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Focused Stock Trader

February 24, 2016

Hillary or Trump - who’d be best for Wall Street?
Traders clearly have a favorite. Don’t be so sure they are right.

Donald Trump is a billionaire, who made his money the old fashioned way – he inherited it and built his nest egg into a far bigger one. With those kinds of credentials, you’d think that “The Donald” would the kind of candidate that traders, Wall Street and corporate America would dream of.

Particularly if he were running against Hillary “It takes a village,” Clinton, the current Democratic front runner, who has been taking increasingly progressive positions to counter the Bernie Sanders insurgency.

Trump and the 1970s union boss?
However even a cursory glance at Trump’s positions, suggests that he is far from a free market capitalist. In fact on a wide range of issues, Trump’s positions are more of the sort that would be applauded by those big union bosses of the 1970s.

The Donald’s anti-immigration policies for example don’t just extend to expelling undocumented workers and building a wall alongside the Mexican border. He has also come out against H1-B visas, which enable US businesses to bring in highly-skilled foreign workers. That is a position which horrifies Silicon Valley, which relies heavily on cutting edge talent to keep its lead against ruthless global competition.

Trump’s attacks on “bad” trade deals - which use much of the same rhetoric that union bosses did when they attacked NAFTA in the 1980s - are also highly problematic. That’s particularly true of his rhetoric on China, and its huge trade surpluses with the United States.

Cutting US firms out of key global supply chains, by implementing tariffs on countries like China and Mexico (to pay for the wall that he hopes to build) risks putting them at a huge competitive disadvantage in global markets. It also brings back uncomfortable memories of the Smoot-Hawley tariffs which were enacted in 1930, in response to a similar crisis in the US economy. Those measures, which quickly invited retaliation from other countries, helped turn what could have been a manageable downturn, into a global Great Depression.

None of this implies that Trump will implement the policies he is preaching. The Donald is a canny politician, businessman and, most importantly: a dealmaker. His best-selling book – The Art of the Deal – suggests that if he reaches office, Trump will likely be open to compromise on a wide variety of issues. Americans had better hope so. Because on paper, his platform provides considerable cause for concern.

Hillary, Goldman and Sachs
Hillary Clinton is, in some ways, Trump’s opposite: on paper she looks terrible for Wall Street. In practice though, she is likely to be willing to play ball. Recent revelations about her ties with Goldman Sachs, and her refusal to release the contents of several highly paid speeches she gave to the Wall Street bank’s executives are just the tip of the iceberg.

True, Clinton’s electoral platform calls for a variety of “get-tough” actions on Wall Street and corporate America. These range from “risk fees” on large financial institutions, to a tax on high frequency trading and the closing of the “Volker Rule,” loophole that enables banks to make risky trading bets through their hedge fund subsidiaries.

However, for insight into a possible Hillary Clinton presidency, traders would be better off looking at her husband Bill Clinton’s performance in office, than they would studying the Obama administration’s record, which most find disappointing.

Bill Clinton, who would almost certainly be Hillary’s most important advisor, was an avid free trader. His administration’s repeal of the Glass-Steagall Act, which separated private banking from investment banking paved the way for massive Wall Street expansion. His re-nomination of Alan Greenspan as Chairman of the Federal Reserve, paved the way for a multi-year credit, business investment and housing sector growth. Whether similar business friendly policies would continue in a Hillary administration is far from certain. But the signs are good, that she would, like her husband, combine tough talk, with a pragmatic attitude.

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In short, it is far from clear at this point, which of the two main party front runners will be better for Wall Street and corporate America. Much depends on the pressures they will face on their respective campaigns.

That’s why traders, like the American public, will be watching this election closer than they have any other in more than a generation.

Peter (at) peterdiekmeyer (dot) com

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peter@peterdiekmeyer.com

Peter Diekmeyer Communications Inc.