The goal of an illusionist is to focus audience attention on something which is not what the magician is actually doing. Crowd senses are preoccupied by intentional stimuli away from what is really “going on” so that the magic unfolds undetected and tends to amaze the viewer. The “political” crowd in Washington and elsewhere around the world have been amazed by the first week’s activities of the new Trump administration. Incendiary comments uttered by our President about Inauguration Day crowd sizes, popularity, the Mexican wall and illegal voters have hurt Mr. Trump with quite a few of the “old political guard”. But his scores of supporters, those who voted for change from the conventional political path and who accept him for what he is, have reacted with more equanimity. The misdirection has been unfolding.

Substantively there has been action with a number of Executive orders. Pipelines which had spent years mired in regulatory purgatory were given the “greenlight” to proceed. The Trans Pacific Trade Partnership was “killed”. A scheduled meeting with the Mexican President was postponed because Mr. Trump again said, as he said many times on the campaign trail, that Mexico would pay for the wall, which upset the Mexican President on the eve of his arrival in Washington. There was a breakfast with a dozen major corporate CEOs with an important part of the conversation devoted to jobs. There was also an hour and a half meeting with union leaders with the President and the top members of Mr. Trump’s team – in the first week of his administration. Who says Big Labor belongs to the Democrats? Despite the fact that Labor voted for Mrs. Clinton, President Trump had Big Labor in for a visit immediately upon assuming office. In short, Mr. Trump has let it be known that he is not beholden to either of the established political parties. He is not a Democrat nor a conventional Republican. He is an independent, perhaps a populist who has taken Andrew Jackson as his “soul mate” by hanging his portrait in the Oval office.

Away from politics, it is corporate earnings season. So far, so good. Companies have just started to report their yearend numbers and to date the surprises have been to the “upside”. However we still have a ways to go before every company has reported. The fourth quarter GDP growth was not as good as hoped for, coming in at +1.9% vs. an expectation of over 2%.

So what can Mr. Trump do to “rev up” the American economic engine? Corporate investment has been anemic with a 0.1% contribution to Q4 GDP growth last year. Lower taxes and lighter regulation, two Trump promises, would help this effort. Government spending has also been weak and here an infrastructure investment would be a big help. Finally, our country’s trade deficit has been an anchor holding down US GDP expansion.

With quite a few of our trading partners, the US has had for some time a trade deficit which hurts US economic growth. Already President Trump has set his eyes on Mexico and China to renegotiate trade deals to make them more balanced. This would not be a bad thing – but will most certainly upset the “status quo” and quite a few politicians. So we would suggest that investors not focus on the incendiary statements, the bombast, the “misdirection” and rather focus on the substance – corporate investment, government spending and trade negotiations to get a better sense of which way the US economy and our markets may go in the future.

The opinions expressed in this Commentary are those of Baldwin Investment Management, LLC.  These views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. The reported numbers enclosed are derived from sources believed to be reliable.  However, we cannot guarantee their accuracy.  Past performance does not guarantee future results. We recommend that you compare our statement with the statement that you receive from your custodian. A list of our Proxy voting procedures is available upon request.

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