Rule #1 Finance Blog

With Investor Phil Town

What Happens Now That Trump Won the Election?

It’s time to get past the rancor and mud-slinging that characterizes American politics when it’s at its worst and take a look at how a Trump victory might impact the country and thereby the investment weather we’ll be working in.

And I want to start this off properly in the best way:

This commentary is going to be “YOOGE” because I have the best words.

Okay. Here we go…

First, let’s dispel the popular myth that Trump’s campaign appealed only to the great unwashed, “deplorables” who, “clinging to their guns and religion”, were expected to vote their ignorance, bigotry and racism. Unfortunately for university professors, students and NY Times, this meme, it turns out, was not at all true. (It also turns out that many Americans will not tell a pollster what they really believe if they think it is a politically incorrect thought.) The post-election data shows that Trump was elected by voters of all races, religions, backgrounds and beliefs who were focusing on getting a leader rather than a politician; someone who they think will change government policies dramatically. Those voters include a large number of Hispanics (Trump took Arizona and Florida because Hispanics there voted for him and 29% of all Hispanic votes went to Trump), abandoned steel and auto workers of all races in Michigan, Minnesota, Ohio and Pennsylvania (a higher percentage of black votes went to Trump than for Romney; Trump got 20% of black male votes), women (42%) and men (53%). Six in ten Americans do not have a college degree but they voted about 50-50 for Trump. College grads supported Trump evenly with non-grads but over half of the people with incomes below $30,000 voted for Clinton. Trump received more than half the votes of people who make more than $50,000 a year and received the same or more votes than Clinton from every income group above $50,000.

It seems that the vast majority of Trump voters voted for a non-politician they believe can change things in a way that no career politician ever will. Given that Trump voters included republicans, democrats, and libertarians we can conclude that the range of discontent with government may be broader more than any one political philosophy can bridge but frankly, if there is anyone in America in a position to build such a consensus, it just might be Trump.

Trump is a Capable Businessman

Consider his background. He’s been accused of being a bombastic blowhard with little success except in branding everything from buildings to steaks. But while that is true enough, it covers over a deeper truth. He is an extremely capable businessman when it comes to dealing with entrenched politically and financially powerful people.

Just for the record, he actually is one of the world’s most successful real estate developers. Properties he developed or renovated in New York City, one of the toughest real estate development markets in the world, include Trump Tower, 40 Wall Street, 1290 Avenue of the Americas (30% ownership now), Wolman Rink in Central Park, Empire State Building (renovated and sold in 2002), The Plaza Hotel (sold in 1995), The GM Building (where Apple has its Glass Store on 5th Ave) (renovated and sold in 2003), The Grand Hyatt (rebuilt and sold in 1996), 610 Park Avenue (renovation), Riverside South (development from 1985-1995 when he sold to a Chinese investment group), Trump World Tower, Trump Place, Trump Park Avenue and commercial space in Trump International Hotel.

Outside NYC he also developed the Taj Mahal and Trump Castle in Atlantic City (in and out of bankruptcy multiple times yet he retained 10% ownership), Mar-A-Lago and Trump Plaza Palm Beach in Florida, the Bank of America HQ building in San Francisco, and skyscrapers in Los Angeles and Las Vegas. He also leveraged his fame and licensed the Trump name on many buildings around the world. Trump owns and/or operates 18 golf resorts wide. And the Trump organization owns over 500 subsidiary companies that it operates in a diverse range of businesses.

Here is a map from the NY Times in August 2016 showing his ownership in 8 properties in NYC and an additional 22 properties around the US:


For those who think Mr. Trump has no political experience or that he’s just a real estate wanna-be or even just some sort of reality show hack, I think the history of the development of Trump International Hotel and Towers in Chicago, one of the tallest buildings in the world, is instructive regarding the capabilities of our next President to manage crisis, battle the big guys and get the job done:

