Trump Immigrant Order and Markets

Trump Immigrant Order and Markets
David R. Kotok
Cumberland, February 8, 2017


Note: This is a different perspective than mine, but I wanted to share it with readers for the purpose of debate and discussion – BR.


We received a large volume of email on the Trump immigration order debate. Views are about evenly divided for and against, with many passionate assertions and opinions. We are not running a blog; but, that said, the sheer number of responses has triggered this commentary. We do not expect to change anyone’s mind. We would, however, like to offer a few facts, with citations.

It is clear that the Trump order has affected a lot more than just 109 temporarily detained or inconvenienced travelers. And the effects of the order are estimated between 60,000 and 100,000 revoked visas depending on which government source is cited. The impacts of this executive order debate on the economy, the education system, on social disorder, and on geopolitical risk continue to grow.

Financial analyst Byron Callan, writing for the excellent Washington briefing service Capital Alpha, noted as follows:

“Iraq is the only country included in Trump’s Jan. 27 executive order on Muslim immigrants that is currently a U.S. defense customer. That country ordered 36 Lockheed Martin F-16s, of which ~8 remain in Lockheed Martin’s backlog. Iraqi pilots are being trained in Tucson, Arizona by the Arizona Air National Guard’s 162nd Wing, and there are weapons and parts sales to operate these combat jets. Iraq had taken delivery of 140 General Dynamics M1 tanks that were ordered in 2008 (though some of these were lost to ISIL) and that GD now supports. There have been plans since 2014 for another 175 valued at $2.4 billion, but that order has likely been on hold due to lower oil revenues and the immediate costs of Iraq’s battle with ISIL. If the current dispute over the Jan. 27 order extends to retaliatory measures by Iraq, such as barring U.S. citizens, the 2017 earnings impact on U.S. contractors would appear immaterial. There are broader factors that may need to be considered by defense investors, including whether Iraq diversifies its future defense suppliers away from the U.S., and how the offensive fares against ISIL.”

Here is another item from Capital Alpha:

“Iran announced on Jan. 28 that it was banning U.S. passport holders. In Dec. 2016, Boeing concluded a deal with Iran for 50 737s and 30 777s with deliveries spread over ten years starting in 2018. Also in December, Iran and Airbus concluded a deal for 46 A320s, 38 A330s and 16 A350 XWB aircraft – one of those aircraft (an A321) has already been delivered. The wide-body aircraft are powered by Rolls-Royce Trent engines, and the A320s are a mix of neo and ceo engines. The Boeing deal was probably going to receive more of the Trump Administration’s attention, and because of some U.S. content on Airbus aircraft, there may be a bit of leverage. However, if the stand-off with Iran and the U.S. persists, Boeing’s loss may be Airbus’s gain.”

On the issue of how the order was drafted and released, DHS Secretary John Kelly says that his department reviewed the order twice. He conceded that an exemption for residency visa holders emerged only after the order was signed. Kevin McAleenan of Customs and Border Protection said that communication with other agencies and the public “hasn’t been the best in the roll out of this process.” (Source: Bloomberg)

“Today’s immigration rhetoric wasn’t crafted by Donald Trump or his Breitbart consigliere, Steve Bannon, sitting in Trump Tower channeling the grievances of the white working class. Instead, they are part of an immigration text painstakingly assembled, brick by nativist brick, in Boston, by three Brahmin intellectuals, beginning in 1894. That’s when the trio founded the Immigration Restriction League, the equivalent of a modern-day think tank, just five years after all three had graduated from Harvard.” (Source: Boston Globe).

Regarding the political debate, we were criticized by some readers for being anti-Trump or pro-Democrat. That is not true. Some Democrats said, “We don’t do things like this; only Republicans behave this way.” Also not true. Sorry folks, American history is not pleasant reading on the subject of immigration and tolerance of immigrants. History reveals that both of our major political parties have been guilty of anti-immigrant, anti-religious, anti-ethnic behavior when it has suited them.

Trump’s style is boorish and offensive to many, but he is hardly alone among US presidents in addressing the substance of immigration issues. Style and substance are quite different. Here is a YouTube video of Bill Clinton in his 1995 State of the Union address. John Loewenberg sent it and said, “David, same concept, presented and implemented in a more rational manner.”

