Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Following the Gold Stock Leaders as the Fed Prints - 9th Jul 20
Gold RESET Breakout on 10 Reasons - 9th Jul 20
Fintech facilitating huge growth in online gambling - 9th Jul 20
Online Creative Software Development Service Conceptual Approach - 9th Jul 20
Coronavirus Pandemic UK and US Second Waves, and the Influenza Doomsday Scenario - 8th Jul 20
States “On the Cusp of Losing Control” and the Impact on the Economy - 8th Jul 20
Gold During Covid-19 Pandemic and Beyond - 8th Jul 20
UK Holidays 2020 - Driving on Cornwall's Narrow Roads to Bude Caravan Holiday Resort - 8th Jul 20
Five Reasons Covid Will Change SEO - 8th Jul 20
What Makes Internet Packages Different? - 8th Jul 20
Saudi Arabia Eyes Total Dominance In Oil And Gas Markets - 7th Jul 20
These Are the Times That Call for Gold - 7th Jul 20
A Reason to be "Extra-Attentive" to Stock Market Sentiment Measures - 7th Jul 20
The Beatings Will Continue Until the Economy Improves - 6th Jul 20
The Corona Economic Depression Is Here - 6th Jul 20
Stock Market Short-term Peaking - 6th Jul 20
Gold’s Major Reversal to Create the “Handle” - 5th July 20
Gold Market Manipulation And The Federal Reserve - 5th July 20
Overclockers UK Custom Build PC Review - 1. Ordering / Stock Issues - 5th July 20
How to Bond With Your Budgie / Parakeet With Morning Song and Dance - 5th July 20
Silver Price Trend Forecast Summer 2020 - 3rd Jul 20
Silver Market Is at a Critical Juncture - 3rd Jul 20
Gold Stocks Breakout Not Confirmed Yet - 3rd Jul 20
Coronavirus Strikes Back. But Force Is Strong With Gold - 3rd Jul 20
Stock Market Russell 2000 Gaps Present Real Targets - 3rd Jul 20
Johnson & Johnson (JNJ) Big Pharma Stock for Machine Learning Life Extension Investing - 2nd Jul 20
All Eyes on Markets to Get a Refreshed Outlook - 2nd Jul 20
The Darkening Clouds on the Stock Market S&P 500 Horizon - 2nd Jul 20
US Fourth Turning Reaches Boiling Point as America Bends its Knee - 2nd Jul 20
After 2nd Quarter Economic Carnage, the Quest for Philippine Recovery - 2nd Jul 20
Gold Completes Another Washout Rotation – Here We Go - 2nd Jul 20
Roosevelt 2.0 and ‘here, hold my beer' - 2nd Jul 20
U.S. Dollar: When Almost Everyone Is Bearish... - 1st Jul 20
Politicians Prepare New Money Drops as US Dollar Weakens - 1st Jul 20
Gold Stocks Still Undervalued - 1st Jul 20
High Premiums in Physical Gold Market: Scam or Supply Crisis? - 1st Jul 20
US Stock Markets Enter Parabolic Price Move - 1st Jul 20
In The Year 2025 If Fiat Currency Can Survive - 30th Jun 20
Gold Likes the IMF Predicting a Deeper Recession - 30th Jun 20
Silver Is Still Cheap For Now - 30th Jun 20
More Stock Market Selling Ahead - 30th Jun 20
Trending Ecommerce Sites in 2020 - 30th Jun 20
Stock Market S&P 500 Approaching the Precipice - 29th Jun 20
APPLE Tech Stock for Investing to Profit from the Machine Learning Mega trend - 29th Jun 20
Student / Gamer Custom System Build June 2020 Proving Impossible - Overclockers UK - 29th Jun 20
US Dollar with Ney and Gann Angles - 29th Jun 20
Europe's Banking Sector: When (and Why) the Rout Really Began - 29th Jun 20
Will People Accept Rampant Inflation? Hell, No! - 29th Jun 20
Gold & Silver Begin The Move To New All-Time Highs - 29th Jun 20
US Stock Market Enters Parabolic Price Move – Be Prepared - 29th Jun 20
Meet BlackRock, the New Great Vampire Squid - 28th Jun 20
Stock Market S&P 500 Approaching a Defining Moment - 28th Jun 20

Market Oracle FREE Newsletter

AI Stocks 2020-2035 15 Year Trend Forecast

Here’s Why Market Deregulation Will Be Bad For Stocks

Stock-Markets / Market Regulation Jun 14, 2017 - 04:13 AM GMT

By: John_Mauldin

Stock-Markets

BY PATRICK WATSON : Deregulation was one of President Trump’s top campaign promises. Expectations for it helped spark a post-election stock rally that boosted highly regulated sectors like banking and biotech.

I’ve thought all along people expected too much. Presidents don’t get a magic wand on Inauguration Day, and they can’t bring on major change just by talking about it.

