Here are some things I think I am thinking about:

Politics. What a mess of a topic. But thankfully, as a perfectly moderate pragmatic thinker who is invulnerable to biases (lol) I am here to perform the autopsy on this messy situation.

1) Why Did Trump Win?

Trump’s win shocked the country. It didn’t shock me. Back in July I said that Kamala couldn’t win because I believe the rest of the country wants to avoid becoming San Francisco at all costs.1 So nominating a San Francisco Liberal was always going to be a huge uphill battle. But more importantly, it wasn’t so much that Trump was a good candidate, but that the Democrats couldn’t win without a deeply authentic candidate. Kamala either wasn’t that person or just didn’t have enough time to become that person. Trump, for all his faults, is authentic. He is who he is and the average person relates to this. He’s a flawed person and he wears that on his sleeve. To some people this is a disqualifying feature, but to others it’s the defining characteristic that wins them over.

One big problem for the Democrats in recent years is that the last 4 years have been a masterclass in inauthentic economic narratives. I’ve spent an inordinate amount of time in recent years explaining how spurious some of these narratives were. For example:

  • We printed $7 trillion during Covid and Liberal economists went out of their way trying to claim that this had no impact on inflation. They claimed it would be transitory because it was all supply driven. When that narrative fell apart they claimed it was “long transitory”. And if that wasn’t enough they tripled down by saying it was “greedflation”. The whole narrative was misleading. We know for a fact that demand driven inflation surged. We know for a fact that personal consumption surged to record high levels right after we printed trillions. And Americans knew it because they saw the money get printed into their accounts and they went out and spent it. And yet to this day there are still people spreading this narrative that the stimulus didn’t cause inflation. I was in favor of the stimulus packages, but I also recognize that the stimulus caused a lot of inflation damage. You can accept that inflation was the cost of avoiding a deeper recession without gaslighting people about it.
  • We were told, nonstop, that wages kept up with inflation and that no one was harmed by inflation because of this. Economists cherry picked charts and data and misconstrued them to make it look like people were better off than they really were. It was all deceptive and deeply inauthentic. I’ve called this the most insulting economic narrative. It is. Working class people were hurt by inflation, their wages initially kept up, then fell way behind and have barely kept up in recent years. And if you didn’t own a house or stocks in the last few years you’re really mad at what happened. And being told to shut up and enjoy this “economic boom” was not the right response.
  • We were told that we needed wealth taxes, rent control, student debt forgiveness and other fringe ideas that were being justified based on identity politics and not empirical evidence.

This is just the economic side of the coin. I can’t speak to the social aspects of this debate, but the economic narrative over the last 4 years has been misleading at best and totally inauthentic at worst. I think people saw through that and said “I’d rather vote for the liar who knows he’s a liar than the candidate who lies and thinks I don’t know they’re lying”. That’s it. I don’t think it’s a whole lot more complex than that.

2) What Does Trump Mean for the Economy, Markets, Inflation and Interest Rates?

The market reaction to the win was interesting. Stocks up big, commodities down and interest rates up. I’m not generally one to disagree with Mr. Market, but some of this looks like a knee jerk reaction. My baseline thinking for Trump:

  • Super corporate friendly. Tax cuts and pro business policies mean the baseline stock market outcome is up.
  • GDP tends to go up in the long-run as people mostly just go about their lives. I don’t think Trump moves the needle in one direction or the other too much.
  • Inflation – people are super concerned about the impact of tariffs and larger budget deficits from the tax cuts. And yes, the tariffs are a truly bad idea that will be eaten by consumers. But we will have to see how significant any of these policies actually end up being, but one thing we know is that pre-Covid Trump passed large tax cuts and imposed some tariffs and inflation remained at around 2% the whole time. Until we know more about the specific scope of these policies I don’t think we should assume Trump is going to cause higher than normal inflation. And in fact, if he cuts a lot of red tap then this might all offset. It’s too early to know.
  • Interest rates jumped in response to the Trump win. I would be shocked if Trump lets interest rates stay high for too long. This is a man who has spent his entire life making money in real estate from accommodative interest rates. I think he’ll fire Jerome Powell and insert someone who will send rates much lower, regardless of what’s happening with inflation. If you get moderate inflation like Trump’s first term then the whole interest rate complex will collapse. If the tariffs end up being more inflationary then there’s risk on the long end of the curve.

3) Trump Pros and Cons

Cons: Let’s get the bad news out of the way first:

  • The tariffs could end up being a very bad idea. If they are very significant that does create upside inflation risk.
  • Fed independence. If Trump inserts a yes-man at the Fed then their independence is gone. The Fed is ultra important in helping combat inflation and recession because they can independently react without Congress impeding. Powell has been a good Fed Chief in large part because he’s been inordinately independent.
  • Geopolitical risk. Trump was tough with foreign dictators the first time around. Then again, he didn’t come into office with the Middle East boiling hot, a war in Ukraine and tensions flaring in China. This is a very different geopolitical environment and we don’t know how that will play out. Will he let Putin run wild over Europe? How will he handle the Middle East? We don’t know yet and it creates a lot of geopolitical uncertainty.
  • Buying high. Trump is exposed to the same risk every President is – timing risk. He’s coming in after a large rebound from Covid and with a stock market at record highs that expects AI to transform everything. Personally, I wouldn’t love coming into office in this environment. I’d much rather come in as a Biden or Obama during a period of turmoil where things can only get better….

Pros: let’s try to end this on a good note.

  • Trump is all business. That’s good for stocks and most likely good for the economy.
  • Trump is probably good for real estate. If he pushes rates down then that will help affordability across the housing market.
  • Trump will hopefully cut a lot of red tape and help small businesses. Everything about our government is getting so much more complex. From the rules to the taxes to virtually everything. Trump can help a lot of small businesses by making things easier on them.
  • For all his blustering the first time around the world was mostly boring during Trump’s first term. When you look back at the stock market, GDP and inflation during Trump’s first term it was all pretty benign. He didn’t turn out to be an insane authoritarian like many said.2 And although he screamed into Twitter every day the rest of us mostly just went about our lives and the economy hummed along until Covid hit. Hopefully we just hum along again and nothing too crazy happens. Hopefully.

I hope you found this somewhat helpful and I am sorry for the political discussion. But it’s an issue we obviously all need to talk about. And this country would be a lot better off if more of us tried to have a friendly discussion about these matters so we could all better understand how other people are feeling about the state of the world (even if you disagree).

1 – I am biased as a Californian, but I tend to think the negative views on California and SF are overblown. Then again, I do think SF represents the epicenter of the so-called “woke” politics that the country just threw in the garbage.

2 – Maybe it’s better to say that Trump would very much love to be an authoritarian, but is constrained by the way the US system is structured.