Washington, DC -- (ReleaseWire) -- 01/25/2017 --BENNETT: For eighteen years, Jordan Goodman has worked as a journalist at Money, the foremost personal finance magazine in the U.S., and is the author of fourteen books, most recently The Ultimate Guide to Student Loans. He's also the host of the weekly national radio show called Money Answers, where he's been following Donald Trump and has become somewhat of an expert on our new president. Jordan, welcome to Financial Myth Busting.
GOODMAN: Great to be with you again, Dawn.
BENNETT: Jordan, Trump's inaugural address was provocative. From the beginning he stressed that his presidency would be a real break from the last eight years. Do you think Trump is going to give us the future that he presented to us during the campaign?
GOODMAN: Very much so. The inaugural speech was very much like his campaign speeches, actually. It did not have the usual soaring rhetoric that people are used to in these kind of things. It was "America first. Hire American. Buy American. Forgotten people." It was very much like his campaign speeches, and I think he's going to continue the same way, whether people like it or not. He was clearly speaking to his base, who loved it, and then all the people who showed up in Washington the next day did not love it, to put it mildly.
BENNETT: To me, the most memorable phrase was "American carnage," versus what these speeches are usually like. Usually they try to get Americans to associate with pride and dreams and prosperity and freedom. This just felt a little... off.
GOODMAN: Well, if you're in Chicago, there's a lot of carnage going on there. There are places in this country where that is appropriate and accurate. Not most of the country. We're not like Zimbabwe, killing each other all the time. Over all, crime rates are way down from what they have been in previous decades. Crime was up about four percent in 2016 over 2015, but 2015 was an all-time low. I think part of that's demographic. Younger people commit more crimes, and as our population gets older, we commit fewer crimes. That has nothing to do with Trump whatsoever. I think there are places, not just murders in Chicago, but all the terrorist things. The night club in Orlando, San Bernardino, I won't go through the whole list, but that's carnage as well. It's fresh in people's minds.
BENNETT: So, Trump is now the 45th President of the United States, and he's coming with an entirely new approach to running Washington, so as you stated, there's clearly a strongly divided opinion on whether this is going to be a good or bad thing. Where do you come down on this?
GOODMAN: I'm quite hopeful. I really am. He's a businessman, and it's going to be run like a business, which I think has certain advantages. It's the government, different from business, but getting regulations down... we're vastly over-regulated. The industry that you're in, the financial services industry, this fiduciary rule that's coming is a good example of massive over-regulation for a problem that didn't exist that much, and it's going to hurt a lot of people, both financial advisers and customers. I think that could be rolled back or eliminated. I think in the energy industry, we have a huge amount of regulations that are preventing drilling, environmental regulations and so on. I could go through a whole series of things. With Obamacare, 20 million more people have gotten insurance than had it before, but at a huge cost. People can't afford these premiums, which on average went up 25 percent on January 1st. Arizona, 116 percent. Many states over 50 percent. That's because of regulations. So, if you get regulations down, you're going to free up what John Meynard Keynes, the economist, used to call the "animal spirit." I think you're already seeing that, certainly, in the stock market, so that's why I'm hopeful.
BENNETT: Let's talk about the stock market. It certainly hasn't been a free market. It's controlled by the central banks or the Plunge Protection Team, you've heard it all. Something's just wrong with the market. That's actually been hurting our industry more. People have dropped out, mutual and hedge funds have closed, nobody can make money in this market and they haven't for a number of years.
GOODMAN: A lot of money has gone from actively managed to passively managed.
BENNETT: Is that one of the short term changes you think Trump is going to make? In order to take this market off remote control, it's going to have to be on its own, and certainly corporate earnings and revenues haven't been as strong as they were eight years ago, so I don't know what will happen at that point. That is going to affect American's pocket books.
