which affect the entire developed world. Failing to address public debt could offset much of his administration’s
economic growth plans. If interest rates should rise, servicing the debt will consume more of the Federal budget
or add to the debt burden and slow growth further. The economic impact of promised tax cuts, infrastructure
investment and greater defense spending are longer-term in nature and could be offset by the negative effects
of rising debt in a highly indebted economy. Any credible economic policy has to address debt reduction and
budget deficits based on realistic assumptions of potential growth. Over the next several quarters we will re-visit
our outlook using scenario analysis to help us decide on any tactical allocation changes. Our strategic allocations
are determined by our views on asset class return premia in excess of a risk free asset like a treasury bill over
our strategic investment horizon.
Economists Carmen Reinhart and Ken Rogoff conducted research into the history of financial crises and their
impact on the economies in which they occurred. They noted that, on average, it took an economy about 8.3
years from crisis peak to recovery with many of the 100 worst crises they studied taking 20 years or more to
recover. We are now about 8 years from the worst of the 2008-2009 financial crisis. Perhaps we are right on
schedule in our recovery and the new administration’s policies will be the right ones but we don’t yet know
enough about them. The Trump administration has our best wishes in getting its policies right.
Contact me at gjohnsen@eastgateadv.com with comments or questions.
Greg Johnsen, CFA
References
Reinhart, C and Rogoff, K. 2014. “Recovery from Financial Crises: Evidence from 100 Episodes”, American Economic Review:
Papers & Proceedings 2014, 104(5) pages 50-55.
Reinhart, C and Rogoff, K. 2009. “This Time is Different, Eight Centuries of Financial Folly”, 2009. Princeton University Press,
Princeton, NJ.
© Eastgate Advisors, llc. 2016