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BUSINESS GUARDIAN guardian.co.tt JANUARY 5 • 2017
Audacious hope---a 2017 preview
Outgoing US President Bar-
rack Obama in 2006, wrote
the book, The Audacity of
Hope: Thoughts on Reclaim-
ing the American Dream.
This month will see Donald
Trump assume the Presidency of the United
States of America based on an election cam-
paign slogan "Make America Great Again"
The ideals are similar, one admittedly more
eloquently promoted than the other but the
defining moment of 2017 is no doubt going to
be the transition of eight years under Obama
to President-elect Trump.
More than the nuance of the respective ide-
als the transition that will define 2017 is the
process by and through which Trump will seek
to achieve his objectives.
Certainly the US stock markets have been
audacious in its optimism about what a Trump
Presidency will mean for the US economy and
by extension US stocks. Increased infrastruc-
ture spending, tax reform and reduced regu-
lation have been the mantra of those who are
predicting that 2017 will be a good year for
That it not to say that the US stock market
did not perform well under the outgoing pres-
ident. The market, in fact, more than tripled
from the 2009 post financial crisis lows. Yet,
some of those returns can be attributed to fi-
nancial engineering as a result of low interest
rates, than to actual business fundamentals
that result in top line growth and business
According to the Wall Street Journal from
January 2009 to September 2016 companies
that make up the S&P 500 collectively spent
US$3.24 trillion on stock buybacks. Appreciate
that when a company buys back its stock there
are less shares available in the market so even
if earnings remain flat the reduced number of
shares means that the earnings per share is
higher and so the price of the stock is likely to
increase all other things being equal.
The stock market euphoria post the US pres-
idential election that is likely to spill over into
2017 is based on the hope that US economic
growth will pick up resulting in more robust
growth in gross domestic product, a bit more
inflation which should spur business activity
and an overall feel good factor that comes with
"Making America Great Again".
This article is not about making predictions
for 2017 as the reality is that most predictions
turn out to be wrong. Instead it is better to first
of all acknowledge the policy position that is
likely in 2017 in the US as the worlds leading
economy. The next step is to understand the
cross currents and headwinds and how it may
likely affect the global economy and eventually
filter down to us in T&T.
The Central Banks of the world have been
crying out for fiscal stimulus to match mon-
etary stimulus. In 2016 cumulative liquidity
injections by Central Banks around the world
amounted to US$15 trillion.
It seems that under a Trump presidency
fiscal stimulus will attempt to take the man-
tle from monetary stimulus. The challenge of
course is to embark on fiscal stimulus in an
already highly leveraged economy. The hope
is that deregulation and a lower tax rate will
spur capital spending thus removing some of
the burden from Government. That is not very
different from the call in T&T towards public
private partnerships and the tax concessions
on offer in the 2017 Budget for businesses that
undertake such partnerships with the State.
There is, however, the distinct possibility
that absence a pick up in demand, capital ex-
penditure will remain muted and the benefits
provided to corporations will simply go the
way of further financial re-engineering to
boost shareholder returns. Of course, this is
not a bad thing for stocks in the short term,
specifically 2017, but there will be longer term
Even if it goes according to plan increased
demand should result in increased inflationary
pressures. From all indications we have passed
the interest rate lows for the time being and
so a faster growing economy with a margin-
al pick up in inflation will see the US Federal
Reserve raise rates during the course of 2017.
This could likely have a knock on effect for
TT interest rates.
It is also going to cause the US dollar to
strengthen further, especially against the euro
and the pound as these currencies are faced
with structural economic challenges top of the
list being the future of the Eurozone.
The US dollar has appreciated by more than
35 per cent against the basket of major cur-
rencies since July 2011.
Further appreciation will cause challenges
both in the US and globally.
A stronger US dollar will make imports into
the US cheaper but will go against "Buy Amer-
ica" mantra of the incoming President. The
greater impact will be on emerging markets
especially those that have US dollar denomi-
nated debts. The other issue with a strong US
dollar is the impact on US overseas corporate
earnings. We saw how this impacted the stock
market early in 2016 and if the US dollar were
to rally further then it could pose a headwind
A strong US dollar also impacts the price
of commodities especially oil. The dollar ral-
ly coincided with multi decade oil price lows
and recent consolidation in the US dollar index
provided space for oil prices to go higher. This
dynamic is crucial to T&T in 2017 and requires
Yet the biggest issue of 2017 is the likelihood
of an increase in the worldwide trend from glo-
balism to nationalism and from multilateralism
Against this we must juxtapose the fact that
you cannot over the long term force business
to engage in an environment that they do not
consider to be the most profitable to operate.
Outsourcing and automation has taken place
for a reason.
So to the extent that tariffs, barriers and
isolationist policies become the tool through
which outsourced jobs are returned to the US
then ultimately those gains will be short lived.
Also such moves are likely to increase geopolit-
ical tensions further. We are already seeing an
escalation between the US and China, the US
and Russia, the US and Israel and the US and
the UN. Not all of it is Trump related of course
but how it unfolds in 2017 is the key question.
Trump has promised to declare China a cur-
rency manipulator on his first day in office. We
are likely to see closer ties between the US and
Japan which could further antagonize relations
between China and Japan. The world needs its
two largest economies to work together but this
will require mutual respect and a ratcheting
down of the rhetoric.
While 2017 brings with it much uncertainty
on a cyclical level we must also acknowledge
that a lot of the policy initiatives carded for
2017 will be a push back against secular trends.
Ageing demographics in the Western World and
automation will see labour force participation
rates continue to fall. In many respects this will
result in lower levels of demand and falling
wages. It is these trends that have resulted in
the populist and nationalistic movements that
has given rise to Brexit and a Donald Trump
If the push back against these long term
secular trends are not successful in the short
term then a greater level of disillusionment will
come forward and populist and nationalistic
movements will intensify further. The danger
is a slow train wreck towards a 1930s -1940s
type of scenario.
Viewed from any angle 2017 is going to be a
pivotal year. Both locally and internationally
it is the year when changes demanded in 2015
and 2016 are expected to bear fruit. The policy
initiatives in 2017 are expected to use up sig-
nificant "dry powder" and if these initiatives
are not successful then 2018 to 2020 will be
very challenging indeed.
This is, in fact, the most important consid-
eration for the local economy. Our debt burden
and levels of foreign exchange reserves are like-
ly to materially different at the end of 2017 than
it is at the start. Also we are expected to draw
down on our Heritage and Stabilisation Fund.
It is therefore imperative that the initiatives
for 2017 become a catalyst for growth that can
allow us to replenish our savings buffers over
the medium term.
It may be quite audacious to hope for the
successful implementation of policy initiatives
both on an international and local scale. How-
ever if we don't get it right in 2017 the world
may become a far less comfortable place to
live in from 2018 and beyond.
Happy New Year 2017!
Ian Narine can be contacted via email at ian.
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