GOODMAN: Very much so. We've had this rally, the DOW's been up about 8 percent since the election, which is one of the best gains between election and inauguration that we've had in quite a while. But, I think it's anticipating what's to come. If regulations come down, if corporate tax rates come down, if we repatriate a lot of the two and half trillion dollars sitting overseas and bring that back here, and corporations either invest it here or buy back stock or raise dividends, these are all positive for the U.S. economy, and that's what the stock market's been anticipating. There's going to be winners and losers, though. The winners avoid his Tweets and the losers get tweeted to death, whether it be a drug company or General Motors or Boeing or whoever it may be. In the Tweet market, you never know who's going to get hit next. Overall, if you get corporate earnings up, which I think all of his policies will do, that supports higher stock prices. We've been floating around 20,000 in the DOW for a while here, but I'm predicting we're going to end 2017 at about 23,000. I think we have a lot of room to go up.
BENNETT: You're more optimistic than I am, I've got to tell you. But, what about the downsides? There is a mixed bag, as with any presidency.
GOODMAN: What I'm most concerned with is trade wars. With Mexico, Japan, and China is the big one. He has very strong rhetoric, and maybe that's a bargaining ploy, and maybe it will work. Maybe we'll get better deals, maybe our trade deficit will come down with these countries, but I think the opposite could happen. If we don't get a deal we want, and he does put a 35 percent tariff on them, they're clearly going to retaliate and make it hard for American goods to go there as well. That's my biggest economic concern. Then politically, I'm concerned about wars. In the South China Sea, or if we move the embassy in Tel Aviv to Jerusalem and that causes a Middle East war. Those are the kind of things I'm most concerned about on the down side. He didn't get elected in China, so the Chinese aren't his constituency. So that's what I'm most concerned about is getting into trade wars.
BENNETT: He does own businesses that work in China, and has for a long time. It's not like he doesn't understand.
GOODMAN: Right, he does. But it's a posturing thing. And the same with Mexico. The peso has plummeted since Trump got in. Putting up the wall, and the Ford factory that was going to Mexico that's now staying. The Mexicans are really hurting, and he's been in office for two days. There's two ways to react to that if you're in Mexico. You can kind of give in and say, "Okay, we're getting hurt, let's work this out and find a better trade deal," or you could react against it and have another trade war. We buy about $50 billion more from Mexico than they buy from us. There's a big trade imbalance there. The president of Mexico is extremely unpopular in Mexico right now: he's got 10 percent approval ratings or something, because of the way he's handled it. It's very volatile. And the same thing in Europe. We had Brexit, which Trump very much supported. This year, we're going to have French elections, German elections, Dutch elections, and I may be wrong but I think the far right could win in all three. Which means in France, Marine Le Pen with the National Front as they call it. There's a similar right-wing group in Germany, and in the Netherlands a guy named Wilders. This could be following on Brexit, could be the end of the European Union. If Marine Le Pen comes in, she specifically says she will hold a referendum on whether France should stay in the EU or not. If she wins, it could be the same thing as what happened in Britain. Imagine France pulling out of the European Union.
BENNETT: Imagine many of them. I'm thinking that they're anticipating that, because after his "whatever it takes" threat four years ago, Mario Draghi is now saying that a country can leave the Eurozone, that's fine, but they have to settle their bill first.
GOODMAN: France would have a big bill. Or Greece. The disintegration of Europe as an economic bloc would have major implications world-wide. And it's possible. The refugee crisis. And they have incredibly high unemployment, and their economy is still quite weak in France and Spain. We would never put up with the unemployment rates they have over there. So there's a lot of very disaffected people, and to them the solution is very similar to what Trump's talking about: France first, Britain first, nationalistic. Kind of anti-globalist, and I think that's sweeping around the world right now.
BENNETT: I agree. Even German Chancellor Angela Merkel came out after Trump's inauguration speech came out and said it wasn't a speech, but a declaration of war. I think they're all very afraid, because our passive president from the past didn't care or didn't understand, where Trump does. Let's talk about his cabinet. Steve Mnuchin first. He's a former Goldman boss who's Trump's nominee to run the Treasury. He had a rocky confirmation hearing where he indicated support for raising the debt ceiling quickly and expanding the IRS. Is he really the kind of guy that's going to shake things up?
