Wednesday, December 28, 2016

Post-Election Predictions

Trigger warning: some of the below predicts that "Trump will be bad differently than you expect" or "Trump will be bad in some ways that we prefer not to acknowledge Obama was bad."

A little late to market here, but I wanted to get some predictions of what the Trump presidency might bring before the end of the year.
  1. The market for individual health insurance will sputter over the next two years.  [Of course, that was true to some degree no matter who won the election.  Insurance companies largely have not been able to turn a profit on the Obamacare exchanges, and the expiration of the reinsurance and risk corridor programs was always going to lead to a larger price hike in 2017.]
  2. Trump will deport fewer people in his first term than President Obama did in his first.
  3. Fewer Americans will be targeted and assassinated by drone strike under Trump's first term than under Obama's.
  4. The media will continue to focus on Trump's personality and antics, but there will be even more focus on the personality and antics of Trump advisers. 
  5. There will be a recession in the next four years.  [If we avoid a recession in the next four years, then the 2009 - 2020 expansion would be the longest expansion of the post-war era.  My current guess is a strong dollar triggers financial distress among foreign issuers of dollar-denominated corporate debt, but who knows for sure?]
  6. The Fed will lose some independence.  [Consider this: the FOMC has already raised the target rate as many times since Trump was elected as it did for the entire eight-year period of November 2008 to November 2016.  Obviously that's a spurious correlation, but you try coming up with an equally simple statement rebutting the notion the Fed may be playing favorites.  I'm pessimistic here because the easy evidence will lend itself to Trump supporters' biases.]
  7. No one will say that the Fed has lost some independence.  [Instead, the Fed will sacrifice a little this time around to this president to sidestep outright politicization.  We'll widen our confidence intervals for rate changes with a bias towards undershooting.  Rates will go up, but they will come in on the low end of the newly widened expected ranges.   Herculean efforts will be made to justify the undershooting as really quite intellectually sound, and not at all affected by Trumpian bluster.  A few people will note we've seen this movie before.]

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