Last week, I spoke at an investment conference hosted by one of our accounts in Ohio. Among the other speakers were Jason Trennert (the chief investment strategist at Strategas), Don Straszheim (the “China guy” at ISI), Michael Rothman (a top-rated energy industry analyst), and Art Laffer (the “father” of supply-side economics).
Of course, Laffer will forever be associated with his Laffer Curve, which he sketched on a napkin at a meeting with Ford administration officials Dick Cheney and Donald Rumsfeld in 1974. It is typically represented as a graph that starts at a 0% tax rate with zero revenue, rises to a maximum rate of revenue at an intermediate rate of taxation, and then falls again to zero revenue at a 100% tax rate.
Laffer argued that if the tax rate is too high, it will weigh on economic growth and depress tax revenues. He long has advocated low tax rates as the best supply-side means to stimulate growth. He generally has disparaged demand-side fiscal policies aimed at stimulating the economy.
Laffer was the dinner speaker at the conference a week ago. He predicted that Donald Trump will win the White House in a landslide. He noted that when Ronald Reagan ran for President, he also was spurned by his own Republican party establishment because he was an outsider in many ways, like Trump. Art noted that in recent elections, Republicans have captured majorities in Congress and state legislatures and represent the majority of governors as well.
Art is convinced that Trump will lower tax rates for individuals and for corporations.
Promoting his supply-side paradigm, he said, “If you take money away from rich people to give to poor people, you’ll get fewer rich people and more poor ones.” He acknowledged that he isn’t happy with Trump’s anti-trade rhetoric, but believes that Trump really doesn’t mean it. He reckons that if Trump wins, he will appoint at least one conservative judge, who will swing the Supreme Court more toward Republican orthodoxy.
Jason thinks that stock prices can continue to rise. His mantra has been “TINA: There is no alternative” to stocks. Don thinks that China’s economy is actually growing at only a 4% rate, not 6%-7% as officially proclaimed by the government. Mike expects that the plunge in the oil rig count will cause US production to plummet soon and that oil prices could go higher. He is very worried about the stability of Saudi Arabia and says that some of the wealthier Saudis are moving their families abroad.
Back in NYC last Thursday, I had lunch with the president of a major bank in the Rainbow Grill at the top of Rockefeller Center. He is very concerned about the flattening of the yield curve. However, his bank has a large portfolio of bonds that have appreciated nicely and boosted the bank’s profits. He wasn’t happy to hear my forecast that the yield curve could stay this flat for a long time. He told me that in his bank’s wealth management department their European accounts are buying US bonds because the yield is higher here than over there.
After lunch, I took an elevator down with two gentlemen who started talking about the stock market, agreeing that it had to go down. I butted into their conversation and said that it could actually melt up because the 10-year Treasury bond yield was down below 1.50%.
The older gentleman said that Brexit surely must be bearish. I said that the two-day Brexit panic attack was probably already over because the Fed is likely to keep interest rates lower for longer. When the doors opened on the ground floor, I shook his hand and introduced myself. He did likewise, saying that he is Hank Greenberg. But I guessed that when I got on at the 65th floor.
Dr. Ed Yardeni
is the President of Yardeni Research, Inc., a provider of independent global investment strategy research. To read more of his blogs, CLICK HERE NOW.
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