President Trump Determined to Dismantle Dodd-Frank

During the presidential campaign, candidate Donald Trump often criticized Wall Street and the banking system for its role in America’s financial difficulties.

On Friday, President Trump did an about-face of sorts. He embraced some of Wall Street’s brightest luminaries and did something that the financial industry has wanted for nearly seven years.

The president signed executive orders that begin the process of rolling back financial industry regulations.

With industry leaders such as Larry Fink, CEO of BlackRock (BLK), and Jamie Dimon, CEO of JPMorgan (JPM), gathered around him, Trump proudly put his signature on executive orders designed to dismantle Dodd-Frank.

The 2010 law was put in place as a response to the 2008 financial crisis. But critics say it stifles bank activity, and tightens bank lending.

Now, the Trump administration has essentially laid out at least the beginnings of a framework that’s aimed at undoing those regulations. The executive orders instruct heads of regulatory agencies to report back to him within 120 days with suggestions on ways to change existing financial regulations.

As you might expect, banking and financial stocks vaulted higher on the news. Now the question is who will likely benefit most, and what does that mean for investors?

Despite the rise in large-cap financial stocks Friday (and since Election Day), at least one group of analysts says that any banking deregulation is “no panacea for big banks.”

That’s the conclusion from sector analysts at Morningstar. In an article on the company’s website, Morningstar analysts offered up the following assessment of the Trump action:

We see Trump’s plans as an opening salvo in an effort to ease the regulatory burden on the nation’s banks. However, efforts to repeal or replace the law in its entirety will be far more difficult, and we don’t expect significant boosts to banks’ profitability in the near future as a result of the rule review alone.

I agree with the assessment that the “near future” isn’t likely to see a jump in bank bottom lines. After all, Washington’s wheels grind slowly, and any rewrite of the Dodd-Frank law will take time.

It also will cost the president some significant amount of political capital.

Yet that doesn’t mean financial stocks won’t continue to trade higher based on the expectation of a lightened regulatory burden.

After all, think about the run higher in not only financials, but in the major market indices nearly across the board since Election Day.

The Financial SPDR (XLF) is up 13.5% since the U.S. election.

Sure, the economic data has improved over the past couple of months (albeit slightly). But that’s not the reason for the buying.

The reason for the buying is all about the great expectations of growth that might be engineered by the Trump policies.

A rollback of Dodd-Frank and other financial industry regulations is a step in the right direction in terms of making that growth a reality. But there’s still a long way to go before we can actually start seeing corporate bottom lines benefit.

The same is true for the all-important corporate tax reform proposals.

Wall Street would love to see corporate taxes go to 20% from 35%. In fact, the Trump administration’s goal on this front is far more important than rewriting Dodd-Frank.

Yet so far, we’ve seen mixed signals on corporate tax reform, at least in terms of urgency.

Rumblings out of Washington point to as far away as 2018 for any real progress on corporate tax reform. And that’s not good news for bulls who hope the 2017 rally will continue.

So, is Dodd-Frank reform a good thing, and will it juice up the economy?

Generally, I say yes, but it depends on how the law is amended. It depends whether a rewrite helps banks lend more freely.

If lending does get easier, and banks are able to open up their vaults to borrowers, then that will be good for American business. The same goes for the economy at large, for banking and financial stocks — and, of course, for investors with exposure to these sectors.

***

What do you think financial industry regulatory rollback? Do you think it’s just what the doctor ordered for the economy … or does it open the door to another banking crisis? Let me know your thoughts by leaving me a comment on our website or by sending me an e-mail.

***

Super Bowl LI saw the Atlanta Falcons and New England Patriots tied at 28-28 when the clock ran out. This makes last night’s big game the first in history to go into overtime. The Patriots won 34-28, their fifth time taking home the Vince Lombardi trophy.

If you go by the Super Bowl Indicator, this means stocks could drop in 2017. In the past 50 years, when an old AFL team (now the AFC) won, the market closed in the red about 80% of the time. And this year, the Patriots represented the AFC.

As if on cue, markets opened — and mostly stayed — in the red today. The S&P 500 closed 5 points lower, or -0.2%, in Monday’s session.

Since a lot of traders seemed to take it easy today after a very exciting night, here are some game-related tidbits …

• More reasons why last night’s game was historic: No team has come back from greater-than-10-point deficit before. (The Falcons were ahead by as much as 25 points early in the game.) Plus, Tom Brady had more completions, pass attempts and passing yards than anyone else in Super Bowl history.

• The game was the best metered rating for Fox, although Nielsen ratings show this Super Bowl was slightly less-watched than the 2016 event, which attracted some 111.9 million viewers. The 2015 event (the last time the Pats played) attracted a record 114.4 million viewers, and 112.2 million watched the 2014 event. Nielsen says the 2017 game drew in 111.3 million viewers, with 117.5 million tuning in for Lady Gaga’s halftime show and 117.7 million tuning in to watch the final moments of the game.

