Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Chinese Tech Stocks CCP Paranoia and Best AI Tech Stocks ETF - 26th Oct 21
Food Prices & Farm Inputs Getting Hard to Stomach - 26th Oct 21
Has Zillow’s Collapse Signaled A Warning For The Capital Markets? - 26th Oct 21
Dave Antrobus Welcomes Caribou to Award-Winning Group Inc & Co - 26th Oct 21
Stock Market New Intermediate uptrend - 26th Oct 21
Investing in Crypto Currencies With Both Eyes WIDE OPEN! - 25th Oct 21
Is Bitcoin a Better Inflation Hedge Than Gold? - 25th Oct 21
S&P 500 Stirs the Gold Pot - 25th Oct 21
Stock Market Against Bond Market Odds - 25th Oct 21
Inflation Consequences for the Stock Market, FED Balance Sheet - 24th Oct 21
To Be or Not to Be: How the Evergrande Crisis Can Affect Gold Price - 24th Oct 21
During a Market Mania, "no prudent professional is perceived to add value" - 24th Oct 21
Stock Market S&P500 Rallies Above $4400 – May Attempt To Advance To $4750~$4800 - 24th Oct 21
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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