After a hectic couple of days immediately after election results were announced, markets have tentatively stabilized and even done quite well in many cases. How will the Trump presidency affect alternative investors? Many fund managers are saying it is too early to tell, but there are some indicators that optimism is up and initial fears of instability were probably overstated.
Here are some of the key findings and feelings from fund managers who were publicly disclosing their opinions about the new president’s impact on the alternative investing community:
- For alternatives, volatility is usually good. That means until things settle down, perhaps within a year or less, choices like metals could become more attractive than usual. It wouldn’t be surprising for gold and silver to rise in the short term.
- Some metal enthusiasts are predicting that an entrenched trend for gold and silver to rise will continue, despite temporary upticks and downticks based on post-election emotions. The thinking goes: world financial markets are already at their stress points, with too many large economies in trouble. Trump’s new team might change a few policies here and there, but overall, precious metals are a good play in an era of global financial instability.
- There will likely be a short-term improvement in most economic indicators after President Trump takes office, but the trade deficit will almost certainly rise during the first year of his term.
- Real estate investors are keeping a keen eye on whether Trump follows up on his promises to make significant changes to the Dodd-Frank laws. An easing on small-bank regulation would mean good things for housing and commercial building markets.
- Mortgage underwriting could change depending whether the Trump administration pursues an easing up on lawsuits against lenders. Currently, lenders are demanding higher than average credit scores for loan approval for fear of federal lawsuits over “infractions” of lending laws. Most real estate market watchers think the new president will back off and let the lenders write loans that don’t call for pristine credit scores.
- Trump has already indicated a willingness to ease many of the zoning and land-use regulations which tend to stifle construction of new homes. That could mean a fast, downward change in the price of newly constructed homes, which would of course be a boon to the real estate market at the consumer level.
- Another big question mark about the new administration is tax reform. Trump has indicated his desire for an overhaul and simplification of the U.S. tax code, but exactly what that means is anyone’s guess. Will he and his team, and Congress, try to do away with the mortgage interest deduction, capital gains exemptions, or other consumer-friendly provisions in an otherwise anti-consumer code? On those two sensitive topics, only time will tell, because Trump himself has not taken a position.
- Because Trump’s fortune was built in the commercial real estate market, and he has noted the importance of depreciation write-offs for investors, it will be interesting to see how he approaches this topic, one that is central to anyone who invests in commercial property.
For alternative investors, a new president always brings questions like these to the table. Probably the two biggest areas of concern that are unique to Donald Trump are those having to do with the tax code and the real estate market. Such large areas of concern will no doubt affect the entire spectrum of alternative investments.