• Some recent sportsball survey results: Two-thirds of Americans have a favorite sports team. And nearly 40% of Americans say football is their favorite sport to watch. Fifty percent of Americans say that a higher power rewards devout athletes, while 25% believe that a higher power has a role in determining the final score. As for politics, 58% of Americans say they aren’t bothered when pro athletes make public statements about it, but 40% are bothered by athletes who take a public position on a political topic. (PRRI.org)

• We may never know what was in the Tiffany & Co. (TIF) blue box that Melania Trump gave Michelle Obama on Inauguration Day. But the luxury jeweler’s flagship Fifth Avenue store, which is on the same block as Trump Tower, saw holiday sales fall 14% in part due to “post-election traffic disruptions.” This famed location generates 8% of the company’s sales. Total sales for the company were down 4%. TIF shares fell 2.5% today.

• Executive revolving doors. TIF just saw its CEO step down, not long after its CFO and head designer both left the company. Ralph Lauren (RL) also just saw its CEO step down last week due to creative differences with the famous founder himself. Five other senior executives at RL have also reportedly left in recent months. RL shares gained 0.5% today, after falling more than 12% to a six-year low on Thursday.

• Gold traded at a three-month high (+11.3 to $1,232) on concerns that President Trump’s economic concern among traders. Bullion prices are up 7% this year, and the SPDR Gold Trust (GLD) is in its longest stretch of gains (four days) since October.

Good luck and happy investing,

Brad Hoppmann
Publisher
Uncommon Wisdom Daily

Your thoughts on “President Trump Determined to Dismantle Dodd-Frank”

  1. Also, Dodd-frank did do some good:
    – Credit card and lending companies required to clearly state interest rates, fees, etc. Positive.

  2. – Glass Stegall act should be reinstated.
    – Too big to fail is ridiculous. Don’t use taxpayer dollars to socialize losses while privatizing gains.
    – Get over the TARP bailout. It was wrongheaded but the decision was made at the time to do this.
    – None of the people cited (heads of banks) should go to jail because they didnt actually break the law.

  3. Phil Gramm the guy that pushed through the Bill that destroyed Glass Segal which protected us from the big banks gambling with our savings for over 64 years had his wife Wendy assist building the Dodd Frank Banking Regulation law which was a political excuse to do something so BANKS WOULD NOT HAVE TO BE BAILED OUT BY THE TAXPAYER AGAIN. This set of regulations did nothing to reform the SEC, US TREASURY, THE FED or THE RATING AGENCIES who all contributed to the 2008-2009 crisis and transferred over $ 3 trillion of TARP and FED. FUNDS to the big banks and AIG. Had Obama wanted to drain the swamp he would have brought charges against HANK PAULSON, JAMIE DIMON, GOLDMAN SACKS, COUNTRYWIDE FIN., AIG, GLEN HUBBARD, BEN BERNANKE, DICK FULD, MOODYS, AND OTHERS guilty of fraud and theft. This law did not stop investment banks from trading in derivatives like CDOs as they are today. Unless Trump truly drains the swamp and passes the Glass Seagal again there will be another bailout of the banks and they will double up in size

  4. If Jamie Dimon is involved watch out – he sure watches out for himself. Big buddy of Obama and wears presidential seal cuff links to prove it.

  5. So far the comments haven’t come from the Wallstreeters,since almost all support regulation to prevent another 2008 catastrophe or spliting the huge financial institutions so they can’t gamble with depositors $ via games such as derivatives.The banks and investors must be responsible for losses they have caused,not the American public.

  6. gaffgolf, I would like to add that whereas the unlimited layers of derivative “insurance” led to unlimited risk and unlimited trading volume there was also the accompanying fees. These fees had to be extracted from somewhere and that somewhere was the bottom customer which simply reduces income for the investor.

  7. Dear President Trump,
    The financial disaster that grew over years and finally crashed in 2008 was due to Wall Street GREED and poor SEC regulation enforcement. About 2,500 people on Wall Street & in DC (Banksters & SEC Regulators) screwed over 300+ Million Americans!!!!! Just read the Commission Findings led by Phil Angelides confirming this and the fact that it should not have happened—–had the regulators done their job. Dodd-Frank has been advertised to protect the American taxpayer against the “Too Big To Fail” argument in the future. However, the financial institutions succeeded in having it “watered down” during the actual writing of the law after initial Dodd & Frank legislation was originally drafted & passed.

    This particularly occurred with regard to promised improvement in the “control & transparency” regarding derivative transactions—–especially those which are designed to circumvent existing laws & precautions in various industries. For example, regulated insurance companies operating in the U.S. such as AIG have regulated capital & liquidity requirements that limit the size of insurance policies they can issue to insure debt default. However, since derivatives are outside of the regulatory environment, the credit default swap derivative was created to avoid these capital/liquidity controls. Literally about anybody or any entity could issue a credit default swap without having the capital and/or more importantly the liquidity to pay off upon default. AIG was an active player in both regulated debt insurance and the issuance of huge credit default swaps which brought them down along with most of the former investment banks on Wall Street. The main problem was that they could do these crazy deals as derivatives with no regulatory control but then settled them in our regulated American (so called safe) banking system in real dollars!! If you want to avoid regulatory restraints meant to protect the American bank depositor/taxpayer then settle your transactions outside our regulated banking system—-perhaps in Bitcoin or some other type of internet currency!!!

