With prospects fading for much of the Trump legislative agenda, the post-election rally looks to be on shaky ground. Yet hope remains. And it doesn’t depend on the House or the Senate.
Trump still runs the executive branch, and that gives him control over the government’s many regulatory agencies.
Speaking at the Mauldin Economics’ Strategic Investment Conference, hedge fund manager Mark Hart and investment strategist David Zervos both think deregulation is the key that can lift the US economy out of slow-growth mode.
Gridlock Grips Washington
Other reforms like tax cuts and infrastructure spending would help, too. However, with Washington still gripped by gridlock, implementation of those policies is a tough ask.
To what extent deregulation would help depends on the degree to which excess regulation has held back growth.
Zervos, the chief market strategist at Jefferies & Co., estimates the combination of uncertainty and unnecessary regulation could be as much as 10% of GDP.
Hart, founder and CIO of Corriente Advisors, said deregulation was the most underfollowed and misunderstood factor in markets today.
Regulation Strangulation
While some regulation is necessary, both experts said it has grown beyond reason over the last decade.
The Dodd-Frank Act spawned a proliferation of new regulations intended to prevent another 2008-style financial crisis. Climate change concerns led the Obama administration to impose a multitude of costly new environmental rules.
The key reason both believe deregulation reform will be passed is that most of it doesn’t require legislation.
Agencies can often interpret rules in stricter or more relaxed fashion. Which way they go depends on the politically-appointed leaders… and it’s a safe bet that Trump appointees will be more business-friendly than those who held the same roles in the Obama years.
The main question is timing.
The Trump team still hasn’t filled many of the openings in the regulatory bodies. According to a database maintained by the Washington Post and the nonpartisan Partnership for Public Service, some 445 of 554 key positions requiring Senate confirmation still had no nominee as of May 24.
These positions include senior posts such as the deputy secretaries, commissioners, and other sub-cabinet level positions. Many of those 445 still have Obama appointees acting as temporary administrators.
The Trump administration’s slow start has delayed regulatory reform, but Hart and Zervos think it will come eventually. When it does, they believe it will unleash “animal spirits” and lead businesses to resume taking risks and investing in new capacity.
As such, the market impact could be significant.
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