David Teat weighed in with this:

“Every president since Carter has placed temporary halts to immigrants from certain countries. This includes Carter, Reagan, both Bushes, Clinton and even Obama. Trump’s halt is temporary as well, 90–120 days. As of yesterday almost 1,000 visas have been issued to those coming from the seven countries that Trump has named, so those that have been more thoroughly vetted are getting in perhaps with some inconvenience. The seven countries named by Trump are also the seven countries that Obama listed as high terrorist risk countries.”

Robert Garcia sent this list:

“As the nation’s largest grassroots national security organization, ACT for America wholeheartedly commends President Trump for his actions to curb the influx of refugees from countries with significant terrorist activity.

“For too long, our nation has been weakened by the tyranny of political correctness, and as a result, the American people have paid the ultimate price. There is absolutely no rational reason for the United States of America to be blindly admitting individuals from countries with notable terrorist activity. Those who claim there is no evidence to suggest that refugees from these countries with terrorist activity pose no threat are at best, guilty of willful ignorance, and at worst, intentional deception. There is incontrovertible evidence that refugee populations have been infiltrated by sympathizers of the Islamic State, and have already carried out jihadist attacks against the Western world.

“Here are just a few of the recent refugee attacks on innocent Americans…

Somali refugee Abdul Razak Ali Artan went on a jihadi stabbing rampage at Ohio State; In 2016, an Iraqi refugee Omar Faraj Saeed Al Hardan was accused of planning to bomb a local mall in Texas. In September 2016, a Somali refugee named Dahir Adan went on a stabbing spree at a mall in St. Cloud, Minnesota. Somali refugee, Mohamed Osman Mohamed, was arrested for planning to blow up a Christmas tree lighting ceremony in Oregon back in 2010. In 2012, Abdullatif Ali Aldosary, an Iraqi refugee, bombed a Social Security Office in Arizona. Two Iraqi refugees were convicted for having aided Al-Qaeda in Iraq to kill American servicemen. These so called “refugees,” lied on their applications, and as proof that the screening process is ineffective, were allowed entry without issue. [Note: Both Boston Bombers were not refugees — they came from Chechnya, which was invaded by Russia in 1999; Chechnya is not on the banned country list].”

Thank you Robert. But we also learned that the strongest of Trump supporters in the White House, Kellyanne Conway, made up the story of one such terrorist incident.

Let’s end this discussion for now with a superbly written and very thoughtful historical review from George Friedman, who has given us permission to quote him liberally. We recommend that readers visit his website, to read his full commentary on this and related subjects. We thank George and Meredith Friedman for giving us permission to incorporate the lengthy excerpt below.

“As long as illegal immigration is permitted, the foundations of American culture are at risk.

“Last week, President Donald Trump temporarily blocked both ‘immigrants and nonimmigrants’ from seven predominantly Muslim countries from entering the United States. From the beginning of his presidential campaign he has spoken at various times and in a variety of ways of taking a step like this. Having done it, the action created uproar in part because it was done without adequate preparation, and in larger part, because it was done at all. The mutual recriminations over this particular act are of little consequence. What is important is to try to understand why the immigration issue is so sensitive. The uproar over Trump’s action is merely one of many to come, which also will be of little consequence.

“Trump has pointed to two very different patterns. One is immigration to the U.S. by Muslims. The other is illegal Mexican immigration. Both resonated with Trump’s supporters. It is interesting to consider other immigration patterns that have not become an issue. One is immigration to the U.S. from India. The other is immigration from China and other parts of Asia. Both have been massive movements since about 1970, and both have had substantial social consequences.

“Indian migration to the U.S. has been one of the most successful in American history in that it has been among the least disruptive, has generated minimal hostility and has been extraordinarily successful economically. Today, Indian-Americans are the wealthiest single ethnic group in the United States. They are hardly invisible, as they are present in all professions and as corporate executives.

“Chinese and East Asian immigration is more complex. Chinese immigrants began coming to the U.S. in the mid-19th century. They came as laborers supplied by Chinese contractors and were crucial in building American railroads alongside – and in competition with – Irish immigrants. The Chinese were exploited and brutalized and didn’t get citizenship. But after the 1970s, their story matched the Indians’ – the Chinese were not quite as wealthy, but they did well.