GOODMAN: In some ways. Expanding the IRS produces revenue for the government, which I think is something Trump would like. Who knows the exact number, but something like $300 or $400 billion isn't being collected because there aren't enough IRS agents out there. I think people should pay their taxes legitimately, I think that's a good use of the government actually, to make sure people pay their taxes. They know there's a huge underground economy that's not being taxed. I think Trump's all about creating revenue, so that's a good thing. And yes, the debt ceiling has to be raised. We can't default on the national debt a month into his presidency. It is what it is, we have to raise the debt ceiling. What he got into trouble with in his hearings was not his current policies but what he did during the financial crisis where his company, which was called OneWest, took over some incredibly bad defaulted loans and foreclosed on a lot of people. Those people shouldn't have been in houses in the first place, in many cases. They tried to do loan modifications, but that's what the rocky hearings were about, not his current situation.
BENNETT: You've written about trying to run Washington like a business, and we've spoken about it here. That always sounds good, but the issue is that government simply isn't the private sector. They don't hire the type of people that private enterprises hire, they're just a different group. How do you think some real-world business backgrounds will end up altering Washington, DC? He's bringing in a lot of billionaires who have built something from nothing.
GOODMAN: Dramatically. In ways we've never seen before. To have Rex Tillerson, the head of Exxon, at the State Department. He's the ultimate business man, and the idea is to have better business deals and better trade deals. They're going to do the same thing that Trump was doing in kind of bullying his way into better deals, whether it was threatening Boeing on Air Force One or Lockheed Martin on the F-35, all of his Cabinet people are going to do the same thing. The guy he has for trade minister with Japan in the 80s, and he's going to do the same thing with China. Wilbur Ross, who was the ultimate vulture capitalist, taking over destroyed businesses and bringing them back, is running the Commerce Department. They're all in Trump's mold, and we've had some business people but never that many, certainly not at the top like this. It's going to be very different, and maybe it's going to work spectacularly. There's a real upside here, Dawn, as well. Say all this works, say we get better deals, the economy grows at 4 to 5 percent, we're going to run out of workers.
BENNETT: And that would be a great problem to have, but you have to clean up the past eight years. How do you get from now to then? He's going to have to tear down some of these agencies to rebuild them. How does Trump do that with the debt crisis, a potential financial breakdown looming, wars, civil unrest, terror attacks and everything else?
GOODMAN: The solution is to cut down government. What he did by Executive Order, shutting down the National Endowment of the Arts and the Humanities, is small dollars, but it's symbolic that the government isn't going to be in a lot of operations that it was in before. That's dramatically different, we've never had anything like that. That was in his first day. The solution is growth. If the economy is growing, say 4 percent, and it's been less than 2 percent, that growth creates the revenue to get the debt down. We could even go into surplus, possibly. The deficit is now $400 billion, and when Obama came in it was $1.2 trillion, it's down a lot from where it was. Get the economy growing even more and you can start paying down the debt. It's conceivable.
BENNETT: As confidence is growing, there are still so many economic warning signs out there. The dramatic sell-off of Treasuries by foreign entities, even our own allies. Japan has been selling rapidly. It's as if they're seeing us heading into a trap that the American people don't see.
GOODMAN: I think they're doing it for other reasons. China and Japan are the biggest non-domestic holders of Treasuries. China's been trying to invest domestically, and Japan the same thing. I don't think it's a political statement, I think it's more that they need the money internally than they did in the past. The dollar has risen sharply since the election, and I think will continue, because the U.S. still looks like the best place to invest, certainly compared to Japan, which is dead and has deflation. China is slowing down. Europe is a mess, as we just talked about. Compared to the rest of the world, we look like a pretty good place to invest. That's why the dollar has been rising. Trump said earlier that the dollar should be weaker, but with the fundamentals he can't really stop it from rising. That's got positives, it means that when we buy things from overseas it's cheaper, but it's clearly got negatives as well. It's harder for our companies to export when the dollar is so strong. But I think the dollar is going to go higher, and I think interest rates are, as well. You talked about bonds getting hurt. I think they're going to get hurt a lot more.
BENNETT: Jordan, how would you invest in an environment like this? What are you saying to your listeners?