Now, formerly bullish investors and business leaders are starting to curb their enthusiasm.


Tax reform is already getting pushed back to 2018 and possibly later. And the Obamacare replacement plan—as well as the tax cuts that are part of it—is going nowhere fast. At least one GOP senator says a deal is unlikely this year.

If those are off the table, can we at least count on regulatory relief?

To some degree, yes... but we may have already seen most of it. If your investment strategy counts on deregulation to boost stock prices, you might want to reconsider.

Trump’s Wordplay

Deregulation was high on the priority list in January. Congress passed legislation reversing some of the Obama administration’s last-minute initiatives. President Trump signed an executive order telling agencies to rescind two regulations for each new one.

Except, that’s not what it said.

The actual order, which you can read right here, says agencies must identify two regulations for repeal for each new one they issue.

Identifying a regulation to repeal is not the same as actually repealing it. Many in the media and on Wall Street missed that part.

The reason Trump’s EO was so meekly worded is because even the president can’t wipe out most regulations by the stroke of a pen. There’s a legal process for both making and repealing them.

Agencies have to gather information, study costs and benefits, allow public comment, etc.

This takes time—and with good reason.

Some regulations may be bad for business, but constantly and arbitrarily changing regulations would be even worse. Stability is one reason the United States is the world’s largest economy.

It’s possible, if not likely, that this EO will ultimately get rid of some regulations. But it won’t happen until somebody sets the process in motion and stays with it to the end.

And that won’t happen until “somebody” is there to do it.

Missing Managers

Presidents appoint the top leadership in most government agencies, with the Senate’s advice and consent.

We hear about the cabinet secretaries and see them on TV, but the real work of running the agencies happens just below. The assistant secretaries, undersecretaries, etc., are critical to getting anything done… like repealing regulations.

Yet the White House seems in no hurry to fill most of those jobs.

As of last week, more than four months into the Trump presidency, 79% (442 of 559) of the key positions requiring Senate confirmation still have no nominee. Click here to see the full list.

It’s unclear what is taking so long. One theory: The White House wants to leave those jobs vacant, thinking it will paralyze the bureaucracy.

But paralysis, in this context, simply keeps the status quo in place. It cedes power to unelected bureaucrats and Obama holdovers.

If you’re a business waiting on some kind of answer from the USDA, you could be waiting a long time. Ditto at other departments.

Those regulations business groups dislike will not rescind themselves. It will happen only when reform-minded people are in place and pushing for it. And that’s nowhere near happening yet.

Winners and Losers of Deregulation

What the deregulation people are betting on might eventually happen, but we don’t know when. Will it even matter?

You bet it will—but maybe not in the way you think.

Government regulations don’t affect every business equally. Compliance costs money that small newcomers often don’t have. This protects established industry leaders from new competition, which is bad for everyone.

Other things being equal, the winners of deregulation should be the smaller players that previously lacked compliance capacity.

Conversely, deregulation’s losers should be the larger companies whose size and lobbying muscle previously insulated them from innovative competitors.

Now, add something else to this equation.

As a general rule, the publicly traded companies whose shares you might own are among the biggest players in their markets. The start-ups that might disrupt them are usually private.

Why, then, do we assume deregulation is good for stocks? It might be the opposite. And why are public company CEOs pushing for it?

The answer is that larger businesses don’t want full deregulation. They want selective deregulation that reduces their compliance costs while still hindering potential competitors.

Unfortunately for them, they may not get anything at all.

How Regulation Influences Growth

Some regulations are necessary. They ought to serve the public interest—which may not be in the interest of whoever is being regulated.

However, some regulations are outdated or counterproductive, so periodic pruning is a good idea, if it’s done wisely.

At the Strategic Investment Conference last month, Jefferies & Co. strategist David Zervos estimated that needless regulation reduces economic growth by 10%. That means our present GDP growth rate of around 2% might rise to 2.2% if we rationalized the regulatory state.

While 2.2% would be an improvement, it still isn’t stellar. Trump administration officials say their agenda of tax reform, spending cuts, and deregulation can raise real GDP growth to the 3% range.

Very few economists think 3% growth is likely or sustainable, even if Trump and the Republicans get everything they want—and I’m very sure they won’t.

Without faster economic growth, it’s hard to justify today’s stock prices, let alone higher ones in the future. At some point, this will be obvious to everyone, and markets will adjust. The only question is when.

Subscribe to Connecting the Dots—and Get a Glimpse of the Future

We live in an era of rapid change… and only those who see and understand the shifting market, economic, and political trends can make wise investment decisions. Macroeconomic forecaster Patrick Watson spots the trends and spells what they mean every week in the free e-letter, Connecting the Dots. Subscribe now for his seasoned insight into the surprising forces driving global markets.

John Mauldin Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules