COMMENT: While the below may first appear as critical of a Trump administration, I really want to be helpful. Unlike Republicans who in 2008 wanted Obama to be unsuccessful, I want President Trump to be successful. That means pointing out flaws of his policy that can be deemed destructive. It is the same with my comments about the SEC and FINRA. I never met a person that works for these two agencies that I didn’t like. To me, this is just a matter of good people making bad decisions. To turn around BIG bank’s control of the brokerage industry is still possible. Small businesses under a President Trump administration may thrive. I hope so. However, the appointment of Steve Bannon as President Trump’s Chief White House strategist and senior counselor deserves to be criticized. He has worked as the executive chairman of a Breitbart News Network, an alt-right ideology that promotes white supremacy, opposes immigration, feminine and multiculturalism, is anti-Semitic and considers Muslims as a danger to our democracy. Following are an example of two of their headlines “Birth control makes women unattractive and crazy” “Hoist it high and proud the Confederate flag proclaims a glorious heritage.” In two months, this toxic ideology will be sitting down the hall from the Oval Office.

With the election of Donald Trump and the control of the Republican Party of both houses of Congress and eventually the Supreme Court, a radical reshaping of America is underway. Although President-elect Trump has yet to provide any specifics, outlined below are the repercussions of what he called for his campaign. In my opinion, if he follows through on his promises, there will be a further shift of wealth to the upper-class, higher prices on imported goods, higher interest rates  a substantial increase in inflation, international uncertainty, the freedom of the banks and Wall Street to create another banking crisis and increased economic weather related disasters . These policies will leave the middle and working class Americans further behind. The irony of a Trump victory is that they will wind up less well off. These policies will hurt the exact constituency of blue-collar workers that elected him

In my opinion, it appears that this vote was a backlash of white voters (a white backlash) and a last gasp effort to bring the nation back to a time before globalization and diversity. It was a vote against women seeking power and against those different from themselves. It was a vote by rural white people against multicultural city people. It was a rejection of a multicultural society and blaming it for taking jobs away from them. In particular previously privileged white voters want to bring back a time when they were guaranteed a union job at $35 an hour. These times are gone forever and now these previously privileged white voters must struggle up the ladder along with women, blacks, gays, immigrants and Mexicans. Solutions are complicated. However, the public is looking for simple and quick answers. There are no simple and quick solutions. As indicated below, a Trump presidency based on his current policy and temperament will lead to an economic collapse worse than the Bush 2008 economic collapse as follows:

Trade Policy: President elect Trump has promised an immediate attack on all trade deals and the cancellation of all presidential orders accomplished by President Obama. The president has significant authority to act unilaterally in this area. He said would put a 35% tariff on imports from Mexico at a 45% tariff on those from China. These were the kind of trade restrictions that caused the 1930’s depression. International trade is already slowing and tariffs will slow growth further, in an effort to protect blue-collar manufacturing workers. The tariffs would raise the prices of imported goods sharply and cut sharply purchasing power of every American including lower income Americans, Trump’s core supporters. In reaction to this Mexican peso plunged more than 13%. The Chinese currency has dropped to its lowest level in eighty years. The tariffs could toss China into a recession where growth is already slowing and China’s banks have given loans to questionable companies. In China, $1.3 trillion of corporate loans are owned by companies were profits will not cover their interest payments. The problem in China could trigger banks losses that could start a worldwide recession. Money is flowing out of China. Tariffs will increase the problem. While some manufacturing jobs may come back to the US as a result of the tariffs, more jobs domestically may be lost, because the average American would have less spending power. The Peterson Institute for International Economics estimated that rather than bringing back jobs, Mister Trumps, tariffs could ‘result in a trade war and cost our economy more than 5 million jobs and possibly lead to a recession’.