GOODMAN: In the short term, I think interest rates are going to go higher this year. I think it's dangerous to have your money in traditional fixed-income vehicles. Bonds, bond funds, or what I call bond surrogates, like utilities, real estate investment trusts, Master Limited Partnerships, because as interest rates rise, those are going to fall. They've already fallen sharply since the election, and I think they'll fall further. What I'm doing with my money are called Commercial Real Estate Income Funds. That's a way of earning 8 percent and not having any market fluctuation whatsoever. No commissions or fees of any kind, you can get monthly checks, and if you like you can have it reinvested as well. And that's because real estate is going to do quite well here. There's a website where people can find out about that, which is commercialrealestateincomefunds.com. What happens is they're lending money to high-quality commercial projects who use it to renovate their projects over the next year or so, and then when the projects are sold, fund shareholders actually get a piece of the property and they get a quarterly profit share, as well. If you're in the fixed-income area, I would avoid things like bonds, utilities, REITs and do something like this where you get a higher yield with no market fluctuation.
BENNETT: But there's always risks. The risk to that would be that, whatever our hopes that Trump will be bringing businesses back to the U.S., the commercial real estate wouldn't get leased. Correct?
GOODMAN: Well, this is not about leasing. You're not getting rental income. You're getting the interest from the builder/developers who are improving the properties. By the time they're leased, it's already been sold. I'll give you an example of a recent project. The guy had a big house in a university town, I think it was Boulder, and he was renting it to two students. He got a loan from the fund and he renovated the same house over a year to make it into four apartments, so four bathrooms, four kitchens, four doors. A year later, the value of the property had increased dramatically because the revenue had doubled, and he sold the property at a profit, and gave part of that profit to the fund. It's not about revenue. He was paying interest as the property was being renovated, and when it was completed he sold the property for a profit because the cash flow had doubled. That's an example.
BENNETT: What about geographically? There's a potential alliance between Russia and China, and Putin's very smart. He's not waiting to see what will happen with Trump. Is Russia a possibility, or India or Asia?
GOODMAN: I think India could do well, but China is just a massive bubble. I was over there recently and the amount of overbuilding is staggering. Not only residential apartments but factories and shopping malls and office buildings. It's outrageous. They were building not for people to occupy it, but to keep the workers working. So I think they're going to keep slowing down, and all that was done with debt. The amount of debt in China is way more than we have. I think in 2006 China had $3 trillion in debt and now they have $36 trillion in debt. Way more than we have, which is $20 trillion or so. I'm actually short China. There are some ETFs that go short China, so I would not be a Chinese investor. India, on the other hand, I think has a more capitalist view. I would not go into Russia, because I think it's just totally a rigged game there. I think the energy sector is going to do better, it already has with oil prices stabilized in the mid-$50s now. Domestic oil companies like EOG or companies like that would do well. And the other area I like would be bio-tech. I think the new guy he's going to bring at the FDA is going to approve drugs a lot faster and get them on the market. You could do the individual companies like Celgene, Biogen, or you could do the Exchange Traded Fund, the ETF, which is IBB, which is like 20 of the big bio-techs. I think that's an area that's going to do well going forward.
BENNETT: But of course short term, if we have some sort of market correction as thinks get fixed here, do you see this as a "buy now" or do it later?
GOODMAN: I'm never a market timer. Buy now
For over a quarter century, Dawn Bennett has been successfully guiding clients through the complexities of wealth management. Her unique vision and insight into market trends makes Bennett a much sought after expert resource with regular appearances on Fox News Channel, CNBC, Bloomberg TV, and MSNBC as well as being featured in Business Week, Fortune, The NY Times, The NY Sun, Washington Business Journal in addition to her highly regarded weekly talk radio program - Financial Mythbusting. Through prudent and thoughtful advice, Dawn Bennett has strived to consistently provide the highest quality of guidance.
About Dawn Bennett
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program called Financial Myth Busting http://www.financialmythbusting.com.
She discusses educational topics and events in the financial news, along with her thoughts on the economy, financial markets, investments, and more with her live guests, who have included rock legend Ted Nugent, as well as Steve Forbes and Grover Norquist. Listeners can call 855-884-DAWN a as well as take podcasts on the road and forums for interaction.
She can be reached on Twitter @DawnBennettFMB or on Facebook Financial Myth Busting with Dawn Bennett.