    Never again should the American taxpayer (and our National Debt) be burdened by the excessive greed of Wall Street. All derivatives must be reviewed and those like credit default swaps that are designed to avoid existing financial safety regulations and/or regulatory control either eliminated or settled outside the regulated American banking system. If this means Wall Street losing this business to London or Frankfurt or Paris or Hong Kong or Beijing than SO BE IT!!! Never again should the unbridled greed of so few affect the financial lives of Hundreds of Millions Americans (and Billions Around The Entire World!!!)

  8. You should start with the real problem. The problem is that the USD as a reserve currency is ending. The international reach of banks, near instant electronic settlements, massive fake loans, and the vastly inflated national currencies all render any absolute need for a reserve currency, therefore Trump must a) deflate the USD slowly we hope, the easiest is by fiddling with the derivatives market, b) squeeze the Yuan upwards with a simple trade war and a lot of rhetoric, c) help China competitors such as Vietnam, India, Pakistan, Bangladesh, d) bring Russia back into the European fold especially as their energy provider. e) manage the border for illegal workers f) open the investment market to public utilities. We have spent to much time trying to keep Russia out when we should have kept them close. We must also force China into the same demographic mess that we are in and hope that a Chinese Middle class will blunt the last of any socialist feelings. These are not cures for massive debt but it could change the trend line. The real cure is still in investment in production which must be in North America. That new industrial state will lead us to a home made New World Order.

  9. The financial disaster of 2008 was due to deregulation which allowed for the Wild West of the financial arena. There are rules and regulations in all parts of life because they are needed. We accept traffic rules, we raise our children with rules and morals, there are rules for obtaining a college degree, and the list goes on. Why do the banks, private equity outfits, mortgage companies, etc. think they should be exempt from regulation? If they are making fewer loans nowadays, maybe it’s because they should be careful who they loan to.

  10. Brad,
    The concern right off the top is: are the Banking Elite trying to co-opt Trump by getting him to relax regulations, which would bring us back to the environment that lead to immoral and unethical lending, bond rating, and mortgage backed derivative creation or, does he see banking de-regulation being key to kickstart the economy. The MAJOR problem is the world is ALREADY AWASH IN MASSIVE AMOUNTS DEBT and at this point, you are simply pushing on a string if you believe that lowering interest rates and relaxing lending standards is going to work….We have a major capital market correction coming right around the corner regardless of what Trump decides to do with banking regulation. In other words, the cake is already baked! The MASSIVE DEBT is ALREADY ON SITE!

  11. Based on the multi-trillion dollar deficit that we are facing in our economy, I don’t think that banks should have freedom to create more financial chaos than we had eight years ago. If they go back to their old tricks creating derivatives and bamboozling the public, the only people left standing at the end will be the 1%. On the other hand, a two-year delay in making those changes might mitigate the effect of bank exuberance. I think we need to be very careful and painstakingly slow about how we relieve bank restrictions.

  12. While easing Dodd-Frank may encourage banks to lend more money, I’m not sure that’s necessarily what we want. Aren’t liar loans and home loans to anyone with a pulse, regardless of whether they could pay it back what got us into the problems we’re still struggling to free ourselves from?

    Part of the problem is that there just aren’t enough viable investments to warrant the risk. If there were good options we wouldn’t have corporations sitting on trillions of dollars in cash earning a pittance. They’d be investing their hordes to earn even more. Reducing regulations to encourage lending when the rate of return isn’t there is a recipe for disaster.

  13. Why should the big banks be able to have trading desks and other activities that put customer and taxpayer money at risk?

    I do hope they keep the portion of Dodd/Frank that applies to the “fiduciary” rule.
    Investment advisers should show clients all alternatives and not push their own high priced stuff. I know from experience, and when I figured this out, moved all my money to a reputable broker and became a self directed investor. Best move I ever made.

  14. By all means dismantle Dodd-Frank. But I strongly believe the mega-financial institutions should be broken up. Banks should not be under the same corporate umbrella as trading institutions. Let these firms and their shareholders be responsible from losses from trading deritives and other risky ventures – not taxpayers!

  15. o thank god its like being a criminal being a loan officer . Hail Trump on the front !!

  16. Trump claims that regulations cost banks “hundreds of billions of dollars” every year. Since he didn’t give an exact figure, let’s say $250 billion. Considering that the GDP of the entire USA is about $5 trillion a year, that would mean that 5% of the GDP is being spent just on bank regulations. That sounds pretty implausible to me.

    The Web site for Americans for Tax Reform claim that in the first six years after Dodd-Frank, banks spent a total of $40 billion on the D-F regulations. That’s about $6.5 billion a year. Which is right?

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