Tax Cuts: The centerpiece of Mister Trump’s plan to revitalize the economy is a huge $5.8 trillion tax cut. As of yet, the tax cut is unaccompanied by specifically cutting other expenses that would pay for it. Actually, President-elect has proposed more spending on defense and infrastructure. Once again the only expenses that can be cut or social and educational programs that would have helped the constituency that voted for him. It has been estimated that this would cause a $10 trillion budget deficit ballooning out of control, creating runaway inflation and possibly raising interest rates to levels not seen since the 1970s. This alone would cause an economic disaster. According to the Tax Policy Center, 61% of the tax cut benefits would go to the top 1%, who least need it and would be least likely to spend it.

Regulations: Mister Trump also has a free hand to act unilaterally to declare a moratorium on new rules and reverse many executive orders. He will have a free hand to let industrial companies reduce or eliminate the Environmental Protection Agency and for financial institutions to repeal the Dodd Frank bill. The elimination of Dodd Frank will give the banks enough rope to hang themselves once again, as they did in 2008. At a recent speech at the Economics Club of New York, Neel Kashkari, (Minneapolis Fed chief) suggests a break up the big banks needs to be done through  stricter Dodd-Frank regulations to avoid, “another financial calamity outweighing the costs of increased regulation.” The Republican party platform calls for restoring the Glass Stegall act.   Maybe there is hope? Nah! Don’t’ forget the classic THIS TIME ITS DIFFERENT by Carmen Reinhart: It tells the story of eight centuries of Financial Folly. Each time after a catastrophe, such as the Great Depression or 2008, economists agree that it could never happen again. Who could be so stupid to allow the banks to own $500 trillion in derivatives, let six banks control 70% of the US assets (too big to fail) and allow all the economic growth to go to the 1%, while eighty people own 50% of the world’s wealth?   As reported by Reuters News, a judge recently refused to throw out a private lawsuit accusing the 14 banks of rigging an interest rate benchmark (ISDAfix) used in the $553 trillion derivatives markets. That’s right; I said the $553 trillion derivative markets. That dwarfs the problem of derivatives 2008, which almost brought the banks and our economic system to their demise.

Immigration:  Mister Trump started his campaign with the promise to build a wall on the Mexican border and deport some 11 million undocumented Mexican aliens. The conservative, American Action Forum calculated the building of the wall and the cost to deporting the illegal immigrants would be from $400-$600 billion and would reduce the gross domestic product by $1.6 trillion. Mister Trump has since backed off on the 11 million and said he would start with 3 million who have broken the law. Many of these illegal immigrants have legalized children that were born in the United States. In addition most of the undocumented workers are doing jobs that many native born Americans won’t do and are paying taxes. See the movie ‘A Day Without Mexicans.’ Because, this will break up families and bring chaos to the workforce, expect demonstrations in sanctuary cities and maybe even riots.

The Environment:  Since President Nixon, voters have taken for granted clean air and clean water. What happened in Flint Michigan can happen anywhere. In addition, Republicans refuse to recognize the science of global warming. They continue to call it climate change. This unrealistic view of science will apparently be the mode of operation in the new administration. Although I’m enjoying a 70° temperature in Chicago this November, a majority of scientists, acknowledge that without environmental controls, global warming will increase weather-related disasters, putting our coastal cities in harm’s way. The new appointees in this area are backed by the oil industry. The oil industry will be in control for at least another four years. Expect the Keystone pipeline to be approved and for our cars and trucks to get bigger. Alert America! Germany just announced that it will stop producing the combustion engine for all of his automobiles in 13 years. We are going to be left behind in a world of an oil based economy, unless this administration acknowledges global warming and energy alternatives.

Health Care:  Mister Trump has said that he will eliminate The Affordable Care Act, ending free or subsidized coverage that cover 20 million Americans that are now receiving it. He has since backed off a little, and said he would continue to recommend that children will continue on their parent’s health care until they are 26 and that pre-existing conditions will continue not to be a factor in pricing of health insurance. However, there has not been a comprehensive plan proposed to assist with 20 million Americans that will not have health insurance and facing higher costs and loss of coverage. (OR the other 40 million Americans and their children without heath care insurance).BIG Pharmaceuticals and BIG Insurances companies are the winners here, once again, not the Trump’s constituency. As Bernie Sanders says,’ there’s no reason that we are the only industrialized nation that does not offer free healthcare to our citizens.’ There’s a reason now, it’s called President Trump.

