In this session, Libby Cantrill, the head of public policy at PIMCO, discussed global challenges, including the rise of populist movements (i.e. Brexit) and challenges to democratic institutions around the globe. She addressed these challenges from both a policy and political lens—and discussed the ensuing potential effects on markets and their investment implications.
- Libby Cantrill
- Despite some initial missteps, President Trump was ultimately able to deliver on many of his growth-positive policies, including:
- The Tax Cuts and Jobs Act
- The 2018-2019 spending bill
- The beginnings of deregulation
- Continuity at the Federal Reserve Board
- Growth-negative actions include: the ongoing trade war, geo-political tensions, immigration policies, and manufactured crises (debt ceiling, government shutdown).
- The fiscal stimulus may be a sugar high, expect a boost of .6% of GDP in 2018 and .4% in 2019 to growth, but then a fade after that. The tax bill has been a boon to share buybacks but we have seen only marginal pick-up in CAPEX. The deficit may be the largest casualty, potentially limiting future counter-cyclical stimulus.
- Partisanship remains near a multi-decade high in Washington D.C. but started before the current administration. And the president’s trade policies, which represent his long-held philosophy, will continue to challenge growth as the executive branch of U.S. government has unprecedented authority over trade. This will lead to higher uncertainty due to an aggressive trade policy that may translate into a headwind for growth.
- Globally, the rise of populism has important implications around the world where we could see weaker growth and higher inflation if radical populism takes hold. Brexit outcomes also create uncertainty and instability in the global market. Weakening growth metrics and political upheaval suggest a fragile outlook in the Eurozone.
- As a result of the U.S. and global outlook, an overall cautious approach to portfolio construction is recommended with focus on broad, diversified sources of carry amidst heightened political uncertainty and global growth “synching lower.”
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