  1. Trump acquired the Sun Times building in 2001, submitted his design to the city at the end of the year, was rejected, resubmitted in July 2002, was rejected, resubmitted in 2003, rejected, resubmitted in 2004 and was accepted. The old seven-story Sun-Times building was demolished in October 2004.
  2. Construction began in May 2005 financed by Deutsche Bank and several hedge funds.
  3. Sales began in 2008, even as construction continued, just as the subprime mortgage disaster caused real estate loans to disappear. In November 2008 Trump was in default $600 million to Deutsche Bank and the bank demanded payment of $300 million of that plus a $40 million personal guarantee and tried to force Trump into bankruptcy. Trump fought back; he cited a “force majeure” clause and sued the bank to get an extension of the loan. He also sued Deutsche for an additional $3 billion in damages for “predatory lending to undermine the project” and for “damage to his reputation for “on-time, under-budget, first class construction…” Meanwhile, Trump managed to force Deutsche Bank to continue paying the construction loan by threatening to force the bankers to take over the development in mid-construction while simultaneously convincing them that sticking with him was the safest course to a successful return of their capital. In September 2010 Deutsche Bank amended the loan agreement, dropped the demand for the $40 million loan guarantee and extended the $600 million construction loan for five years; Trump agreed to suspend litigation on the $3 billion. They have continued amicably ever since.
    • Chicago-based General Growth Properties, a Trump-sized shopping mall developer owned by the Bucksbaum family since 1954, defaulted on a $900 million loan on two Las Vegas malls in October 2008 for the same reasons Trump ran into problems. However, unlike Trump, the Bucksbaums were unable to back off the lenders and were forced into Chapter 11 bankruptcy. General Growth Properties eventually emerged but without the Bucksbaum family; they lost the company and 97% of their fortune.
    • On the point of bankruptcy: Trump has had properties get forced into Chapter 11 bankruptcy six times, mostly repeated bankruptcies of the casino hotel resorts in Atlantic City. He has always emerged with at least some of his ownership intact. Keeping some equity through Chapter 11 is an extremely unusual, much less achieving it six times in a row. I point this out as a further example of how successfully Trump deals with powerful government systems compared to most other business people.
  4. Back to Chicago: Trump got approval for a 3600 square foot “TRUMP” sign for the building from Mayor Daley’s administration in 2009 but in 2012 the new Mayor, Rahm Emanuel, did not want the sign and Trump was forced to renegotiate the sign to a smaller size. The City Council ignored that subsequent agreement with the Mayor and demanded Trump remove the sign altogether. Trump fought the city once again and in 2013 finally received permission for a 2800 square foot sign. However, even before it was placed on the building, the Sun Times newspaper architectural critic publicly called for it to be removed because it didn’t meet the ‘architectural traditions of the city’. The Mayor reversed his course and began to publicly criticize Trump’s aesthetics. Trump fought back showing via huge Twitter blasts just how ugly the previous Chicago Sun-Times building signage was. Embarrassed, the Sun-Times and the Mayor backed off and Trump got his sign.
  5. In spite of the slowdown in real estate and the lack of bank financing for condos, virtually all of the 486 condos were sold by 2014 with re-sales going as high as $14 million for a single condo. It is estimated Trump made over $100 million.
  6. Today the building is considered one of the most iconic and beautiful skyscrapers in Chicago. Trump continues to own the building.

This success is not an isolated case; Trump has demonstrated the ability to successfully work with a disparate group of powerful, mean-spirited, self-interested, tough and often contradictory political personalities in some of the most brutal city and county governments in the US – Chicago, San Francisco, Las Vegas and New York. He has proven himself adept at working with powerful labor unions and powerful political bosses over long periods of time to achieve his goals. Because of this deep experience in making the difficult easy and the impossible possible, I think it is likely that he will find a way to accomplish his political agenda.

What Donald Trump Will Try to Do Over the Next Few Years

So what will he try to do?  Here’s my take on what happens over the next couple of years:

1) He’ll Begin Immigration Reform

He will start negotiating with both parties to create permanent immigration reform that will include a way of locking down the southern border, a “wall” of some sort that secures the border and sets the stage for amnesty for millions of hard working undocumented Mexicans who have been living and working in the US for years and who are great friends of our country. He said he’ll create this huge door to ‘get back in’ but it will be a lot easier for everyone if the “door” is really just a trip to the local county offices for a green card.

2) He Will Reform Our Current Health Care System

He will begin negotiating with both parties to reform Obamacare into a HSA-based health care system with mandatory competition among insurance companies. But he’ll also pivot Obamacare into a state-supported, indigent health care system that covers the poor for necessary care (think “VA”). Everybody will have health care but people who can pay for it will have better health care, more immediate access, better doctors and better facilities.

