Economic Hope versus Reality

The stock market and consumer confidence are up after the election of Trump but when will economic hope turn into reality. Or will it? Bloomberg discusses the huge gap between American economic hopes and reality.

Surveys of businesses and consumers have shown a surge in confidence since the Nov. 8 U.S. presidential election, as hopes for growth-lifting fiscal stimulus and deregulation have increased. But actual economic activity has yet to catch up.

The difference between the two – “soft” and “hard” data surprises – has only been wider once before in 17 years of data, in February 2011.

The dollar will go up when interest rates go up and that will be when the economy performs better.

While greater expectations should in theory translate to greater activity, mixed signals from the data and uncertainty surrounding the exact contours of the new administration’s economic policies helps explain why Fed officials continue to strike a cautious tone toward the timing of the next rate hike. The central bank is expected to leave rates unchanged after its two-day meeting that ends on Wednesday.

To the extent that optimism spurs investment we will see an economic boom, a self-fulfilling prophecy. To the extent that the administration gets off track and does things like starting a trade war the difference between economic hope and reality could be huge.

When and Where Will Offshore Cash Be Invested?

Part of the Trump plan is to get US corporations to bring home billions of dollars of offshore cash. The question is when will this happen and will that money be used to invest or engage in M&A? The Street wonders how Apple will spend $230 billion in offshore cash.

Investors would also welcome discussion of Apple will use its massive cash holdings-including funds held overseas that could be repatriated if President Trump enacts a tax holiday. Moody’s forecasts that the company had $230 billion stuck in offshore accounts at the end of the year. If Trump does give companies a break on cash repatriation, the funds could fuel dividends, buyback or acquisitions.

Companies like Apple are in a pickle because if they bring back offshore cash and want to expand and hire more workers Trump may have cut off their access to the vast pool of computer talent that lives outside of the USA. As USA Today reports, the world is going to start closing the door on the USA.

Amid growing concern that it could throttle the flow of foreign talent, block certain employees from returning to their home offices and harm small businesses that rely on immigrant spending, some U.S. corporations decried the immigration blockade.

Karen Eng, CEO of Schaumberg, Ill.-based engineering consultancy CSMI, said she fears that her customers, such as Kraft, General Mills and Nestle, could scale back foreign investment plans.

“It could have a big effect on my business if they choose not to expand their capabilities overseas,” she said.

Technology companies with professionals and customers who could be affected by the ban swiftly denounced the policy, including Google, Facebook, Apple, Microsoft, Yelp, Tesla and Airbnb.

If the Trump administration does not repeatedly shoot itself in the foot the gap in economic hope versus reality will close. But if the Donald continues to posture for his constituency at the expense of the greater American good all bets are off.