(Bloomberg Businessweek) -- David Bahnsen has a chipper prediction about Donald Trump’s return to the White House—one that doubles as a psychological assessment: The president-elect is so keen to fit in with the Manhattan financial elite that he won’t dare jeopardize its fortunes. “The reason he cares so much about financial markets is that there’s a validation they represent to him,” says Bahnsen, whose Bahnsen Group manages $6.5 billion. “He has spent his whole adult life feeling like an outsider in Manhattan, never getting the credit or respect he felt like he deserved.”
That’s a taste of the positive thinking that’s thrived on Wall Street since Trump won a second term. Bankers, investors, executives and their advisers crave the deregulation and tax cuts he’s promised. And while higher US government bond yields suggest some investors are worried about bigger budget deficits and the inflation expected to result from his pledges of mass deportation and giant tariffs, the Trump optimists don’t expect him to follow through on them. They can even sound reassured by Trump’s topsy-turvy style—assuming his habit of zigzagging and reversing himself means he’ll backtrack from his most destructive plans.
The giddiness is widespread. Bitcoin has surged, buoyed by Trump’s promotion, weeks prior to the election, of a crypto project with a former colon-cleanse salesman who once called himself “the dirtbag of the internet.” Investors hoovered up the stocks of the biggest banks, betting that on top of deregulation, Trump will usher in a new phase of corporate dealmaking. The rest of the stock market rose, too, thanks in part to his proposals to cut the corporate tax rate to as low as 15% from 21%, slash 10 regulations for every new one he enacts and oust Securities and Exchange Commission Chair Gary Gensler on his first day in office.
Mark Zandi, chief economist at Moody’s Analytics, cautions that overexcited investors are sending stock prices too high. “I would not be surprised if we have a day of reckoning, but it’s too late at that point—the damage is done,” he says.
Some are voicing their concerns about the possible effects of Trump’s plans. Nathalie Molina Niño, co-founder and president of Known, an asset manager that aims to do good work for the planet and the people on it, says tax cuts don’t make up for policies that will be detrimental for the environment and the economy. “There are economic consequences to mass deportations of critical parts of the workforce,” she points out.
But others, including even Nouriel Roubini, the famously grim macroeconomic consultant nicknamed Dr. Doom, have been staying calm. Roubini told Bloomberg Television that Trump’s fondness for markets, paired with the right advisers, could curb his radical inclinations by making his actual policies “more moderate.”
Two top Wall Street executives, who asked for anonymity to talk about politics, have similar reasons for staying upbeat. One of them is a former banker who’s spent years around Trump. He says looser rules and the expected ouster of Federal Trade Commission Chair Lina Khan, a big-business nemesis, will let banks become more profitable and allow them to pursue a wave of mergers and acquisitions. And the protectionism Trump has promised, he says, could turn out to be empty rhetoric. The second executive, who’s in private equity, says bankers and venture capitalists are busy prepping deals because deregulation is so close at hand. As for the myriad and complicated forces of inflation? Those are more obscure and further out, he says.
The investor and executive Tom Glocer, Morgan Stanley’s lead independent director, has no doubt that antitrust reviews of mergers “will have fewer teeth—and, more importantly, less of a chilling effect.” But he worries, too, that the market is better at taking that kind of change into account than what he calls “the chaos risk.” Investors have trouble assigning the probability of the mayhem that will ensue if, say, Trump refuses to step down after his second term, as he attempted to do after his first.
Why are markets up? Because investors think the markets themselves will keep Trump in line. It’s circular logic, to be sure. And it may look embarrassing—or worse—if things don’t go as hoped.Read next: Trump’s Impossible Task—Delivering for the Working Class and Billionaires
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