US: Unpredictable nature of the new President - BBH

According to the analysts at BBH, the developments over the last few days, including the strident tones of the inauguration speech, may be a small hint to investors of the unpredictable nature of the new US President.  

Key Quotes

“The unorthodox style and rhetoric should not distract from the necessary focus on policy.  Ultimately, public policies and private sector behavior, not speeches or wishes, drive interest rates, equities, and currencies.”

“Investors will have to get accustomed to the new Administration's way of conducting itself and communicating.  With broad strokes, and recognizing some contradictory impulses, at this juncture we suggest four main elements of Trump's economic policy.”

“The first is re-writing trade deals.  This is a central plank.  It is one of the key elements of Trump's foreign policy and job creation plans.  The potential of TPP being re-purposed as a bilateral free-trade agreement between the US and Japan remains possible but unlikely.”

“The priority appears to be to re-negotiate NAFTA.  Few people are opposed to reviewing old agreements.  No doubt it can be updated; it is 23 years old.  Intellectual property rights have evolved, the Internet not only exists but is an important distribution channel for goods, services, and information, there are new tax and accounting rules, and the like.  While modernizing old agreement is one thing, changing the essential thrust (reduced barriers to trade in the North American continent) is quite a different thing.  It is not clear to many whether Trump's rhetoric is part of the "Art of the Deal," or whether it is a principled position.”  

“Second, the White House says it wants the US to create 2.5 mln new jobs over the next decade.  Over the last five years, the US created an average of 197k net new jobs a month.  The five-year monthly average has rarely been over a 200k.  Although during the campaign there was talk of achieving 5%-6% growth, the White House now says 4%, while Mnuchin said 3%-4% in his confirmation hearings.”

“Third, tax code reform appears high on the priority list.  The new Administration wants to cut corporate taxes, simplify the code and reduce income taxes.  Although there was some talk of reducing the tax rate on all income brackets, Mnuchin seemed to rule out tax cuts for wealthy households.”

“The fourth plank is the $1 trillion infrastructure initiative.  It is important for jobs and growth, though apparently not cited on the new White House website.  President Trump did include it in his inauguration speech.”