3) He’ll Gradually Withdraw from Our Military Bases

He will set the stage for the US to exit the post-WWII roll of unappointed world cop and begin the gradual withdrawal of our bases in Europe, Asia, and the Middle East. This may include a rapprochement with Russia and China that acknowledges a non-NATO buffer on Russia’s western border and a similar ‘demilitarized zone’ on China’s eastern border. (Duarte in the Philippines is way ahead of us on this one.) This will put countries like Korea, the Philippines, and Ukraine into a new relationship with their more powerful neighbors. And it will bring about a shift in NATO away from a US-paid-for-and-managed European defense system into a NATO that depends on European nations for personnel and financial support. He will reverse 65 years of US empire-building by the gradual shuttering of many of the military’s 737 bases in 63 countries and the withdrawal of many of the 250,000 US troops from the 156 countries where US soldiers are actively operating at a current cost of almost $700 billion per year (out of $3,600 billion total expenditures), the largest single federal expense. This will be sharply opposed by the Carl Rove/Cheney/Bush/Romney/McCain wing of the Republican Party but Trump supporters will partner with Tea Party Libertarians and Bernie Sanders Socialists to get it done. Europeans do not like this idea but tending to our own garden isn’t saying America won’t come to their aid if they are attacked by Russia. Trump is just saying that our kids are no longer going to be Europe’s first line of defense. Or Korea’s. Or Japan’s. Or Australia’s. Or Taiwan’s.

4) Trump Will Renegotiate NAFTA

Trump will renegotiate NAFTA, TPP and the H1B Visa Program to force US corporations to deal fairly with American workers, even highly skilled American workers. He will expose the lie that (a) American corporations can’t compete without foreign labor and (b) that America does not have the talent pool necessary to fill the jobs by showing that this was a myth perpetuated by Big Business that was designed to get around the higher cost of American talent to the great benefit of greedy CEOs. Many jobs that went illegally to H1B visas or overseas should come back to American workers. Corporate profits will shrink back to historical average levels of 8% down from today’s 12%, but some of that can be offset with a corporate tax cut to 15%. More importantly, the middle class will see its income rise and the entry-level worker will have the power to organize and demand more money without having to compete with a large illegal labor pool or eastern European students who want an entry level job at any price. And Congress can stop trying to artificially raise the minimum wage that Congress is artificially holding down by supporting illegal immigrants and illegal H1B visas.

5) He Will Pressure Farm Labor Wages

After cutting off the supply of illegal labor with a secured border, Trump will put upward pressure on farm labor wages. He will tacitly support Cesar Chavez’s dream of a farm worker’s union. Farm labor wages will rise by 300-500% to $30 to $50 per hour that will attract American citizens to the work and pay a handsome living wage to seasonal labor. Consumers will pay a bit more at the checkout counter for a can of peaches (about 8% more) so Trump will also have to set tariffs on ag imports to protect the higher labor rates of US farm workers.

6) Trump Will Cut Corporate Taxes

He will cut corporate taxes to 15% to put US corporations into a competitive position with most other developed countries’ business taxes. The result will be a stock market boom and a lot of extra cash coming into the hands of investors and consumers. And if companies move their factories overseas, he’ll tax them the difference to remove the incentive to shift labor away from America workers.

7) He Will Run a Deficit Budget

He will run deficit budgets as long as necessary to get the economy heated up again and to get interest rates off of zero so that retirees and banks and other lenders will have a market-driven rent instead of an artificially low rate enforced by the central bank.

8) He Will Fund Jobs Programs

He will use deficit spending to fund a states’ administered jobs program designed to train people to prepare them for skilled jobs in factories, plants, construction, mining and machinery and off the federal dole and get them into high paying high skill jobs of the future. He will wean welfare moms off the dole with sufficient state support for single moms to raise a child while Live Streaming education into her living room to prepare her to enter the workforce when the child goes to school.

9) Trump Will Rebuild the Infrastructure

He will start a massive infrastructure rebuilding program to fix America’s energy grid, highways, trains, and bridges. The Keystone project is a go.

10) He Will Modernize Our Armed Forces

He will start a massive modernization program for our armed forces.

Frankly, I can’t think of any politician today who could possibly consider achieving all of these goals and still be re-elected. But Trump just might do it. 

Now go play.

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Featured Image: By Michael Vadon – Own work, CC BY-SA 4.0