There are cons to business from the new president-elect, too.
From the very beginning of Donald Trump's upset victory, there has been a presumption that stocks are going to do better under his regime then they have before.
I still think that is true.
Remember there are three issues that Wall Street is thrilled about.
First: Repatriation of capital at a low tax rate, something that we all pretty much agree can be done, given that both houses of Congress and the White House agree it should happen. That's as much as several trillion dollars returning, which could be used to grow businesses, buy back stock or boost dividends. All of those options increase how much we are willing to pay for stock.
Second, Trump will attempt to lower the corporate tax rate. If we have lower corporate tax rates our companies will have, again, more spare cash to make the same kind of choices as I mentioned above.
Finally, he will do his best to cut back on regulations. He has various degrees of control over regulation. President Obama created a surprising array of regulations. They were edicts and they could be challenged in court, but most of what he wanted done by regulation succeeded and the regulations almost never benefitted business.
Obama created a penumbra that made those he appointed to agencies favor interests other than business's. I think by the end of his eight years, we pretty much expected that anything from the White House or the agencies staffed by it would not benefit shareholders.
As disadvantageous as Obama's rulings and the rulings of his appointees may have been for business, there had been a presumption that after this election there would be an even worse regimen, one where Hillary Clinton and the Senate would create a toxic atmosphere for a whole host of businesses. These are those that were regulated by the government, those that had to pay wages that Clinton would find too meager, and those that were, to some degree, on the federal dole, including health care.
Then comes the election and Wall Street cheers. Remember, though, Wall Street's a pretty broad rubric. You can hear cheering; just like you can hear cheering at a stadium. Consider the cheering the 12th man. The eleven on the field are about points. And if you ascribe all eleven both offense and defense as sectors, there were a ton of sectors that were immediately perceived to be more valuable than they were before the election.
Now we are beginning to think that perhaps some of the sectors that have been taken up need to be notched down by the new cons that are surfacing.
I think we can all agree that we are in stage two of the Trump love affair with business and it turns out that President-elect Trump is a little more tempestuous than we thought. The market's clearly not ready for this next round and, for a moment, we are pondering the ramifications of cons and recognize they could be a little bit bigger than we thought. They don't outweigh the big three pros, but the good news isn't going to happen overnight.
The cons are happening now. Plus, the cons are wicked and coming from nowhere and are so unexpected that they, along with some big shortfalls among companies' earnings -- more on those in a moment -- are leading to real doubts about how good Trump will be for the markets.
When United Technologies (UTX) caved to the president -- and it was a caving, as the incentives come nowhere near offsetting the savings that the move to Mexico would generate -- it had the air of being one-off in nature. Carrier hit the radar screen because of a Youtube video of a hapless exec informing the workers that one of the plants would be shut.
It seemed totally heartless and out of left field, even as it was long known that Carrier was going to offshore these jobs. It resonated with the president elect because, first, Indiana put Trump over the top for the nomination and then a second time because Indiana Governor Pence became the vice presidential nominee. In hindsight, United Technologies may have fallen prey to something pretty much every odds maker suggested would happen: that Hillary would win.
She didn't. Trump owed Indiana. Carrier had the misfortune to do its offshoring in the heart of Trump country.
Now, we know after this weekend that Rexnord (RXN) , another Indiana industrial planning to fire 300 people and move another plant to Mexico, has drawn Trump's wrath. We could split hairs and say little Rexnord wouldn't have caught the attention of Trump if it weren't for Governor Pence. Or we could say, hold it, this is serious, we have to start avoiding the stocks of industrials that want to shutter plants and move overseas.
You aren't going to see as much rationalization anymore. The repatriation, the lowered regulations and the tax cuts are still terrific, but now, with a second tweet, we begin to fear that Trump's not going to let go of this issue.
Judging by the call the president elect had with the president of Taiwan -- and the Trump tweets backing up the not-so-subtle direction of the call -- we now have to factor in that the trade war with China could be hotter than we think.
Did anyone believe that Trump taking this call was good for overseas business, including the billions done with the Peoples Republic of China? Or maybe it was the beginning of the next phase of Chinese relations: the phase that says you have had your way with us. You have taken our jobs and stolen our secrets and dumped you're your goods on us. That's going to change.
If that's the case, don't you have to start looking with askance at who does big business with China? Doesn't that mean the consumer packaged goods stocks and the techs? Does it mean aircraft? They can always buy from Airbus (EADSY) . Does it mean infrastructure? You think GE (GE) and Caterpillar (CAT) don't have competitors?
The industries that would benefit from Trump getting serious against China are few and far between vs. the rest of the market -- which, of course, is a chief reason why we have allowed China to dictate policy to us. Most execs like a policy that doesn't roil the communists, because they run companies that need the Chinese markets to make their numbers.
You take that Chinese market away and you will pay far less for the multinational branded and tech companies that source and sell in China. You can always make parts in Mexico cheaper than China, and Trump doesn't care about taking business from China to Nogales.
But you have to accept that if Chinese business with the U.S. is curtailed, you will have some real selling to do in a host of companies that we liked under Hillary, including many that have benefited from a Trump rally. You don't covet a company like Qualcomm (QCOM) or Procter & Gamble (PG) , to use two of the most glaring examples, if Trump's going to teach China a lesson or two.
Oh, and how about pharma? Brent Saunders, the CEO of Action Alerts PLUS charity portfolio holding Allergan (AGN) , last week predicted that Trump could be a more vicious tweeter than Hillary. Remember the drug stocks all sold off on Hillary's tweet that she had a "commitment to crack down on exorbitant drug pricing."
Saunders said at a recent Forbes Health Summit: "I worry today that the pharmaceutical industry had a false sense of security because of the Trump Administration and a Republican-controlled Congress."
Saunders is concerned exactly with what Len Schleifer, the CEO of Regeneron (REGN) , said last week on a panel with other pharma CEOs: "We, as an industry, have used price increases to fill gaps in innovation." Trump mentioned in passing during the campaign that he wasn't crazy about how much the government spent on drugs.
What happens during the next Epi-pen like controversy? Many big drug companies are still putting through price increases that are 30% above last year's prices. How could this industry not be vulnerable to the next tweet?
Now, again, the big three -- regulation, repatriation, lower taxes -- all outweigh the anti-offshore move, a get-tough-on-China stance and a potential for a big pharma tweet. But we have to recall that Hillary isn't the only one who seems to favor workers over capital. Trump does, too.
I say: Big pharma stock holders, brace yourself; you could be next. It's very easy to tweet. Trump seems to have it down. "Shame on you big pharma," 19 characters, could take down the stocks of a whole industry. I am not saying it will happen. I am saying, after Carrier and Rexnord and the call with the Taiwanese president, doesn't it seem more likely than not?
