Bob Doll: Lack of  infrastructure stimulus might benefit stocks

Bob Doll at Nuveen makes a good point about Trump’s failure to get infrastructure spending through the House.

Washington, D.C. seems mired in gridlock, despite the fact that Republicans control the House, Senate and White House. No significant economic legislation has been passed, and the optimism from January about health care reform, infrastructure spending and tax cuts has all but vanished. Political attention will soon be focused on the 2018 midterm elections, and the window for pro-growth policy action is closing.

The lack of fiscal stimulus is disappointing, but it comes with a silver lining: We are unlikely to see the significant and sharp advance in interest rates or in the U.S. dollar that would probably result from such stimulus. The lost opportunity on the political front might therefore have the ironic effect of prolonging the bull market in stocks.

It seems crazy when you consider that both Clinton and Trump campaigned on a platform of major infrastructure programs to boost the economy. Just shows how dysfunctional Washington has become.

But I agree with the silver lining. Infrastructure spending would have boosted employment — the US is already below its long-term natural rate of unemployment — and upward pressure on wage rates. Which would have drawn a sharp increase in interest rates from the Fed, to combat inflation. Populist policies often ignore the hidden/unforeseen consequences and can produce the opposite result to that intended.

Unemployment v. LT Natural Rate

Source: Weekly Investment Commentary from Bob Doll | Nuveen

4 thoughts on “Bob Doll: Lack of  infrastructure stimulus might benefit stocks

  1. frankaquin0 says:

    Yes, you’re absolutely right. I saw a similar demonstration on stage here in Perth by Edwards Demming (the man accredited with turning Japan into a quality obsessed machine) where he lined up four audience members and had them pass books from one end of the “queue” to the other, and the end person stacked them on a table. Then he speeded the process with a metronome up until the people couldn’t handle the books fast enough and the book stacker toppled the stack. Everyone in the audience said they needed more people to handle the volume. When he added more people, the process failed at half the original speed. More people equals more chaos.

  2. frankaquin0 says:

    OK this is weird. Over the years I’ve banged on (ad nauseam for some, no doubt) about nobody knowing how to control the bucking bronco we call the economy. Occasionally I’ve called it the Titanic for lack of a better comparison. Well this article seems to clinch it. Am I reading this right? If the US were to (accidentally probably) increase the joy of a nation with real wealth like jobs, wages into pockets, dignity, better roads, bridges hospitals and schools etc, the market would suffer and digital wealth would go down. But if they keep obstructing each other in Congress, blame everyone else for everything bad, elect dynastic dickheads to the White House and maintain political and fiscal chaos, the market will continue to feel secure in such normality, and digital wealth will go up? I must have it wrong – someone please tell me I’ve got it wrong.

    • ColinTwiggs says:

      Hi Frank,
      We should have learned by now. The less government you have, the better off you are.

      • ColinTwiggs says:

        …. its only a small step from there to: The more gridlocked government is, the better off we are.

        Years ago I came across an experiment by Siemens where they installed an entire automated telephone exchange in a sealed container. If one circuit stopped working they simply re-routed traffic through another. What they observed was that the number of failures was only a small fraction of the expected failure rate from a conventionally-manned exchange. Their conclusion was that most breakdowns are caused by human intervention. I believe the same is true of economic management. The more you try to manipulate the economy, the more harm you cause.

        You obviously need regulation but this should be kept as simple as possible, to minimize the harm caused.

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