“About 3.7 million people of Indian descent live in the U.S., many of them second-generation immigrants. About 4 million people of Chinese descent live in the U.S., with somewhat more complex backgrounds. There also are 3.3 million Muslims and 35.8 million people of Mexican descent, including an estimated 5.2 million of the 11 million who are in the U.S. illegally, according to Pew Research Center.

“If there was a strain of intense, anti-immigrant or racist sentiment in the United States, it would be directed against Indians and Chinese just as much as Muslims and Mexicans. There would also be a persistent strain from previous Irish immigration in the 19th century, and of Italians, Jews and other Eastern and Southern Europeans who flooded into the United States between 1880 and 1920. To the extent that racism exists against any of these groups, the anti-immigration fervor is marginal; century-old immigrant cohorts have become mainstream. They are not the ones marginalized – their detractors are.

“It is the example of the Chinese and the Indians that blows up the theory that Americans have an overarching anti-immigrant sensibility that Trump is tapping into. It also raises serious doubts that Trump is anti-immigrant. I have searched and may have missed it, but I didn’t find that Trump made anti-Chinese or anti-Indian statements, as opposed to anti-Muslim and anti-Mexican statements. If it were classic anti-immigrant sentiment, the rage would be against Indian immigrants who have emerged as a powerful and wealthy ethnic group in a startlingly short time. But there is minimally detectable hostility toward them, which means that the immigration situation in the United States is far more complex than it seems.

“The issue is not whether Trump and his followers are generally anti-immigrant. The question is why they are so hostile toward Muslims, who roughly total the same number as the Chinese and Indians, and to Mexicans, who vastly outnumber these groups. I wish the explanation were more complex, but it is actually quite simple in both cases.”

“The Mexican situation is different. There was a war, but it was long ago, and fear of war is not the driving issue. Rather, the driving issue is illegal Mexican immigration. There is a great deal of homage paid to the rule of law. Congress passed a law specifying the mechanics of legal migration. Some 5 million Mexicans broke the law. Whether this has harmed the U.S. economy or not, the indifference to enforcing the law by people who are normally most insistent on the rule of law has created a sense of hypocrisy. At the same time that the middle and lower-middle classes feel as though their interests are being ignored, the presentation of illegal aliens as “undocumented immigrants” reveals a linguistic maneuver. The ‘illegals’ are transformed into the merely ‘undocumented,’ implying a minor bureaucratic foul-up.

“The anger is not only directed at the Mexicans. It is part of the rage against those living in the bubble, who present themselves as humanitarians, but who will encounter the illegal aliens, if at all, as their servants. And rightly or wrongly, some suspect that open support for breaking the law is designed to bring cheap labor to support the lifestyles of the wealthy at the expense of the declining middle class. The fact that the well-to-do tend to be defenders of illegal aliens while also demanding the rule of law increases suspicions.

“There is a somewhat deeper layer. As long as illegal immigration is permitted, the foundations of American culture are at risk. It is not simply immigration, but the illegality that is frightening, because it not only can’t be controlled, but also the law is under attack by those who claim to uphold it. The fear that a person’s livelihood is being undermined and his cultural foundation is being overwhelmed creates deep fear of the intentions of the more powerful.

“The issue appears to have little to do with NAFTA and other economic concerns. The U.S. and China have equally intense economic issues, but there is minimal tension over Chinese immigration. The economic and immigration issues seem only tenuously connected. (Source)

Dear readers, we thank you for your emails, pro and con. And we see the passion in all the arguments on all sides. We also see so many jumps to wrong conclusions based on incomplete details or misinformation. Conway’s citing an incident that did not happen is an example of misinformation. The narrowing of pro-immigration attacks to Trump and the Republicans without acknowledging the words and actions of President Clinton and other presidents is another example.

The fact is, we face a substantive change, and we do not know what the outcome will be. We do know that financial markets have moved on from this tussle over immigration and are celebrating tax cuts and deregulation. It is too soon to see any substantial economic consequences from the immigration order, but we expect them to reveal themselves over the next year or two.

Meanwhile, we are in the business of managing assets, and politics impact that business whether we like it or not. We still have a cash reserve, but it is smaller than before, and we are mostly back in the markets and watching the rally extend itself. Our positions could change at any time. We will watch the judicial fight play out while we look for market and economic fall out from the Immigrant order.

David R. Kotok, Chairman and Chief Investment Officer
February 8, 2017

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