Foreign Policy:  This is an area that I will hold judgment on for a while. Mister Trump has had no experience in foreign policy. You could tell by his briefing with President Obama that the responsibility of the job may be more than he thought. If anything, Trump exemplifies a strong leader. My problem is with his personality is, that he reportedly has a short attention span and has no experience in dealing diplomatically on a worldwide basis. Maybe his tough stance will eliminate problems in the Middle East. However, problems in the Middle East have been going on for 2000 years. Nobody’s been able to solve those problems yet and I doubt if an inexperienced president will be able to do so. He will have his hand on the nuclear button. I hope he handles it better than with his hand on twitter. We are all in danger in a world awash in nuclear weapons.

Income Equality: My fear is that, now with a Trump presidency, Big Corporations and the top 1%, will increasingly dominate the our economy that will leave individuals, small businesses and the investing public very vulnerable. The general public has become so weakened and disillusioned, that it is powerless to stop this crisis from progressing.  This is similar to what happened to democracy in Russia.  In my opinion, both Trump and Putin have tendencies that are vindictive and are not tolerable of criticism and have no answers for solving economic problems. The way things are going, Billionaires will become Trillionaries and an oligarchy of 400 families will control 90% of the wealth in the world.

In a recent (Oct 22, 2016) Economist Magazine they describe Putin’s domestic policy to reduce competition to favor his oligarchs. They describe a system he developed which Kirll Rogov, a Russian political economist describes as “soft legal constraints.” To quote from the Economist Magazine, “It involves writing the rules in such a way that to observe them is either prohibitively expensive or downright impossible to follow, then handing out licenses to break those rules to the oligarchy.” Doesn’t this sound exactly like what has happened in our financial industry? The SEC and FINRA have made the rules (compliance) to run an independent brokerage firm as either prohibitively expensive or downright impossible to follow. In this way, the government has eliminated independent competition and has turned over the entire financial industry to the banks and large financial institutions. They allow these companies to break the rules for the cost of a small fine, as compared to the large profit that they made in breaking the rules. In this way the large financial institutions feed the SEC, that guards their monopoly.  In my opinion, with the Republicans, functioning without restraints, the United States will continue to look more and more like Putin’s Russia and its economy, dominated by the privileged few 400 families (top tenth of 1%).

We the People   hold these truths to be self-evident, that all men are created equal, that they are endowed, by their Creator, with certain unalienable Rights, that among these are Life, Liberty, and the pursuit of Happiness. Is a progressive compassionate America still possible? The answer I think is yes.  In the darkest hours of the civil rights movement they sang ‘We shall overcome’ and Martin Luther King said we shall persevere if we express 1) courage, 2) compassion and 3) community. Listen to the words of Nobel Prize winner Bob Dylan that were written in those dark days.

“For the loser now will be later to win
Cause the times they are a-changing

Come senators, congressmen
Please heed the call
Don’t stand in the doorway
Don’t block up the hall
For he that gets hurt
Will be he who has stalled
There’s the battle outside raging
It’ll soon shake your windows and rattle your walls
For the times they are a-changing

Come mothers and fathers
Throughout the land
And don’t criticize
What you can’t understand
Your sons and your daughters
Are beyond your command
Your old road is rapidly aging
Please get out of the new one if you can’t lend your hand
Cause the times they are a-changing

The line it is drawn
The curse it is cast
The slowest now
Will later be fast
As the present now
Will later be past
The order is rapidly fading
And the first one now will later be last
Cause the times they are a-changing”


Carl does not offer investment advice, but merely his own personal opinion. This report has been prepared from original sources and data we believe reliable but make no representations as to the accuracy or completeness. Carl, his affiliates and subsidiaries and/or their officers and employees may from time to time acquire, hold or sell a position in securities. Past performance is no guarantee of future success. Upon request, we will supply additional information.